Understanding your organization’s options can be a game-changer in today’s evolving health benefits landscape. Health Reimbursement Arrangements (HRAs), such as ICHRA and QSEHRA, stand out as innovative solutions that can transform how employers provide health benefits. But with significant differences, how do you choose the best fit?
This blog will break down the key distinctions between Individual Coverage Health Reimbursement Arrangements (ICHRA) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), ensuring you make the most informed decision for your business.
What is ICHRA?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a flexible, employer-funded HRA that allows employers of any size to reimburse employees for individual health insurance premiums and qualified medical expenses on a tax-free basis. Introduced in 2020, ICHRA is designed to offer more flexibility and scalability compared to traditional group health insurance plans. Here are some key features of ICHRA:
Employer Eligibility
ICHRAs are available to employers of any size or industry.
Reimbursement Flexibility
Employers can set reimbursement rates based on age, family size, or location.
Employee Access to Premium Tax Credits
If the ICHRA offered by their employer is considered unaffordable, employees can still qualify for premium tax credits through the Health Insurance Marketplace.
Benefit Design
This allows employers to define different classes of employees and offer varying benefits to each class.
What is QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is specifically designed for small businesses with fewer than 50 full-time equivalent employees that do not offer group health insurance. Introduced in 2016, QSEHRA provides a straightforward, tax-advantaged way for small employers to reimburse employees for individual health insurance premiums and eligible medical expenses. Key features of QSEHRA include:
Employer Eligibility
This is only available to small employers with fewer than 50 full-time employees who do not offer group health insurance.
Reimbursement Limits
The Internal Revenue Service (IRS) sets annual reimbursement limits that are adjusted annually for inflation.
Employee Access to Premium Tax Credits
Employees may still be eligible for premium tax credits when purchasing individual health insurance on the Marketplace, but the amount of the QSEHRA reimbursement will reduce the tax credit.
Uniform Reimbursement
Employers must offer the same reimbursement amount to all eligible employees.
Differences Between ICHRA and QSEHRA
1. Employer Size and Eligibility
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- ICHRA: Available to employers of any size.
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- QSEHRA: Exclusively for small businesses with fewer than 50 full-time employees who do not offer group health insurance.
2. Reimbursement Limits
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- ICHRA: No statutory limits on reimbursement amounts, offering greater flexibility for employers.
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- QSEHRA: Annual reimbursement limits set by the IRS are adjusted annually for inflation.
3. Employee Access to Premium Tax Credits
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- ICHRA: If the ICHRA offered by their employer is considered unaffordable, employees can still qualify for premium tax credits through the Health Insurance Marketplace.
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- QSEHRA: Employees may be eligible for premium tax credits, but the QSEHRA reimbursement amount will reduce the tax credit.
4. Flexibility in Benefit Design
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- ICHRA: Allows for different reimbursement rates based on various employee demographics and offers different classes of employees varying benefit amounts.
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- QSEHRA: Requires the same reimbursement amount to be offered to all eligible employees, with less flexibility in benefit design.
ICHRA vs. QSEHRA Comparison Chart
ICHRA and QSEHRA: Making a Switch
Switching between QSEHRA to ICHRA is possible, but there are several factors to consider to ensure a smooth transition:
Timing
Align the transition with the beginning of a new plan year to avoid confusion and ensure a seamless process.
Employee Notification
Provide written notice to employees at least 90 days before the start of the new plan year, informing them of the change and any new terms and conditions.
Compliance Requirements
Review and follow the specific compliance requirements for each HRA type to ensure a compliant transition.
Conclusion
ICHRA and QSEHRA offer unique advantages for employers looking to provide health benefits to their employees. ICHRA is a flexible option suitable for employers of any size, offering extensive customization in benefit design. QSEHRA is tailored for small businesses, providing a straightforward, tax-advantaged solution with specific eligibility and reimbursement limits. By understanding the key differences and considering your organization’s needs, you can choose the HRA that best aligns with your goals. Whether you’re interested in switching from one HRA to another or implementing one for the first time, the team at Remodel Health is here to help.
Contact us today to learn more about the benefits of ICHRA and QSEHRA.
