ICHRA vs. QSEHRA: What’s the Difference?

If you’re wondering what the difference is between an ICHRA and a QSEHRA, you’re not alone. This is one of the most common questions employers have when looking into what benefits they want to offer to their employees.

Both health reimbursement plans, or HRAs, allow employers to provide affordable and personalized benefits to their employees. They both also allow employers to set allowances for their employees to spend on health insurance and other health care related expenses. While both ICHRAs and QSEHRAs are similar in what they offer, they operate differently.

Individual Coverage Health Reimbursement Arrangement (ICHRA)

What is an ICHRA?

An individual coverage health reimbursement arrangement, or ICHRA, is a new type of HRA that was made available in 2020. It allows employers of any size to reimburse employees for some or all of the cost of health insurance premiums that they purchase on their own.

Previously, employers of any size were not allowed to reimburse their employees for individual market premiums. ICHRAs allow employers, big or small, to reimburse employees for individual market premiums, which offers more flexibility with the amount an employer is allowed to reimburse their employees.

Eligibility Criteria

To qualify for an Individual Coverage Health Reimbursement Arrangement (ICHRA), employees must be enrolled in individual health insurance coverage. Eligible businesses include those of all sizes, including small businesses, that do not offer traditional group health insurance plans.

Contribution Limits

The contribution limits for an Individual Coverage Health Reimbursement Arrangement (ICHRA) are determined by the employer. However, there are no specific federal limits set by the IRS, allowing employers the flexibility to decide how much they want to contribute towards their employees’ health coverage.

Covered Expenses

Employer contributions to an Individual Coverage Health Reimbursement Arrangement (ICHRA) can vary based on the family status of the employee. Generally, employers may offer higher contributions for employees with dependents or family coverage compared to single employees. This variation ensures that employees with families receive adequate financial assistance for their healthcare needs.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

What is a QSEHRA?

A qualified small employer health reimbursement arrangement, or QSEHRA, is an HRA that allows small employers who don’t offer group health coverage to help their employees pay for medical expenses. These reimbursements are un-taxed and can help pay for certain health care costs – like an employee’s monthly premium or coinsurances.

Eligibility Criteria

While ICHRAs can be used by organizations of all sizes, QSEHRAs are only for small businesses with 50 employees or less.

To qualify, businesses must meet this size requirement and cannot offer a group health plan to their employees. Additionally, QSEHRAs are available to both full-time and part-time employees, provided they are not covered by another group health plan.

Contribution Limits

QSEHRAs have set maximum contribution limits determined annually by the IRS. For 2023, the maximum employer contribution is $5,850 ($487.50 monthly)for individual coverage and $11,800 ($983.33 monthly)for family coverage. These limits are significantly lower than those for Individual Coverage Health Reimbursement Arrangements (ICHRAs), offering small businesses more budget-friendly options for providing healthcare benefits to their employees.

Covered Expenses

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) cover a wide range of healthcare expenses, including premiums for health insurance plans purchased by employees, as well as qualified medical expenses outlined by the IRS. However, employers have the flexibility to set restrictions on certain expenses, such as cosmetic procedures or over-the-counter medications, ensuring that the funds are used for essential healthcare needs.

How ICHRAs and QSEHRAs work

Both HRAs work similarly when it comes to how they are set up by the employer and how they are utilized once they are put into place.

Here’s a quick overview of how ICHRAs and QSEHRAs work from set-up through reimbursement:

1. The employer sets a maximum allowance, this is the most the business will pay out through the arrangement.
2. The employees spend money on healthcare, including individual health insurance as well as products and services that can be expensed. Both an ICHRA and a QSEHRA can reimburse expenses listed in IRS Publication 502.
3. Employees submit expenses and request reimbursement. Employees do this by submitting documentation that they received health care or incurred a health care related expense. This documentation should include the amount, the date they incurred the expense, and a description of the health care product or service.
4. Employers review and approve the requests based on the eligibility of the expense.
5. The employer provides the employee with a tax-free reimbursement. All reimbursements are free of payroll tax and may be free of income tax.

Key differences between ICHRA vs. QSEHRA

The main difference between an ICHRA and an QSEHRA is that employers of all sizes can offer an ICHRA while the qualifications for an employer to offer a QSEHRA are much stricter.

