ICHRA vs. QSEHRA: What’s the difference?

As a broker consultant or business owner, striking the right balance between offering a competitive health benefit and keeping costs low is crucial. That’s why understanding your alternative options to group health insurance is key in today’s ever-evolving health benefits landscape. 

Two popular options that help businesses provide flexible, affordable health benefits are the individual coverage health reimbursement arrangement (ICHRA) and the qualified small employer HRA (QSEHRA). While both HRAs offer an innovative solution to employer-sponsored health benefits, how do you know which is right for your business or clients?

This blog will break down the main distinctions between the ICHRA and the QSEHRA and how each option can support organizations and employees.

In this blog post, you’ll learn:

• The key differences between ICHRA and QSEHRA for eligible employers and staff members.
• How each HRA impacts benefit design features, coordination with premium tax credits, and compliance requirements. 
• How Remodel Health can support businesses of all sizes with personalized HRAs and administration tools.

Download our complete guide to everything you need to know about the ICHRA.

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What is the ICHRA?

Introduced in 2020, the ICHRA is an alternative to group health insurance for employers of all sizes and industries. With an ICHRA, employers set a tax-free monthly allowance that employees can use to buy individual health insurance policies. 

Unlike traditional health benefits and other types of HRAs, the ICHRA offers significant flexibility regarding employee eligibility guidelines, contribution limits, and plan design.

Here are some key features of ICHRA:

1. There are no annual contribution caps for ICHRA, so employers can determine the allowance that best fits their budget. This can help you design a competitive benefits package to attract new talent or better support employees with higher medical expenses.
2. The ICHRA allows employers to tailor allowances using job-based employee classes, age, and family status. You can also use classes of employees to customize benefit eligibility rules. This helps you target specific groups to boost retention and satisfaction. 
3. The ICHRA doesn’t work with premium tax credits. But, employees can opt out and claim tax credits based on affordability. If the ICHRA’s allowance is unaffordable, employees can waive their ICHRA and check if they qualify for premium tax credits on a public health exchange. If the benefit is affordable, they should participate in the ICHRA.
4. Applicable large employers (ALEs) can design their ICHRA benefit to satisfy the Affordable Care Act’s employer mandate. 
5. ICHRA allowances are free from payroll tax for employers and income tax for participating employees, creating a beneficial scenario for both parties.

What is the QSEHRA?

Introduced in 2016, the QSEHRA is specifically for small employers with fewer than 50 full-time equivalent employees (FTEs) who don’t offer a group health plan. With a QSEHRA, employers can reimburse employees tax-free for individual health insurance premiums and qualified out-of-pocket medical expenses.

While less customizable than the ICHRA, the QSEHRA offers small businesses an easy and cost-effective way to provide their employees with health benefits.

Key features of the QSEHRA include:

1. The QSEHRA has no minimum contribution requirements. But the IRS sets maximum allowance limits adjusted annually for inflation. Employers can also vary allowance amounts based on age or family status, simplifying budgeting and ensuring predictable healthcare costs. 
2. Employers can choose to reimburse only insurance premiums to ensure employees use their HRA funds on health and ancillary coverage. However, they can also reimburse employees for qualifying out-of-pocket healthcare costs to enhance satisfaction.
3. Eligible employees can collect their premium tax credits and still participate in the QSEHRA. However, this depends on affordability, and the amount of their QSEHRA allowance will reduce their tax credit.
4. Like the ICHRA, employer QSEHRA contributions and reimbursements for employees are tax-free.

What are the differences between the ICHRA and the QSEHRA?

The ICHRA and the QSEHRA work similarly in many ways. But, as you can see, they don’t operate exactly the same. In the sections below, we’ll review the significant differences between each HRA in more detail.

1. Company eligibility

Businesses of any size can offer an ICHRA as long as they have at least one W-2 worker. This makes the ICHRA an excellent option for small, medium, and large companies. Additionally, employers can have group health coverage and an ICHRA as part of their compensation package. But they can’t offer employees within the same class both benefits or the choice between the two benefits.

For example, suppose you offer group health insurance to hourly employees. In that case, you’d have to provide the ICHRA to a different class, like salaried workers. 

To offer a QSEHRA, a company must have at least one W-2 employee and fewer than 50 FTEs. If it grows beyond this size, they must switch to a different health benefit, like an ICHRA. Unlike the ICHRA, employers can’t offer a group health plan (including a group ancillary policy) and a QSEHRA at the same time, since there are no employee classes. 

2. Employee eligibility

To participate in an ICHRA, employees must have qualified individual health coverage. Examples include ACA-qualified plans from a public or private exchange, Medicare Parts A and B together, and Part C. A few types of ineligible coverage are healthcare sharing ministry plans and a spouse’s group health insurance policy. 

All full-time W-2 employees and their families are automatically eligible for the QSEHRA as long as they have a health plan that provides minimum essential coverage (MEC), such as an ACA-compliant individual plan, Medicare, or a spouse’s or parent’s group insurance policy. 

Employers can invite part-time employees to participate in the QSEHRA as well. However, they must receive the same monthly allowances as their full-time employees and obtain proper health coverage. 

