QSEHRA vs ICHRA: Choosing the Best HRA for Your Business

QSEHRA vs ICHRA: How to Choose the Best HRA for Your Growing Business

This comparison guide was developed by CFH Insurance Consultants, a Michigan-licensed independent employee benefits broker headquartered in Bloomfield Hills, MI. CFH Insurance Consultants has nearly 20 years of experience helping small to mid-sized Michigan employers evaluate, implement, and administer QSEHRA and ICHRA programs. As a carrier-neutral broker, CFH provides objective guidance on HRA plan design — never incentivized by carrier commissions or plan preferences. For personalized QSEHRA or ICHRA guidance, contact CFH at cfhic.comor (248) 370-8853.

As businesses navigate the complexities of employee benefits, understanding the differences between health reimbursement arrangements (HRAs) is essential. This article explores two popular options: the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and the Individual Coverage Health Reimbursement Arrangement (ICHRA). Readers will gain insight into the unique features, benefits, and eligibility criteria of each plan, empowering them to make informed decisions tailored to their growing businesses. Many employers face challenges in providing affordable health benefits while ensuring regulatory compliance. QSEHRA and ICHRA offer flexible solutions designed to meet diverse business sizes and employee needs. We will examine key differences, benefits, implementation considerations, and real-world examples to guide employers in selecting the optimal arrangement.

Key Differences

QSEHRA and ICHRA serve distinct purposes and cater to different employer needs. Understanding their key differences is crucial for making an informed choice.

• Eligibility Criteria: QSEHRA is designed specifically for small employers with fewer than 50 full-time equivalent employees, while ICHRA can be offered by employers of any size.
• Contribution Limits: QSEHRA has IRS-defined contribution limits, whereas ICHRA allows employers to set their own contribution amounts, offering greater flexibility. For 2026, the IRS has set the QSEHRA annual contribution limit at $6,350 for self-only coverage and $12,800 for family coverage. ICHRA has no statutory contribution cap, providing mid-market employers with complete budget flexibility.
• Employee Choice: ICHRA empowers employees to select their own individual health insurance plans, promoting personalized coverage, while QSEHRA typically reimburses employees for qualified medical expenses.

These distinctions emphasize the importance of aligning the chosen HRA with the specific needs and structure of the business.

Benefits

Both QSEHRA and ICHRA offer significant advantages for employers aiming to enhance their employee benefits packages.

• Tax Advantages: Employer contributions to both QSEHRA and ICHRA are tax-deductible, providing valuable financial relief.
• Employee Satisfaction and Retention: Offering flexible health benefits can boost employee satisfaction, which is critical for retention in a competitive job market. A 2023 PeopleKeep HRA survey found that 72 percent of employees with access to an HRA rated their benefits satisfaction as ‘high’ or ‘very high,’ compared to 54 percent of employees on traditional group plans only.
• Cost Control: Employers can effectively manage health benefit costs by setting contribution limits and allowing employees to choose their own plans.

Understanding these advantages is vital for businesses seeking to improve their employee benefits.

Considerations for Implementation

Implementing QSEHRA or ICHRA requires careful planning and consideration of several factors.

• Assessing Business Size and Structure: Employers should evaluate their workforce size and structure to determine the most suitable HRA.
• Evaluating Employee Needs: Understanding employees’ health needs and preferences can guide the selection of the appropriate HRA.
• Compliance and Reporting Requirements: Both HRAs have specific compliance and reporting obligations that employers must meet to ensure legal adherence.

These considerations are essential for a successful implementation process.

What Are QSEHRA and ICHRA? Definitions and Key Features

QSEHRA (Qualified Small Employer Health Reimbursement Arrangement)

QSEHRA is a health reimbursement arrangement designed for small employers. It allows businesses to reimburse employees for qualified medical expenses, including premiums for individual health insurance plans. Key features include:

• Eligibility Criteria: Available only to small employers with fewer than 50 full-time equivalent employees.
• Contribution Limits: IRS sets annual limits, which for 2026 are $6,350 for self-only coverage and $12,800 for family coverage.
• Tax Benefits: Employer contributions are tax-deductible, and reimbursements to employees are tax-free.

These features make QSEHRA an attractive option for small businesses seeking to provide health benefits.

