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ICHRA vs QSEHRA: which reimbursement arrangement fits your company

Both of these arrangements let an employer contribute a set amount toward employees' medical costs, including premiums for individual coverage. They are not interchangeable. The right one depends on your headcount, whether you also want a group plan, and how you want the contribution to interact with Marketplace credits.

HealthCare.gov refers to an ICHRA as a CHOICE Arrangement. The comparison below uses the ICHRA name and the official rules for both designs.

How the two arrangements differ

Who can offer it

  • ICHRA: employers of any size, as long as there is at least one employee who is not a self-employed owner or that owner's spouse.
  • QSEHRA: an employer that is not an applicable large employer (generally fewer than 50 full-time employees, including full-time equivalents, in the prior year) and that does not offer a group health plan to any employees.

Contribution

  • ICHRA: the employer chooses the amount. There is no federal annual minimum or maximum.
  • QSEHRA: the employer chooses the amount, up to the IRS cap. For plan years beginning in 2026, that cap is $6,450 for self-only coverage and $13,100 for family coverage. For plan years beginning in 2027, the cap is $6,700 and $13,550.

Can it sit next to a group plan?

  • ICHRA: yes, but not for the same class of employees. You may offer a group plan (including SHOP) to one class and an ICHRA to another. Minimum class-size rules can apply when both exist.
  • QSEHRA: no. Offering a group health plan to any employees takes the QSEHRA off the table.

How employees get coverage

  • ICHRA: employees must be enrolled in individual health insurance or in Medicare Part A and B, or Part C, to receive reimbursements. Short-term plans and limited benefits such as dental-only or vision-only coverage do not meet that requirement.
  • QSEHRA: employees must have minimum essential coverage, and reimbursements are for qualifying medical expenses, including premiums.

Premium tax credit

  • ICHRA: an affordable offer generally makes the employee (and household members the offer covers) ineligible for a premium tax credit, even if they do not use the ICHRA. If the offer is not affordable, the employee may decline it and, if otherwise eligible, take the credit.
  • QSEHRA: if the arrangement is affordable, a premium tax credit is not allowed. If it is not affordable, the employee must reduce any advance premium tax credit by the QSEHRA amount.

Employee contributions

  • ICHRA: employees may be able to pay the remaining premium with pre-tax payroll deductions if they buy the individual policy outside the Marketplace.
  • QSEHRA: the arrangement must be funded solely by the employer. Salary reduction is not allowed.

Notice
Both generally require a written employee notice at least 90 days before the plan year starts, with a shorter timeline for people who become eligible mid-year. Newly eligible employees may also have a special enrollment period to buy individual coverage.

W-2
A QSEHRA has a specific W-2 reporting rule: box 12, code FF, for the permitted benefit. ICHRA reporting should be set up with your payroll and tax advisor; do not assume the QSEHRA code applies.

When an ICHRA tends to fit

  • You want to offer a group plan to one class of employees and a reimbursement arrangement to another.
  • You want to contribute more than the QSEHRA cap.
  • You expect to cross the applicable large employer line, or you want a design that can continue if you do.
  • You want employees to be able to decline an unaffordable offer and, if otherwise eligible, take a premium tax credit.

When a QSEHRA tends to fit

  • You are clearly under the applicable large employer line and intend to stay there for the plan year.
  • You do not want to sponsor a group health plan.
  • A contribution at or below the IRS cap is enough for your budget.
  • You prefer the statutory design written specifically for eligible small employers.

A third path still exists

A SHOP or other group plan, including a level-funded arrangement, remains an option. SHOP coverage is also generally the path to the Small Business Health Care Tax Credit. A QSEHRA cannot sit beside a group plan. An ICHRA can, but not for the same class of employees.

What we look at with you

We will take your census, the states where people work, whether you want a group plan for any class, and your contribution budget, and we will recommend one structure. We will not present both arrangements as interchangeable products.

Help us compare these for your roster

Frequently asked questions

If we might hire past 50 people next year, which should we start with?

An ICHRA can be offered by employers of any size. A QSEHRA cannot be offered by an applicable large employer. If growth across that line is realistic, design the arrangement with that transition in mind rather than rebuilding mid-year. Your tax advisor should confirm ALE status.

Can we switch from a QSEHRA to an ICHRA later?

Yes, as a planned change, with new notices and a clean end to the QSEHRA. It is not a mid-year relabeling of the same account.

Which one is simpler to administer?

Both require notices, substantiation of coverage, and coordination with payroll. A QSEHRA has a hard contribution cap and a specific W-2 code. An ICHRA has class rules and a different premium-tax-credit test. Administration should not be the only reason you choose.