How to Group Employees for Health Coverage While Staying Compliant

You don't have to give every employee the same health plan. You can split your team into groups (called classes) and give each group different coverage, a different waiting period, or a different employer contribution. Federal law limits how you draw those lines. Reference material: https://webapps.dol.gov/elaws/ebsa/health/employer/1D.asp

The rule

Group employees by what they do at your company. Never by anything to do with their health.

Health covers more than most owners expect: current and past medical conditions, mental health, how much someone has cost the plan, recent doctor visits, genetic test results, disability, risky hobbies like motorcycling or skiing, and injuries from domestic violence.

Two conditions come with it. The group has to already exist somewhere else in your business, not just on your insurance paperwork. And whatever you decide applies to everyone in the group, with no individual exceptions.

Do

Full-time vs. part-time. "Anyone at 30+ hours is eligible." Use the same hours threshold you already use for scheduling and PTO.

Location. Your Columbus shop on one plan, your Austin shop on another. Different states, different carriers and networks.

Length of service. "Coverage starts the first of the month after 60 days." Same 60 days for every new hire.

Job type. Office staff on the richer plan, field crews on the base plan, if those groups already differ in pay, duties, and management.

Union vs. non-union. Standard and permitted.

Employee vs. family. Paying 100% of the employee's premium and 50% for a spouse is fine. None of it touches health.

Don't

Reclassify someone who got sick. Your office manager is diagnosed with cancer, so you cut her to 29 hours and call her part-time. This is the clearest violation there is.

Charge one person more than their group. An extra $150 a month from the warehouse lead with diabetes. Everyone in a class pays the same rate.

Invent a group. A "Tier 2 Associate" class with no different pay, title, or duties, which happens to hold your three most expensive employees.

Screen for health. Health questionnaires used to decide who gets in or what they pay. Not allowed in any form.

Exclude risky activities. Motorcycle injury exclusions, or higher rates for skiers. These count as health factors.

Do favors. Waiving the waiting period for one key hire while everyone else waits. Good intentions still break the class.

Check each group before you finalize

1. Does this group already exist in payroll, on the org chart, or in the handbook?

2. Can I explain why it exists without mentioning anyone's health?

3. Would its makeup change if one employee got sick or got better? If yes, stop.

Yes, yes, no means you're on solid ground.

The one exception in your favor

You can be more generous to someone with a health problem. Waiving a waiting period or covering more of the premium for an employee with a disability is permitted. The rule only stops you from penalizing people for their health.

What this doesn't cover

Other rules may also apply to your class structure, including separate testing for self-funded and level-funded plans, a much narrower set of allowed classes if you use an ICHRA, and employer mandate rules once you hit 50 full-time employees. Talk to your benefits team before you finalize. Fixing this on the front end is far cheaper than unwinding it later.

General information, not legal advice.