ICHRA (Individual Coverage Health Reimbursement Arrangement)

ICHRA is a flexible health reimbursement arrangement available to employers of any size. It allows reimbursement for individual health insurance premiums and other qualified medical expenses. Key features include:

• Eligibility Criteria: Open to all employers, regardless of size.
• Contribution Flexibility: Employers set their own contribution amounts, tailoring benefits to employee needs. According to the HRA Council’s 2024 annual report, ICHRA adoption grew by over 29 percent year-over-year, with mid-market employers (50-500 employees) as the fastest-growing segment. The average ICHRA reimbursement amount set by employers in 2024 was $687 per month for individual coverage, providing a useful benchmark for Michigan mid-market employers.
• Employee Choice: Employees select their own individual health insurance plans, promoting personalized coverage.

These features position ICHRA as a versatile option for businesses enhancing their health benefits offerings.

Differences Between QSEHRA and ICHRA

Several critical differences between QSEHRA and ICHRA influence employer decisions.

• Employer Size Limitations: QSEHRA is limited to small employers; ICHRA is available to all sizes.
• Contribution Limits: QSEHRA has fixed IRS limits; ICHRA offers flexible contribution amounts.
• Employee Segmentation: ICHRA allows segmentation by criteria such as age or location for tailored benefits.

Understanding these differences is crucial when choosing an HRA.

How Does QSEHRA Work for Small Businesses?

QSEHRA reimburses small businesses for providing health benefits without traditional group insurance. Employers set monthly reimbursement amounts, and employees use these funds for qualified medical expenses. The process includes:

• Setting Contribution Levels: Employers determine monthly reimbursement amounts based on budget and employee needs.
• Employee Enrollment: Employees enroll in individual health insurance plans to qualify for reimbursements.
• Reimbursement Process: Employees submit claims for qualified expenses; employers reimburse up to set limits.

This structure enables small businesses to offer competitive health benefits while managing costs effectively.

What Flexibility Does ICHRA Offer Employers of All Sizes?

ICHRA offers significant flexibility, appealing to businesses of all sizes. Key aspects include:

• Customizable Contribution Amounts: Employers tailor contributions based on employee demographics for personalized benefits.
• Employee Choice of Plans: Employees select individual health insurance plans that meet their needs.
• Segmentation Options: Employers segment employees into classes (e.g., full-time, part-time) to offer varied benefits.

This flexibility allows employers to align health benefits with workforce diversity.

Who Is Eligible for QSEHRA and ICHRA Plans? Eligibility Criteria Explained

Eligibility criteria are essential for employers considering these HRAs.

• Eligibility for QSEHRA: Small employers with fewer than 50 full-time equivalent employees; employees must enroll in individual health insurance plans.
• Eligibility for ICHRA: Any employer size; employees must enroll in individual health insurance plans.
• Reporting Obligations: Employers must provide specific information to employees about benefits and eligibility.

These criteria help determine the suitable HRA for a business.

What Are the QSEHRA Eligibility Requirements for Small Employers?

Small employers must meet these requirements to offer QSEHRA:

• Business Size Requirements: Fewer than 50 full-time equivalent employees.
• Group Health Plan Restrictions: Cannot offer a group health plan while providing QSEHRA.
• Employee Participation Criteria: Employees must be enrolled in individual health insurance plans.

These ensure QSEHRA is effectively used by small businesses.

How Does ICHRA Eligibility Differ for Growing Businesses?

ICHRA offers more flexibility, suitable for growing businesses:

• Employer Size Flexibility: Available to any employer size, allowing adaptation as businesses grow.
• Contribution Limits: No fixed limits; employers adjust contributions based on finances.
• Employee Segmentation: Allows segmentation for tailored benefits that evolve with the business.

This flexibility makes ICHRA attractive for expanding businesses.

How Do QSEHRA and ICHRA Compare on Tax Benefits and Contribution Limits?

Understanding tax benefits and contribution limits is key when evaluating these HRAs.

• Tax Advantages: Both offer tax-deductible employer contributions and tax-free employee reimbursements.
• Contribution Limits: QSEHRA has fixed IRS limits; ICHRA allows employer-determined amounts.
• Employer Deductions: Contributions to both HRAs are deductible, providing financial incentives.

