QSEHRA vs. ICHRA

Hassle-free health benefits

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.

Learn More about HRAs

QSEHRA and ICHRA comparison chart

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

Download Chart

Company scenario: A1 HVAC company

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 owner
Five installation techs
2 salespeople
2 office support staff

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.

QSEHRA option

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

ICHRA option

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