QSEHRA is a health reimbursement arrangement for small employers with fewer than 50 full-time employees that offers uniform, IRS-capped reimbursements, while ICHRA is available to employers of any size and allows flexible, uncapped contributions and employee class-based design for health benefits.
What do QSEHRA and ICHRA have in common?
Both QSEHRA and ICHRA are employer-funded health benefits that:
Reimburse employees tax-free for eligible medical expenses and/or premiums
Require employees to have Minimum Essential Coverage (MEC) to receive tax-free reimbursements
Let employees choose their own individual health insurance plans
Replace or reduce reliance on traditional group health insurance
Both are designed to give employers predictable costs and employees more choice in coverage.
What is a QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a benefit designed specifically for small employers that:
Have fewer than 50 full-time equivalent employees
Do not offer a group health plan
Want a simple, uniform reimbursement structure
Key characteristics:
IRS annual contribution limits apply
All eligible employees receive the same allowance (with limited variation for age and family size)
Employees can use MEC plans such as individual coverage, Medicare, Medicaid, COBRA, or a spouse’s group plan
QSEHRA is typically used by small businesses seeking a straightforward, standardized benefit.
What is an ICHRA?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a flexible employer-funded benefit that:
Can be offered by employers of any size
Allows employers to set custom reimbursement amounts
Allows different benefit levels by employee class
Key characteristics:
No IRS-defined contribution maximum
Employers can vary allowances by classes like full-time, part-time, salaried, hourly, or geographic location
Employees must enroll in individual health insurance or Medicare to participate
Employees cannot use a spouse’s employer group plan to qualify
ICHRA is often used by employers looking for scalable or highly customizable health benefit designs.
Key differences between QSEHRA and ICHRA
Category | QSEHRA | ICHRA |
Employer size eligibility | Small employers (<50 FTE) | Any employer size |
Contribution limits | IRS annual caps apply | No federal contribution caps |
Plan design flexibility | Single uniform allowance | Multiple employee classes allowed |
Employee coverage rules | MEC required (broader options) | Individual coverage or Medicare only |
Spouse group plan eligibility | Allowed for MEC | Not allowed |
Ability to offer alongside group plan | No | Yes, for different employee classes |
How employee eligibility differs
QSEHRA eligibility
Employees must have Minimum Essential Coverage (MEC), which can include:
Individual ACA Marketplace plans
Employer group coverage (including a spouse’s plan)
Medicare, Medicaid, or COBRA
This flexibility allows employees to stay on many types of coverage and still receive tax-free reimbursement.
ICHRA eligibility
Employees must enroll in:
Individual health insurance (Marketplace or off-exchange), or
Medicare
Group coverage (such as a spouse’s employer plan) does not qualify, so employees must switch to individual coverage to participate.
How affordability works differently
Both QSEHRA and ICHRA are subject to ACA affordability rules, which affect Premium Tax Credit (PTC) eligibility:
If coverage is affordable, employees cannot receive PTC
If coverage is unaffordable, employees may choose between the HRA or PTC (but not both)
ICHRA affordability is tied to the cost of a silver-level Marketplace plan, while QSEHRA affordability is based on net premium cost after the allowance.
When does a QSEHRA make more sense?
QSEHRA is often a better fit when:
The employer has fewer than 50 employees
A simple, uniform benefit is preferred
Employees may remain on spouse or group coverage
Contribution caps are sufficient for employer budgets
When does an ICHRA make more sense?
ICHRA is often preferred when:
The employer has 50+ employees or expects growth
Different employee groups need different benefit levels
The employer wants to replace or avoid a group health plan
There is a distributed or multi-state workforce
More budget flexibility is required