Retiree coverage follows different rules from active employee coverage, so retirees need their own review.
Retirees often have Medicare or different plan rules, and public employers have separate retiree provisions. Handle retirees as a separate question before including them in an ICHRA design.
What to review for retirees.
Medicare Changes the Picture
Medicare enrollment affects what coverage an allowance can reimburse. Counsel should confirm the treatment.
Keep Retirees Separate
Design the active employee ICHRA first. Add retirees only after separate review.
Retiree-Only Arrangements
Some employers use a separate retiree arrangement instead of folding retirees into the main plan.
Public Employers
Public Act 152 treats retiree benefits separately from active employee benefits.
Existing Promises
Check handbooks, agreements and prior communications for promises about retiree coverage.
Cost and Liability
Retiree coverage can create long-term cost. Model it before committing.
Retirees and Medicare: What the Rules Say
Retirees raise two questions: which class they are in, and how an allowance works once Medicare enters the picture.
The class rules
A former employee stays in the class he or she belonged to just before separation. When an employee’s employment ends, the plan either forfeits the remaining amounts or lets the participant permanently opt out. A sponsor cannot offer one class a choice between the ICHRA and a group plan.
Source: 26 CFR 54.9802-4(c)(4) and (d).
Medicare and the allowance
| Situation | What the rule or guidance says |
|---|---|
| Retiree or employee enrolled in Medicare Part A and Part B, or in Part C | The ICHRA can be integrated with that coverage; the references to individual coverage are read to include it |
| Retiree with Part D only | Does not qualify as the coverage that makes someone eligible, per a compliance guide |
| Any person enrolled in Medicare | The notice must say Medicare enrollment makes the person ineligible for the premium tax credit |
| Employer offers an incentive to a Medicare beneficiary to skip or drop a group plan that is primary to Medicare | Prohibited, with a civil money penalty per violation |
Sources: 26 CFR 54.9802-4(e) and (c)(6)(ii)(C); 42 CFR 411.103; and HUB International compliance bulletin for the Part D point. Medicare eligibility is not itself a permitted class.
Why this needs counsel
The Medicare Secondary Payer rules also bar misleading information that induces a Medicare-entitled person to reject an employer plan. Whether a retiree allowance is a replacement for a group plan or a separate benefit, and how each affects Medicare, changes the answer. Settle the design with counsel and a Medicare adviser before the notice goes out.
Source: 42 CFR 411.108(a)(9).
The questions employers ask about retirees and an ICHRA.
Can retirees be in an ICHRA?
Possibly, but retiree coverage follows different rules. Counsel should review before retirees are included.
What about retirees on Medicare?
Medicare enrollment affects what coverage an allowance can reimburse, so it needs separate review.
Does Public Act 152 cover retirees?
Treasury guidance treats retiree benefits separately from the active employee limits. Confirm with counsel.
Are there prior promises to honor?
Check handbooks, agreements and past communications. Some promises are binding.
Can I use a different arrangement for retirees?
Many employers do. A retiree-only arrangement has its own rules.
Should retirees wait until after the active design?
Usually. Settle the active employee design first and handle retirees as a separate project.
Who reviews retiree questions?
We bring in counsel on every retiree question.
General information about individual coverage HRAs, not legal or tax advice. Plan-specific questions belong with ERISA counsel and your tax advisor, and we will bring them in.
Where these details come from.
This page summarizes public guidance reviewed in October 2026. Rules change, so confirm current requirements with counsel.
CMS: Individual Coverage HRAs →
U.S. Department of Labor: Employee Benefits Security Administration →
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