These factors significantly influence employer decisions.

What Are the 2023 IRS Contribution Limits for QSEHRA and ICHRA?

ICHRA has no fixed contribution limits, allowing employers to set amounts based on budget and employee needs.

Understanding these limits is essential for planning health benefits strategies.

How Do Tax Advantages Differ Between QSEHRA and ICHRA?

While tax advantages are similar, key distinctions include:

• Tax Treatment of Contributions: Employer contributions to both HRAs are tax-deductible.
• Employee Tax Benefits: Reimbursements are tax-free for employees.
• Reporting Requirements: Employers must comply with IRS reporting for both HRAs.

These tax benefits make both HRAs attractive to employers.

What Are the Cost Differences Between QSEHRA and ICHRA for Small Businesses?

Cost considerations are critical when comparing these HRAs:

• Cost Predictability of QSEHRA: Contributions are capped, offering predictable costs.
• Flexibility of ICHRA Contributions: Contributions can be adjusted, providing financial flexibility.
• Budgeting for Health Benefits: Employers should consider overall budget impacts when choosing between plans.

These differences affect small business decision-making.

How Can Employers Implement QSEHRA or ICHRA Plans Successfully?

Successful implementation involves:

• Drafting a Plan Document: Formalizing plan terms and conditions.
• Setting Contribution Levels: Aligning contributions with budget and employee needs.
• Compliance and Reporting: Ensuring adherence to IRS regulations and employee communication.

These steps ensure smooth implementation.

What Are the Step-by-Step Enrollment and Compliance Processes?

Key steps include:

• Enrollment Steps for Employees: Providing clear instructions for individual plan enrollment.
• Compliance Requirements: Meeting documentation and reporting obligations.
• Documentation Needed: Maintaining accurate records of contributions and reimbursements.

These processes support successful HRA management.

How Should Employers Communicate Health Benefits Options to Employees?

Effective communication strategies include:

• Clear Communication of Benefits: Providing concise information about HRA options.
• Educational Resources for Employees: Offering materials to help employees understand benefits.
• Feedback Mechanisms: Gathering employee input to improve communication.

These strategies enhance engagement and satisfaction.

What Are Real-World Examples of Businesses Using QSEHRA and ICHRA?

Real-world examples illustrate practical applications:

• Successful Implementations of QSEHRA: Small businesses using QSEHRA to offer affordable benefits while managing costs.
• Benefits Realized by Businesses: Increased employee satisfaction and retention.
• Lessons Learned: Case studies highlight best practices and potential challenges.

These examples demonstrate the effectiveness of both HRAs.

Which Case Studies Highlight Successful QSEHRA Implementation?

Notable case studies include:

• Case Study Example 1: A small tech startup improved employee satisfaction and reduced turnover by implementing QSEHRA.
• Case Study Example 2: A local restaurant chain offered competitive health benefits without high traditional insurance costs.
• Outcomes of Implementation: Positive impacts on morale and business performance.

These insights guide other small businesses in decision-making.

How Have Growing Businesses Benefited from ICHRA Plans?

Growing businesses report benefits such as:

• Flexibility and Customization: Tailored health benefits meeting diverse workforce needs.
• Cost Savings: Reduced costs compared to traditional group insurance.
• Employee Satisfaction: Increased retention through employee choice of plans.

These advantages make ICHRA appealing for expanding companies.

What Common Questions Do Employers Have About QSEHRA and ICHRA?

Common inquiries include:

Can Employees Use ICHRA Alongside a Spouse’s Health Plan?

Yes, employees can use ICHRA alongside a spouse’s health plan, enhancing flexibility and reducing out-of-pocket costs.

Are QSEHRA Contributions Taxable for Employers or Employees?

QSEHRA contributions are not taxable for employees, and employers can deduct these contributions as business expenses, increasing benefit value.

How Do QSEHRA and ICHRA Integrate with Other Employee Benefits?

Integration enhances overall benefits packages:

• Complementary Benefits: HRAs can complement retirement plans and wellness programs.
• Integration Strategies: Coordinated benefits improve employee satisfaction.
• Impact on Overall Benefits Package: A cohesive package attracts and retains talent.

These strategies maximize health benefits effectiveness.

