A traditional group plan is not the only way to help your team pay for health insurance. Two reimbursement options, the ICHRA and the QSEHRA, let you give employees a set amount to spend on their own individual plans, and for some small businesses that is a better fit. Here is how the three compare.
You choose a carrier and plan, and your employees enroll in it. You pay a share of the premium, and the carrier's participation and contribution rules apply. It is simple for employees and familiar, but your costs move with each renewal and your team has a limited set of plan choices. See our participation and contribution rules for what carriers require.
An ICHRA lets an employer of any size reimburse employees tax-free for individual health insurance premiums. You set the monthly allowance, and you can vary it by class of employee, such as full-time versus part-time or by location, within the rules. Employees pick their own plan on the individual market, which is useful when your team is spread out or wants different networks. Your budget is predictable because the allowance is fixed, but employees have to shop for a plan themselves, and a high enough allowance can affect whether they qualify for marketplace subsidies.
A QSEHRA is built for employers with fewer than 50 full-time-equivalent employees that do not offer a group health plan. You set an allowance up to an annual maximum that the IRS adjusts each year, and employees are reimbursed tax-free for individual coverage and certain medical expenses. It is simple and inexpensive to run, but it is capped and cannot be paired with a group plan.
A group plan tends to fit teams that want one shared plan and can meet participation rules. An ICHRA tends to fit businesses that want a fixed budget and flexibility for a varied or spread-out team. A QSEHRA tends to fit very small employers that want a low-cost, low-admin way to help with premiums. The right answer depends on your headcount, budget, and how your employees would react, which is where a broker earns their keep. For the full picture of group options, see our complete small business guide.
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An ICHRA is open to employers of any size and has no set annual cap, while a QSEHRA is for employers with fewer than 50 full-time-equivalent employees and has an annual IRS maximum.
Yes, but only to different classes of employees under the ICHRA rules. A QSEHRA cannot be offered alongside a group health plan.
When the arrangement meets the rules, reimbursements of qualifying premiums and expenses are generally tax-free to employees and deductible to the employer. Confirm with your tax professional.
No. An ICHRA is available to employers of any size, which can make it an option when a traditional group plan does not fit.
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