The qualified small employer health reimbursement arrangement (QSEHRA) and the individual coverage health reimbursement arrangement (ICHRA) are two health benefits plans uniquely suited for small businesses. Both of them allow companies to set allowances for their employees to use on health insurance policies and other medical expenses.
However, while they perform similar functions, they operate differently. The table below outlines the main practical differences between the two benefits and which option is best for certain company goals.
|
Feature |
QSEHRA |
ICHRA |
Group Coverage HRA |
|
Business size restrictions |
Limited to businesses with fewer than 50 FTE employees |
None |
None |
|
Allowance amount restrictions |
Limited to $5,250 for self-only employees and $10,600 for employees with a family in 2020. Businesses cannot give different employees different allowance amounts based on criteria other than family status. |
None |
No minimum or maximum contribution requirements. Businesses can give different employees different allowance amounts based on job-based criteria. |
|
Group health policy requirements |
Can’t be offered with a group health policy |
Can be offered with a group health policy, but employees cannot have a choice between the group policy and the HRA. |
Must be offered with a group health policy |
|
Individual health policies permitted |
Yes |
Yes; in fact, they're required for participation in the HRA. |
No |
|
Premium tax credit coordination requirements |
Employees must reduce their premium tax credit by the amount of their HRA allowance. |
Employees cannot collect premium tax credits and participate in the ICHRA. However, if the ICHRA allowance is considered unaffordable, employees may waive the HRA and collect the credits. |
N/A. These HRAs can’t reimburse employees for individual premiums. |
|
Annual rollover permitted |
Yes |
Yes |
Yes |
|
Medical expenses available for reimbursement |
Any or all items listed in IRS Publication 502 |
Any or all items listed in IRS Publication 502 |
Any or all items listed in IRS Publication 502 with the exception of individual insurance premiums |
|
Employee eligibility guidelines |
All full-time employees are eligible. Businesses can decide on part-time employee eligibility. |
Businesses can decide on eligibility based on 11 different employee classes. |
None |
A1 HVAC Company wants to offer a health benefit to its employees for the first time, but doesn’t want to deal with the headache and cost of group health insurance.
A1 has 10 employees:
The company has a limited budget for benefits, but still wants to provide a valuable benefit to all its employees. Robin decides to distinguish allowances by family status, offering $400 per month for employees with families and $200 per month for single employees.
Three of A1’s employees qualify for premium tax credits, one is on a health care sharing ministry plan, and three are on their spouse’s insurance. The others are planning on buying individual health insurance policies with their allowance.
(See a comparison below the chart)
| Name | Position | Family status | Qualify for PTC? | Insurance status | Part time vs. full time |
| Robin* | Owner | N/A | N/A | N/A | N/A |
| Debbie | Office support | Has a family | No | Spouse’s insurance | Part time |
| Kevin | Office support | Has a family | No | Spouse’s insurance | Part time |
| Terry | Salesperson | Single | No | Uninsured | Full time |
| Rafael | Salesperson | Single | No | Uninsured | Full time |
| Ida | Installation tech | Has a family | No | Health care sharing ministry | Full time |
| Adrian | Installation tech | Has a family | No | Spouse’s insurance | Full time |
| Raymond | Installation tech | Single | Yes | Uninsured | Part time |
| Hannah | Installation tech | Single | Yes | Uninsured | Part time |
| Lee | Installation tech | Single | Yes | Individual insurance policy | Part time |
*Because A1 files as an S corp, Robin as owner is ineligible to participate in either a QSEHRA or an ICHRA. For more information, see our business owner eligibility article.
Allowance: Robin can differentiate employee allowances by family status, so employees with families will receive $400 monthly and single employees will receive $200 monthly. Robin chooses to offer the QSEHRA to part-time as well as full-time employees, knowing the allowances must be equivalent.
Employee eligibility: All employees except Robin can participate.
Reimbursement rules: Ida cannot use her QSEHRA allowance to pay her health care sharing ministry dues, but she is free to use it on medical expenses. Similarly, the employees on spouses’ plans cannot use their allowance on that premium, but can use it for expenses. Terry, Rafael, Raymond, and Hannah will be able to buy new policies with their allowance, and Lee can now use his on his existing premium.
Premium tax credits: Raymond, Hannah, and Lee all qualify for $150 in premium tax credits per month. Because their QSEHRA allowance is $200, their premium tax credits are reduced to $0.
Company monthly limit: $2600
Allowance: A1 can still offer $400 to employees with families and $200 to employees who are single regardless of part-time status.
Employee eligibility: Debbie, Kevin, Ida, and Adrian, because they don’t have individual insurance plans, are ineligible to participate in the ICHRA. They have 60 days to cancel their existing policies if they choose to go for individual policies. Those on spouse’s plans decide to stay, but Ida decides to leave her health care sharing ministry. Terry, Rafael, Raymond, and Hannah will need to purchase individual insurance policies to be able to participate, and they will also have 60 days to do so. Lee is good to go and can participate immediately.
Reimbursement rules: A1’s ICHRA reimburses individual health insurance policy premiums only.
Premium tax credits: Raymond, Hannah, and Lee accept the ICHRA, thus waiving their premium tax credits entirely.
Company monthly limit: $1200
A1 decides to go with the QSEHRA, even though the total out-of-pocket cost is higher for the company, because it will serve more of its employees. Every employee is able to use their allowance for expenses, and many can use it toward their premiums.
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