The first step in understanding the difference is to spell out what these abbreviations stand for. “ICHRA” stands for “Individual Coverage Health Reimbursement Arrangement.” “QSEHRA” stands for “Qualified Small Employer Health Reimbursement Arrangement.”
What Is an Individual Coverage Health Reimbursement Arrangement?
An ICHRA is a new type of health reimbursement arrangement that only became available as of 2020, under Trump administration regulations. It allows employers of any size to reimburse employees, partially or completely, for health insurance premiums, when employees buy insurance on their own. In addition to premiums, ICHRAs can be used to reimburse qualified medical expenses.
ICHRAs allow more flexibility than QSEHRAs in how much employers can reimburse employees. There are no maximum limits; however, employers must offer the same amount to all employees in the same class (in terms of hours worked and duration of employment).
What Is a Qualified Small Employer Health Reimbursement Arrangement?
QSEHRAs became available in 2017. They allow eligible small employers to reimburse employees for individual market health insurance premiums and certain healthcare expenses, such as coinsurance. To qualify for QSEHRA, an employer must have fewer than 50 full-time employees, provide the health reimbursement arrangement to all full-time employees on the same terms, and not offer a group health plan or a flexible spending account (FSA).
Employees must maintain a minimum amount of health coverage that includes an individual Marketplace plan. The IRS sets maximum yearly and monthly allowances under this type of health reimbursement arrangement.
What Are the Main Differences Between the Two Types of HRAs?
The primary differences between ICHRAs and QSEHRAs are in eligibility of employers and employees and insurance qualifications.
Employer Eligibility
A business of any size can provide ICHRA benefits for some or all employees, whether or not it offers a group health plan. Only businesses with 50 or fewer employees that do not offer group health insurance can provide QSEHRA benefits to all employees.
Employee Eligibility
With an ICHRA, a business that does not have a group insurance plan can offer benefits to all employees, or to certain classes of employees (full-time, part-time, workers in certain locations, hourly vs. salaried, etc.) With a QSEHRA, all employees are eligible for benefits, regardless of their worker class.
Insurance Qualifications
To be eligible for benefits under an ICHRA, an employee must have health coverage under an individual plan or Medicare. If the company offers group health insurance, an employee enrolled in the group plan does not qualify for ICHRA benefits through that company. With a QSEHRA, on the other hand, employees with no health insurance, individual health insurance, coverage under a spouse’s plan, or alternative healthcare coverage can qualify.
Review Your Options With an Agent
If your company has fewer than 50 employees, you may be considering an ICHRA or a QSEHRA as a way to offer health benefits to your team. Reimbursement costs are tax-deductible with both health reimbursement arrangements. Our agent can help you determine the best option for your business and your employees.