What Are the Options for Combining HRAs with Group Health Insurance?

Employers may combine HRAs with group insurance to enhance benefits:

• Compatibility of HRAs with Group Plans: Understanding interactions is key to maximizing benefits.
• Benefits of Hybrid Approaches: Offering more choices and flexibility to employees.
• Considerations for Employers: Evaluating cost and administrative impacts.

These options improve health benefits strategies.

How Do HRAs Fit Into Overall Employer Health Benefit Strategies?

HRAs are integral to health benefit strategies:

• Strategic Integration of HRAs: Complementing other health benefits for a unified approach.
• Enhancing Employee Benefits: Increasing attractiveness to current and prospective employees.
• Cost Management Strategies: Balancing cost control with valuable coverage.

These considerations support comprehensive health benefits planning.

QSEHRA and ICHRA for Michigan Employers: What You Need to Know Locally

Michigan employees using QSEHRA or ICHRA must maintain qualifying health coverage. They can select individual plans through the federal Healthcare.gov marketplace or directly from carriers such as Blue Cross Blue Shield of Michigan, Priority Health, HAP (Health Alliance Plan), and McLaren Health Plan. Michigan’s individual market is robust, especially in Southeast Michigan, West Michigan, and the Lansing corridor, providing multiple plan and carrier options for employees using either HRA.

Employers with 50 or more full-time equivalents offering ICHRA must structure the arrangement to satisfy the ACA Employer Mandate (Section 4980H) affordability test, set at 9.02 percent of household income in 2026. QSEHRA, available only to employers with fewer than 50 full-time equivalents, does not satisfy the Employer Mandate, making it exclusively a small employer tool.

The Michigan Department of Insurance and Financial Services (DIFS) does not regulate QSEHRA or ICHRA directly, as both are federal IRS-governed arrangements under ERISA. However, Michigan employers must comply with ERISA notice requirements, including providing 90-day advance written notice to employees before the plan year begins for ICHRA. CFH Insurance Consultants assists Michigan employers in navigating these requirements and avoiding common compliance pitfalls in both QSEHRA and ICHRA implementations.

Michigan-Specific Illustrative Scenarios

Scenario 1: A 35-employee Michigan accounting firm, eligible for either QSEHRA or ICHRA, chose QSEHRA after consulting CFH Insurance Consultants. All employees were already enrolled in individual plans from Priority Health and Blue Cross Blue Shield of Michigan. QSEHRA allowed uniform employer contributions up to IRS limits without disrupting existing coverage. The firm valued the simplicity of a single contribution level and avoided the complexity of employee class definitions required under ICHRA.

Scenario 2: A 120-employee Michigan logistics company selected ICHRA because QSEHRA is unavailable to employers with 50 or more full-time equivalents. CFH Insurance Consultants structured the ICHRA with two employee classes: full-time employees receiving $700 per month and part-time employees receiving $350 per month. The arrangement met the ACA Employer Mandate affordability test, eliminated the annual group renewal process, and reduced benefits administration time by approximately 40 percent.

Employers who are new to health reimbursement arrangements should start with our foundational guide: What Is an ICHRA? A Complete Guide for Employers. If your company has 50 or more employees and you are actively looking to reduce benefits spend, explore how mid-market employers are using ICHRA to cut benefits costs while maintaining competitive coverage.

Conclusion

Choosing between QSEHRA and ICHRA requires more than understanding IRS rules; it demands insight into workforce structure, growth plans, ACA obligations, and the Michigan carrier landscape employees will navigate when selecting coverage. CFH Insurance Consultants has guided Michigan employers through this decision for nearly 20 years. As an independent, carrier-neutral broker based in Bloomfield Hills, CFH offers the technical expertise and local market knowledge to help you select, implement, and administer the right HRA from day one. Visit cfhic.com or call (248) 370-8853 to speak with a CFH benefits consultant about the best arrangement for your growing Michigan business.

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To learn more about how these arrangements can benefit your business, contact us today.

For businesses exploring alternative health coverage options, group health insurance remains a viable solution.

If you’re considering offering either a QSEHRA or an ICHRA, it’s essential to understand the specific requirements and benefits of each. Learn more about QSEHRA and ICHRA to determine which option best suits your organization’s needs.