	ICHRA	QSEHRA
What business can offer this HRA?	Businesses of any size can participate	Businesses with 50 or fewer full-time employees that offer NO employer group health plan
What employees can participate?	All employees or a particular class enrolled in Individual health insurance plan.	Employees enrolled in minimum essential coverage that are NOT participating in an employer group health plan can participate
Is there a cap on contribution?	ICHRA does not have contribution limits for small groups. However, if a large group employer (50+ employees) offers an ICHRA, it must be deemed “affordable” based on employee income.	Yes, for 2020 the contribution limits are • $454.16 per month for self-only ($5,450 annual) • $920.83 per month for families (11,050 annual)
Can allowances roll over?	Yes, month-to-month.	Yes, month-to-month.
What are the budgetary guidelines?	Businesses can offer different allowance amounts based on family status, age and employee class.	Businesses can offer different allowance amounts based on family status.
Can employees have this type of HRA and premium tax credits?	No. They must waive their premium tax credits to participate in an ICHRA or opt of the ICHRA to receive premium tax credits.	Yes, but their tax credit will be reduced by their QSEHRA amount.

Choosing between ICHRA vs. QSEHRA: Factors to consider

If you are considering implementing an ICHRA or a QSEHRA, you must consider a few different things.

Firstly, you should think of your employees and what their needs are. Many employers choose to offer benefits as a way to retain good employees and attract new talent, so your benefit offering should be as tailored as possible to those on your team.

Additionally, you should consider what your options are as an employer. Here are some factors to consider when choosing between an ICHRA or a QSEHRA for your employees:

Business size

If you own a business with more than 50 employees, you cannot offer a QSEHRA to your employees. You can offer an ICHRA to your employees.

Even though you cannot offer a QSEHRA to your employees, you are offered a large amount of flexibility as an employer. You can choose what class of employees you want to offer this HRA to, as well as what the reimbursement caps based on family status and based on which class you allow to participate, and you can choose to offer a group health plan too.

Budget constraints

When weighing the decision between Individual Coverage Health Reimbursement Arrangements (ICHRA) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), budget constraints play a crucial role. With ICHRA, businesses have the flexibility to contribute varying amounts based on employee coverage levels and can adjust their contributions to align with budgetary needs. On the other hand, QSEHRA imposes annual contribution limits set by the IRS, making it essential for small businesses to consider their budgetary constraints and the affordability of offering healthcare benefits to employees.

Existing group health plans

If you want to offer an HRA to your employees, you can do so as long as you offer group health plans and ICHRAs to separate classes of employees. A good rule of thumb is that no group of employees can be allowed to have the option of choosing an ICHRA over group coverage.

You can also choose what the reimbursement caps based on family status for each class of employees you offer this benefit to.

It’s important to note that you cannot offer a QSEHRA if you choose to offer a group health plan to your employees.

Employee class or family status

If you want to provide an HRA to some of your employees based on family status, you can do that with both an ICHRA and a QSEHRA.

However, if you are interested in offering this benefit to some of your employees based on class, like full-time or part-time, you can only do that with an ICHRA. You can choose to offer the ICHRA to all of your employees or only some based on the following employee classes:

• Full-time employees
• Salaried employees
• Part-time employees
• Hourly employees
• Seasonal employees
• Temporary employees from a staffing firm or temp agency
• Employees covered under a collective bargaining agreement
• Foreign employees who work out of the country
• Employees in different locations
• Employees in a waiting period
• Or any combination of two or more

If you choose to offer both an ICHRA and group health insurance, and you choose to offer this benefit based on employee classes, the classes must meet a minimum size based on the size of the employer’s organization:

• Employers with 100 employees or fewer: 10 employees per class
• Employers with between 100-200 employees: 10% of the total number of employees per class

Let eHealth help you find the right plan

In all, both an ICHRA and a QSEHRA are benefits that can set you apart from other employers and allow you to retain and attract talent. If you are considering offering this benefit to your employees, be sure to look at all differences between an ICHRA and a QSEHRA.

eHealth’s team of qualified agents can help you weigh the pros and cons of each option and find a plan that’s right for your needs and budget. Give us a call to get started finding a health plan for your business or check out group health insurance options available in your area!