QSEHRA vs. ICHRA

 

How to choose which is best for your company in 2020.

 

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.

 

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Comparison Chart

  ICHRA QSEHRA
Employer eligibility requirements

Available to businesses of any size with or without group insurance, as long as group health and ICHRA are not offered to the same employee classes.

Available to businesses with fewer than 50 full-time employees who don’t offer group health insurance.

ACA employer mandate

May satisfy the employer mandate for ALEs (applicable large employers) if coverage is affordable and offered to more than 95% of full-time employees.

Not available for ALEs (applicable large employers) with over 50 full-time equivalent employees. Only ALEs are subject to the employer mandate.

Employee eligibility

The business can structure eligibility guidelines based on predefined employee classes, such as full time, part-time, salaried, hourly and seasonal. Employees must have qualified individual health insurance to participate.

All full-time employees are automatically eligible. Businesses can choose to extend eligibility to part-time employees, but must offer the same allowances to both groups. Employees aren’t required to have individual health insurance.

Annual allowance caps

None.

The following caps exist: 

  • $5,250 for single employees
  • $10,600 for employees with a family in 2020

Rollover guidelines

Month-to-month permitted, but no annual rollover.

Month-to-month permitted, but monthly allowances are capped to prevent total contributions from exceeding the annual maximum.

Budgetary guidelines

Businesses can offer different allowance amounts to different employees based on classes as well as employee age and family size.

Businesses can offer different allowance amounts to different employees based on being single or having a family.

Premium tax credit guidelines

Employees can’t have both the premium tax credit and the ICHRA. They may waive premium tax credits and participate in the ICHRA, or opt-out of the ICHRA and collect premium tax credits if the HRA allowance amount is considered unaffordable.

Employees with premium tax credits can participate in the QSEHRA, but their premium tax credit will be reduced by the amount of their QSEHRA allowance. Employees cannot opt-out of the QSEHRA.

Current availability

Available beginning January 1, 2020.

Available now.

Best suited for

Companies that: 

  • Wish to reimburse premiums only (although there is an ICHRA version that reimburses for all eligible medical expenses as long as the employee has purchased individual insurance).
  • Want to vary allowances by employee classes: full-time or part-time status, salaried or hourly status, in-state or out-of-state address, or any combination of these.
  • Want to offer allowance amounts over the QSEHRA caps. 
  • Are ALEs and wish to meet the employer mandate requirement of the ACA

Companies that:

  • Want to reimburse premiums as well as medical expenses.
  • Want to offer the same allowance to all full-time employees, except to vary by family status. 
  • Have employees in a variety of insurance situations, e.g. on their spouse’s employer plan.
  • Have fewer than 50 full-time equivalent employees

Still curious? Join us for an on-demand, in-depth webinar on the QSEHRA vs. the ICHRA.

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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.

 

Name

Position

Family status

Qualify for PTC?

Insurance status

Part time vs. full time

Robin*

Owner

       

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 infographic.

There are pros and cons for each option for this company.

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

 

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.

There's more to know about the QSEHRA. Our comprehensive guide has it all.

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The ICHRA is a new reimbursement health benefit available to businesses of all sizes. Our eBook details how to offer one.

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