Marlowe Sign Co.: Renewal Shock and an ICHRA Proposal

Full-time versus part-time is a recognized employee class, so carving out the 19 full-timers is permissible in principle, but several conditions must be met:

• Written plan terms defining the class precisely (by hours, not by job title or by picking individuals). A class cannot be defined to favor the owner or to exclude the sick.
• Uniform terms within the class. Every full-timer gets the same $7,200. She may not vary the amount by age, health, or salary.
• No duplicate offer. Employees offered a traditional group plan in the same class may not also be offered the ICHRA. Since the group plan is being dropped altogether, that is satisfied, but a mid-year or partial rollout would not be.
• Minimum class size. Confirm the carved-out class meets the rule (generally at least 10 employees for an employer under 100). The 6-person part-time group would not qualify on its own.
• Opt-out and substantiation. Employees must be able to waive the ICHRA and must prove they have individual coverage; the HRA can only reimburse substantiated premiums.
• 90-day notice with the required content, plus COBRA and special-enrollment handling.

Her statement to two employees is a communication risk: tell her to stop making promises until the plan document and notice are final.

Run the numbers first. Renewal premium is about $11,979 per single; at 70% the employer pays roughly $8,385 and the employee about $3,594. The ICHRA costs Denise $7,200 - a saving of about $1,185 per full-timer, or roughly $22,500 a year. So there is employer savings, but it is not free money.

The individual market is age-rated up to 3:1. The employer's uniform $600 buys a 30-year-old most or all of a benchmark silver plan and a 60-year-old perhaps half of one. In a group plan, the young subsidize the old; an ICHRA removes that subsidy and hands the difference to the oldest employees.

Premium tax credits are the second variable. Credits disappear if the ICHRA is "affordable" - the employee's required contribution for self-only benchmark silver must exceed roughly 9% of household income, a figure Denise cannot know and must not promise. For employees near the threshold, a few hundred dollars of income or a slightly richer ICHRA changes the answer completely.

The employee on the $480 specialty drug faces the sharpest risk: a new formulary, prior authorization, a deductible reset, and a narrower network. For the four oldest employees, apply the test individually before recommending anything.

Denise's assumption is wrong as a blanket statement. Some will gain, some will pay more for worse coverage.

Recommend that Denise model the change employee by employee before committing, and consider this sequence:

1. Price the alternatives to dropping coverage. Raising the deductible to an HSA-qualified plan with an employer HSA contribution often captures much of the renewal increase while preserving group risk-spreading and the network.
2. If she proceeds with an ICHRA, keep it class-based and consider a partial approach (group plan retained for one class, ICHRA for another) rather than an all-or-nothing switch.
3. Do not set the contribution as a round $600. Set it against the actual lowest-cost silver premium for the oldest employees, and budget for the possibility of a higher employer cost there.

Before January 1 she must have: a written plan document defining the class; the 90-day notice delivered with the required content; an opt-out and substantiation process; the affordability determination documented with employee attestations of household income; COBRA notices; and a corrected message to the two employees she already told.

Your role is to put the individual comparison in writing and let her decide with the numbers in front of her, not to sell the concept.