ICHRA vs QSEHRA

Both are health reimbursement arrangements that let an employer pay employees back, tax-free, for individual health insurance. They come from different laws, and for most employers the choice is made for them by headcount rather than by preference.

• QSEHRA — Qualified Small Employer HRA. Created by the 21st Century Cures Act (December 2016), codified at IRC § 9831(d), available since 2017. Guidance: IRS Notice 2017-67.
• ICHRA — Individual Coverage HRA. Created by the June 2019 tri-agency final rule (84 FR 28888), codified at 26 CFR § 54.9802-4, 29 CFR § 2590.702-2, and 45 CFR § 146.123. Available for plan years beginning on or after January 1, 2020.

The decision in one step

Do you have 50 or more full-time-equivalent employees? Yes → ICHRA is your only option of the two. No → you may choose either, unless you offer a group health plan, in which case QSEHRA is out.

A QSEHRA is restricted to employers that are not Applicable Large Employers and that do not offer any group health plan to any employee. An ICHRA has no size limit and can coexist with a group plan, as long as no single class of employees is offered both.

Side by side

• Employer size. QSEHRA: Fewer than 50 full-time equivalents (non-ALE) · ICHRA: Any size
• Can you also offer a group plan? QSEHRA: No — not to anyone · ICHRA: Yes, but not to the same class
• Annual contribution cap. QSEHRA: Yes, statutory and indexed: $6,450 self-only / $13,100 family (2026) · ICHRA: None — employer sets the allowance
• Employee classes. QSEHRA: No class structure; must offer to substantially all eligible employees on the same terms · ICHRA: 11 permitted classes, each with its own allowance
• Permitted variation in allowance. QSEHRA: By family size and by age (tied to the price of a benchmark policy) · ICHRA: By family size and by age (age variation capped at a 3:1 ratio)
• Employee coverage required. QSEHRA: Minimum essential coverage (MEC) · ICHRA: Individual health insurance coverage, or Medicare A+B / C
• Does a spouse's group plan count? QSEHRA: Yes — MEC is broader, so a spouse's group plan qualifies · ICHRA: No — the employee must be in individual coverage or Medicare
• Premium tax credit. QSEHRA: Employee may claim PTC, reduced dollar-for-dollar by the QSEHRA amount, if the QSEHRA is unaffordable · ICHRA: Employee is ineligible for PTC if the ICHRA is affordable; if unaffordable, they must opt out to claim it
• Opt-out right. QSEHRA: Not applicable in the same way — QSEHRA is not an offer of coverage that blocks PTC outright · ICHRA: Required at least annually
• Satisfies the employer mandate (§ 4980H)? QSEHRA: Not applicable — QSEHRA employers are not ALEs · ICHRA: Yes, if affordable and offered to substantially all full-time employees
• Notice deadline. QSEHRA: At least 90 days before the plan year · ICHRA: At least 90 days before the plan year
• W-2 reporting. QSEHRA: Yes — box 12, code FF (permitted benefit) · ICHRA: No equivalent code required
• Reimburses Medicare premiums? QSEHRA: Yes · ICHRA: Yes
• Subject to COBRA? QSEHRA: No · ICHRA: Yes — an ICHRA is a group health plan
• Subject to ERISA? QSEHRA: No · ICHRA: Yes — the HRA itself is an ERISA plan

The differences that actually change the decision

1. The contribution cap

This is usually the first thing that decides it. A QSEHRA is capped by statute and indexed each year; an ICHRA is not capped at all. If the employer wants to fund a meaningful share of a family premium in a high-cost rating area, the QSEHRA cap can be the binding constraint.

For 2026, the QSEHRA caps are $6,450 self-only and $13,100 family (about $537.50 and $1,091.66 per month), set by IRS Rev. Proc. 2025-32 under the IRC § 9831(d)(2) indexing rules. (Verified 2026-08-03; the caps reset each year in an October revenue procedure — re-check annually.)

2. What coverage the employee must have

A QSEHRA requires minimum essential coverage — a broad category that includes a spouse's group health plan. An ICHRA requires individual coverage or Medicare specifically, and a spouse's group plan does not qualify.

This is a real, practical difference. If a meaningful share of the workforce is covered under a spouse's employer plan, those employees can be reimbursed under a QSEHRA and cannot be reimbursed under an ICHRA.