3. Benefit design

With the ICHRA, employers can set different contribution limits and eligibility rules using legitimate job-based employee classes, such as salaried, hourly, or seasonal workers. All employees within the same class must receive the same allowance (with variances for age and family status). Additionally, you can vary contribution amounts by age or family status with or without classes.  

In contrast, QSEHRAs only allow employers to vary allowances based on age and family size. Other than these two categories, all employees must receive the benefit on the same terms, meaning there is less flexibility in customization.

4. Contribution limits

ICHRAs have flexible employer contribution rules. They have no minimum or maximum limits, so you can offer as much allowance as your budget and company goals allow.

The QSEHRA has greater restrictions on allowances than the ICHRA. While there are no minimum caps, the QSEHRA has maximum contribution limits that the IRS determines and adjusts annually. Although it’s more rigid, this narrow focus can make it easy for small businesses with a limited budget scope to plan accordingly.

5. Premium tax credits

Employees with an ICHRA who qualify for premium tax credits must choose between participating in the ICHRA and collecting their subsidy — they can’t have both. However, this decision depends on whether their ICHRA benefit is affordable.

For an ICHRA to be affordable in 2025, employees can’t pay more than 9.02% of their household income for the lowest-cost silver plan on a public exchange. Employees should opt into the ICHRA if their benefit is affordable. If they opt out with an affordable allowance, they can’t receive their tax credits. This leaves them with no financial help for their insurance premiums. So in this case, it’s best to opt in.

If the ICHRA allowance is unaffordable, they can opt out and collect their tax credits to receive a discount on their health insurance premiums. 

Eligible employees can collect their premium tax credits and participate in the QSEHRA. But it also depends on affordability. If the QSEHRA is affordable, employees eligible for tax credits can’t receive their subsidy. They can collect their credits if the benefit isn’t affordable for one or more months. But they must reduce their tax credit by the amount of their QSEHRA allowance. 

For example, an employee with a $600 subsidy and a $400 allowance can only receive a $200 premium tax credit. Unlike an ICHRA, employees can’t opt out of the QSEHRA.

6. Compliance requirements

Both HRAs come with compliance obligations, such as drafting legal plan documents, following HIPAA privacy rules, and supplying employees with sufficient notice of the benefit. However, the ICHRA carries more extensive compliance requirements.

For example, ALEs offering an ICHRA must ensure their benefit meets the ACA’s affordability standards to comply with the employer mandate and avoid costly tax penalties. 

The ICHRA also has various reporting requirements. Organizations with at least 100 employees and an ICHRA must file Form 5500. ALEs must also file Form 1094-C and send Form 1095-C to their enrolled employees. 

All employers with an ICHRA or QSEHRA must pay a yearly fee for the Patient-Centered Outcomes Research Institute (PCORI) and submit Form 720. Employers with a QSEHRA must also file Form 1095-B.

The QSEHRA’s compliance requirements are more straightforward, making it more attractive for smaller employers with limited administrative capacity. QSEHRA must comply with annual IRS reporting, such as reporting the benefits on employees’ W-2 Forms and submitting Form 720. However, it’s exempt from ALE reporting requirements.

ICHRA vs. QSEHRA comparison chart

The chart below compares the key differences between the two HRAs side by side.

How Remodel Health can help you administer an ICHRA or QSEHRA

Choosing between the ICHRA and QSEHRA depends on your clients’ or your business’s size, goals, and budget. But luckily, Remodel Health can help brokers and employers determine which is best for you or your clients and give you the tools you need to administer them quickly and easily!

Remodel Health’s ICHRA+® administration solution provides a premium approach to health benefit management. From tracking eligible expenses and generating reports to simplifying daily administrative tasks, our platform lightens the burden for HR teams and employers. Employees can also shop for health plans on our user-friendly dashboard and receive educational resources to help them learn about their benefits.

Plus, if you’re an ALE, our team of benefits professionals provides expert, personalized support to help you meet the ICHRA complex compliance regulations and reporting requirements.

If you’re a smaller organization considering a QSEHRA, Remodel Health’s PeopleKeep product is a great fit. With PeopleKeep by Remodel Health, small and mid-sized employers can design a personalized QSEHRA that aligns with their budget while empowering employees to find a health plan that suits their unique needs.

PeopleKeep by Remodel Health streamlines administration by reviewing and processing reimbursements and reducing the risk of tax penalties. Like the ICHRA+® product, employees in need of coverage can browse and select individual health insurance coverage from their dashboard.

Conclusion

The ICHRA and the QSEHRA offer unique advantages for employers looking to provide employee health benefits. The QSEHRA can be better suited for small employers with fewer customization needs, while the ICHRA provides greater flexibility and scalability for future business growth. Whichever you choose, knowing the differences between the two HRAs can help you make the best choice for you, your budget, and your staff.

Whether you’re interested in our ICHRA+® solution or want to opt for a QSEHRA from our PeopleKeep product line, the team at Remodel Health is here to help. Book a call with us, and we’ll get you on your way!

This article was originally published on July 26, 2024. It was last updated on August 6, 2025.

Check out our blog to compare the ICHRA’s pros and cons so you can make an informed decision for your business.

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