A QSEHRA and an ICHRA are both Health Reimbursement Arrangements (HRAs). They allow employers to provide a monthly allowance that employees can use to be reimbursed for individual health insurance premiums and other eligible medical expenses.
While the employee experience may look similar, QSEHRAs and ICHRAs are designed for different types of employers and follow different regulatory rules. Understanding these differences helps employers design benefits responsibly and helps employees understand how their health benefit works.
Qualified Small Employer HRA (QSEHRA)
A QSEHRA is designed for small employers that want a simple way to help employees pay for health coverage without offering a group health plan.
Key points for employers and employees:
Only employers with fewer than 50 full‑time equivalent employees can offer a QSEHRA
The employer cannot offer a group health plan at the same time
Annual reimbursement amounts are limited by the IRS and updated each year
The benefit is generally offered on the same terms to all eligible employees, with limited variation for family size.
Employees must have minimum essential health coverage for reimbursements to be tax‑free
Because QSEHRAs are limited to small employers, they are not subject to Affordable Care Act (ACA) affordability requirements.
Individual Coverage HRA (ICHRA)
An ICHRA offers more flexibility and can be used by employers of any size, including those subject to the ACA employer mandate.
Key points for employers and employees:
Available to employers of any size
There are no federal caps on employer contribution amounts
Employers may offer different allowance amounts to different groups of employees using approved employee classes (such as salary vs. hourly or location)
Employers may offer a group health plan to one group of employees and an ICHRA to another, but not both to the same group
Employees must enroll in individual health insurance or Medicare to participate
For employers with 50 or more full‑time equivalent employees, ICHRAs must meet ACA affordability rules.
ACA Affordability: Shared Understanding for Employers and Employees
What “affordable” means under the ACA
Under the Affordable Care Act, employer‑sponsored coverage is considered affordable if the employee’s cost for self‑only coverage stays within a government‑defined limit based on income.
Affordability matters because it affects:
Whether large employers meet ACA requirements
Whether employees may be eligible for premium tax credits when purchasing individual health insurance
How affordability works with an ICHRA
For an ICHRA, affordability is based on the employee’s net cost for coverage. This is determined by:
The cost of the lowest‑cost Silver individual health insurance plan available for self‑only coverage,
Minus the employer’s ICHRA contribution
If the remaining cost falls within the affordability limit, the ICHRA is considered affordable.
Because employers do not have access to employees’ household income, regulations allow employers to use standard income measures, called safe harbors, to evaluate affordability consistently.
What this means for employees
If an ICHRA is considered affordable, employees are generally not eligible for premium tax credits
If an ICHRA is not considered affordable, some employees may be eligible for premium tax credits instead
QSEHRAs follow different rules and do not require affordability testing.
QSEHRA vs. ICHRA: At a Glance
Feature | QSEHRA | ICHRA |
Who can offer it | Employers with fewer than 50 employees | Employers of any size |
Group health plan allowed | No | Yes, for different employee groups |
Annual contribution limits | Yes, IRS‑set | No federal limits |
Flexibility by employee group | Very limited | Multiple approved groupings |
ACA affordability rules | Not required | Required for large employers |
Effect on premium tax credits | Reduces credits dollar‑for‑dollar | Credits generally unavailable if affordable |
Primary use | Simplicity for small employers | Flexibility and ACA compliance |