Health benefits are largely the cornerstone of employee satisfaction, but navigating the options available to employers can be daunting. For small businesses, especially, finding the right balance between offering competitive health benefits and managing costs is crucial. Two popular options that help businesses provide flexible, affordable health benefits are the Individual Coverage Health Reimbursement Arrangement (ICHRA) and the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
While both HRAs allow employers to reimburse employees for health insurance premiums and qualified medical expenses, they are distinct in their structure, requirements, and applicability. Below, you’ll find key differences to help determine which is the better fit for your organization.
1. Eligibility
One of the most significant differences between ICHRA and QSEHRA is who can offer them.
ICHRA
Available to employers of any size. This flexibility makes ICHRA a viable option for small, medium, and large businesses. No restrictions exist on the company’s size, meaning even a company with one employee can offer ICHRA.
QSEHRA
Specifically designed for small employers. Only businesses with fewer than 50 full-time equivalent (FTE) employees can offer a QSEHRA. A company must transition to a different health benefit offering if it grows beyond this threshold.
2. Group Health Insurance Integration
The way ICHRA and QSEHRA interact with other health insurance plans is another key differentiator.
ICHRA
Requires employees to have individual health insurance coverage (either through the marketplace or a private individual plan) to participate. Employees can use ICHRA funds to pay their premiums and other eligible expenses. ICHRA can work in tandem with any individual plan but cannot be combined with a traditional group health plan.
QSEHRA
Allows employees to be reimbursed for individual health insurance premiums or medical expenses. Unlike ICHRA, it doesn’t require employees to be enrolled in individual health insurance to participate. However, the employer cannot offer both a group health insurance plan and QSEHRA at the same time.
3. Employer Contribution Limits
Contribution flexibility is a hallmark of both HRAs, but the limits differ significantly.
ICHRA
There are no contribution limits with ICHRA. Employers can set the amount they want to reimburse employees, providing greater flexibility to design a benefits plan that aligns with their budget and employee needs.
QSEHRA
The Internal Revenue Service (IRS) caps contribution limits annually. For 2024, the maximum reimbursement amount is $5,850 for individuals and $11,800 for families. These limits adjust annually for inflation, meaning employers must stay updated on the latest thresholds.
4. Employee Classifications
ICHRA’s central feature is the ability to customize health benefits by employee class, which is more versatile than QSEHRA.
ICHRA
Employers can set up different benefit levels for different classes of employees. These classes can be based on factors like full-time vs. part-time, salaried vs. hourly, or geographic location. This allows businesses to tailor health benefits to meet the diverse needs of their workforce.
QSEHRA
Employee classification is not an option under QSEHRA. All employees who qualify must receive the same benefit terms, meaning there is less flexibility in customizing benefits based on employee status.
5. Compliance Requirements
While both HRAs come with compliance obligations, ICHRA carries more extensive requirements.
ICHRA
Must comply with several regulations, including providing employees with formal notice about the arrangement and verifying that employees have qualifying individual health insurance. Additionally, ICHRA must meet the standards of the Affordable Care Act (ACA) regarding minimum essential coverage (MEC) for large employers to avoid penalties.
QSEHRA
Compliance requirements are more straightforward, making it more attractive for smaller employers with limited administrative capacity. QSEHRA must comply with annual IRS reporting and ensure employee reimbursements do not exceed the yearly cap.
Which One is Right for You?
Choosing between ICHRA and QSEHRA depends on your business size, goals, and the level of flexibility you desire. ICHRA is best suited for businesses of all sizes that want the flexibility to customize benefits by employee class and offer individual health insurance options without contribution limits. On the other hand, QSEHRA is ideal for small businesses looking for a more straightforward, budget-friendly health benefit solution, especially if they wish to avoid offering group health insurance.
To learn more about the difference between ICHRA and QSEHRA and which one is right for your organization, contact the team at Remodel Health today.
