If you’re looking for an alternative to traditional group health insurance, you’ve probably come across two popular reimbursement arrangements: the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and the Individual Coverage Health Reimbursement Arrangement (ICHRA).
Both allow employers to reimburse employees for individual health insurance premiums and qualified medical expenses on a tax-advantaged basis. However, they are designed for different types of employers and have different rules.
Understanding the differences can help you choose the option that best fits your workforce and your benefits strategy.
What Is a QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is available only to eligible small employers.
With a QSEHRA, employers reimburse employees for:
- Individual health insurance premiums
- Medicare premiums
- Qualified medical expenses
A QSEHRA allows employers to offer healthcare benefits without sponsoring a traditional group health plan.
What Is an ICHRA?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) also reimburses employees for individual health insurance premiums and qualified medical expenses.
Unlike a QSEHRA, an ICHRA is available to employers of any size and provides much greater flexibility in how benefits are offered to different groups of employees.
QSEHRA vs. ICHRA at a Glance
| Feature | QSEHRA | ICHRA |
| Available to small employers only | Yes | No |
| Employer can offer a traditional group health plan | No | Yes, for different permitted employee classes |
| Annual IRS contribution limit | Yes | No federal maximum |
| Can reimburse individual health insurance premiums | Yes | Yes |
| Can reimburse Medicare premiums | Yes | Yes |
| Employee classes available | No | Yes, if they meet regulatory requirements |
| Available to employers of any size | No | Yes |
When Is a QSEHRA the Better Choice?
A QSEHRA is often a good fit when:
- You have fewer than 50 full-time equivalent employees.
- You do not offer a group health plan.
- You want a simple reimbursement arrangement.
- You are comfortable with the annual IRS contribution limits.
Many small employers choose a QSEHRA because it is straightforward to understand and administer.
When Is an ICHRA the Better Choice?
An ICHRA may be a better option when:
- You want to offer different benefits to different permitted employee classes.
- You need more flexibility than a QSEHRA provides.
- Your desired reimbursement amount exceeds the QSEHRA annual limit.
- You want to continue offering a traditional group health plan to certain groups of employees while offering an ICHRA to other permitted employee classes.
An ICHRA gives employers significantly more flexibility, but that flexibility comes with additional planning and compliance considerations.
Can Both Reimburse Individual Health Insurance Premiums?
Yes.
Both arrangements may reimburse:
- Individual health insurance premiums.
- Medicare premiums.
- Qualified medical expenses, depending on the plan design and applicable rules.
However, employees participating in an ICHRA generally must be enrolled in qualifying individual health insurance coverage (or Medicare, if applicable).
One Important Difference: Employees Covered Under a Spouse’s Group Health Plan
A QSEHRA can generally reimburse qualified medical expenses for eligible employees, even if they are covered under a spouse’s group health plan.
An ICHRA works differently.
To participate in an ICHRA, employees generally must be enrolled in individual health insurance coverage (or Medicare). An employee who is covered under a spouse’s employer-sponsored group health plan generally is not eligible to participate in an ICHRA.
For employers with a mix of employees—some purchasing their own individual insurance and others covered under a spouse’s group health plan—this can create a gap.
Filling the Gap With a Spousal HRA
Some employers address this situation by combining an ICHRA with a Spousal Health Reimbursement Arrangement (Spousal HRA).
Under this approach:
- Employees enrolled in individual health insurance may participate in the ICHRA.
- Employees who are covered under a spouse’s employer-sponsored group health plan may instead participate in a Spousal HRA that reimburses eligible out-of-pocket medical expenses.
This allows employers to extend meaningful healthcare benefits to employees regardless of how they obtain their health coverage.
If your workforce includes both groups of employees, this combined approach may provide greater flexibility than an ICHRA alone.
Read More: Spousal HRA and ICHRA
Which HRA Is Right for Your Business?
The best choice depends on several factors, including:
- The size of your business.
- Whether you currently offer a group health plan.
- How your employees obtain health insurance.
- Whether you need different benefits for different employee classes.
- Your long-term benefits strategy.
Because the rules governing HRAs are complex, it is important to evaluate all available options before implementing a reimbursement program.
How Empower Helps Employers Choose the Right HRA
Empower helps employers evaluate, implement, and administer reimbursement arrangements that align with their workforce and business goals.
We administer:
- Qualified Small Employer HRAs (QSEHRAs)
- Individual Coverage HRAs (ICHRAs)
- Spousal HRAs
- Retiree HRAs
- Traditional HRAs
- Flexible Spending Accounts (FSAs)
Our team can explain the differences, answer compliance questions, and help you select the solution that best fits your organization.
Questions About QSEHRAs or ICHRAs?
If you’re deciding between a QSEHRA and an ICHRA—or wondering how a Spousal HRA can complement an ICHRA—we’re here to help.
Contact Empower to discuss your workforce, your benefit goals, and the reimbursement strategy that makes the most sense for your organization.