3. The premium tax credit interaction

The two arrangements treat the PTC differently, and the QSEHRA treatment is gentler:

• QSEHRA: the employee can still receive a PTC, but the credit is reduced dollar-for-dollar by the QSEHRA permitted benefit. There is no all-or-nothing election.
• ICHRA: an affordable ICHRA makes the employee ineligible for the PTC entirely. If it is unaffordable, the employee must choose — take the ICHRA, or opt out and take the credit.

For a workforce with many lower-income employees who qualify for substantial subsidies, this difference matters a great deal and is worth modelling before choosing.

4. Classes

An ICHRA can be segmented into 11 permitted classes — full-time, part-time, seasonal, employees in a waiting period, employees covered by a collective bargaining agreement, salaried, non-salaried, employees in the same insurance rating area, temporary employees of staffing firms, foreign employees with no US-source income, and permitted combinations. Each class can get a different allowance, and different classes can be offered a group plan instead.

A QSEHRA has no class structure. It goes to substantially all eligible employees on the same terms. (A QSEHRA may exclude certain categories — for example employees under 25, part-time or seasonal employees, those with less than 90 days of service, and certain union and nonresident alien employees — but it does not support tiered allowances by class the way an ICHRA does.)

Note that ICHRA class flexibility comes with minimum class size rules whenever the employer splits between a group plan and an ICHRA. See compliance requirements.

5. Administrative load

An ICHRA is a group health plan for ERISA and COBRA purposes; a QSEHRA is not. That means the ICHRA carries a plan document, an SPD, COBRA administration, § 105(h) nondiscrimination testing, and PCORI fee filing. The QSEHRA's counterpart obligation is lighter but not zero — notably the annual notice and W-2 box 12 code FF reporting.

Which tends to fit whom

Neither is better in the abstract. The honest pattern:

A QSEHRA tends to fit an employer under 50 FTEs, with no group plan and no intention of adding one, whose intended contribution sits comfortably under the statutory cap, and whose employees include people covered by a spouse's plan.

An ICHRA tends to fit an employer at or above 50 FTEs (where it is the only choice), or a smaller employer that wants to contribute more than the QSEHRA cap allows, wants to vary the allowance across classes, or wants to keep a group plan for one group while moving another to individual coverage.

If both are open to you and the decision is close, model the PTC effect on your actual workforce before anything else. It is usually the largest single dollar difference.

Primary sources

• IRC § 9831(d) — QSEHRA
• IRS Notice 2017-67 — QSEHRA guidance
• 21st Century Cures Act, Pub. L. 114-255, § 18001
• 26 CFR § 54.9802-4 · 29 CFR § 2590.702-2 · 45 CFR § 146.123 — ICHRA
• 84 FR 28888 (June 20, 2019) — ICHRA final rule and preamble
• IRS Publication 15-B — Employer's Tax Guide to Fringe Benefits
• IRC § 4980H — employer shared responsibility
• The current-year IRS revenue procedure setting inflation-adjusted QSEHRA limits

FAQ

Can an employer offer both a QSEHRA and an ICHRA? No. A QSEHRA requires that the employer offer no group health plan, and an ICHRA is a group health plan. Offering an ICHRA disqualifies the employer from maintaining a QSEHRA.

Is a QSEHRA better than an ICHRA for a small business? Neither is better in general. A QSEHRA is simpler and carries no ERISA or COBRA obligation, but it is capped and cannot be varied by class. An ICHRA is uncapped and flexible but carries more administration. The PTC treatment and the spouse's-plan question usually decide it.

Does a spouse's group health plan count for an ICHRA? No. An ICHRA requires the employee to be enrolled in individual health insurance coverage or Medicare. A spouse's group plan satisfies a QSEHRA's MEC requirement but not an ICHRA's.

Can an employer switch from a QSEHRA to an ICHRA? Yes. There is no prohibition on moving between them, but each has its own plan document, notice, and timing requirements, and the 90-day notice applies to the new arrangement.

Is there a contribution limit on an ICHRA? No. The employer sets the allowance. Only the QSEHRA has a statutory annual cap.

Do employees have to prove they have coverage? Yes, under both. Substantiation of enrollment is a requirement, not an optional control.

Not sure which one you're eligible for? SimplyHRA administers both ICHRAs and QSEHRAs — plan documents, notices, substantiation, and reimbursement tracking. Schedule a consultation.

This article is general information, not tax, legal, or benefits advice. Confirm current-year figures against the primary sources cited above and consult your own advisers before making a benefits decision.