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ICHRA vs. QSEHRA: The Ultimate Showdown

Gather ‘round for the ultimate showdown! We’ve got ICHRA and QSEHRA in the ring—and you’re not ready for this all-out battle royale! ICHRA is a newcomer from 2020 that is shaking up the benefits landscape with its flexibility and scalability. QSEHRA is a veteran from 2016 that offers small businesses a tax-advantaged solution to provide health benefits. Who will reign supreme in the battle to be the best HRA?

Many people don’t know the difference, and even those who do are sometimes unsure which option is best. Navigating health benefits can be overwhelming, but doing so is essential to attracting and retaining both clients and employees. Understanding the difference between ICHRAs and QSEHRAs is crucial for brokers and employers looking to provide comprehensive, cost-effective health benefits to clients and employees. 

What is ICHRA?

An Individual Coverage Health Reimbursement Arrangement, or ICHRA, is an employer-funded Health Reimbursement Arrangement (HRA) that increases flexibility for both employers and employees to utilize the Individual Marketplace better. This HRA allows employers of any size or industry to reimburse employees tax-free for qualified medical expenses, including individual health insurance premiums. ICHRAs are an innovative health benefits solution that has been replacing the traditional model of health benefits for millions of organizations across the country since they were established.

Unlike traditional group health insurance plans, ICHRAs don’t require employers to contribute a specific amount or offer the same benefits to all employees. Instead, employers can set varying reimbursement rates based on factors like age, family size, or location.

What is QSEHRA?

A Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, is an HRA that is specifically designed for small businesses that don’t offer group health insurance and have less than 50 full-time employees. Similar to ICHRAs, QSEHRAs allow employers to reimburse employees tax-free for medical expenses, including individual health insurance premiums. However, QSEHRAs have stricter eligibility requirements and caps on reimbursement amounts.

What are the Primary Differences?

1. Employer Size and Eligibility

While ICHRAs are available to employers of all sizes, QSEHRAs are exclusively for small businesses with fewer than 50 full-time employees who don’t offer group health insurance.

2. Reimbursement Limits

QSEHRAs have annual reimbursement limits set by the Internal Revenue Service (IRS), which are adjusted annually for inflation, whereas ICHRAs have no statutory limits on reimbursement amounts, giving employers more flexibility in designing their benefit packages.

3. Employee Access to Subsidies

Under ICHRAs, employees can still qualify for premium tax credits through the Health Insurance Marketplace if their employer’s ICHRA offer is considered unaffordable or inadequate. However, with QSEHRAs, employees cannot receive premium tax credits if they opt for the reimbursement arrangement offered by their employer.

4. Flexibility in Benefit Design

ICHRAs offer more flexibility in benefit design compared to QSEHRAs. With ICHRAs, employers can vary reimbursement rates based on different employee demographics and even offer different classes of employees varying benefit amounts.

So, Who Wins? 

When it comes to QSEHRA vs. ICHRA, there’s no clear winner. Rather there are two different winners. ICHRA is the flexible option, and QSEHRA is the small business-specific option. Interested in switching sides? Or taking a side for the first time? Choosing between the two options requires careful consideration of company size, budget, and compliance requirements. The team at Remodel Health is here to help. 

Contact our expert team today to learn more or to schedule a consultation!