What works? An ICHRA or a QSEHRA? It helps to understand the differences. An ICHRA allows businesses to reimburse employees for health insurance, while a QSEHRA is designed for small businesses with fewer than 50 employees and has annual contribution limits. Read on to determine which option best fits your company’s needs.
When comparing an ICHRA vs. a QSEHRA, the key difference is eligibility:
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is for small businesses with fewer than 50 employees.
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is available to businesses of any size, offering greater flexibility.
With HRAs growing in popularity, choosing the right option depends on your company’s size, employee needs, and budget. A recent survey found that 36% of small businesses cite rising employee benefit costs as a top challenge, making HRAs an attractive solution.
Defining ICHRA and QSEHRA
Understanding the differences between an ICHRA and a QSEHRA is key to choosing the right health reimbursement arrangement for your business. Below is a breakdown of how they work and what makes them unique.
What is an ICHRA?
An ICHRA allows businesses of any size to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses.
Introduced in 2020, an ICHRA offers:
Flexibility: Employers can set different reimbursement amounts for different employee classes (e.g., full-time, part-time, seasonal).
Choice: Employees select their own insurance plans, ensuring coverage that fits their needs.
Scalability: Employers can adjust reimbursement levels and employee classes over time, making ICHRA a flexible solution for growing businesses.
Individual marketplace compatibility: Employees can use ICHRA funds for plans purchased through the marketplace or directly from insurers.
What is a QSEHRA?
A QSEHRA is a health benefit designed for businesses with fewer than 50 full-time employees. It allows employers to reimburse their team for individual health insurance premiums and qualified medical expenses on a tax-free basis.
A QSEHRA offers:
Annual contribution limits: Employers must stay within IRS-set reimbursement caps.
Uniform reimbursements: All employees receive the same reimbursement amount, regardless of role or classification.
Simplified administration: Employers can easily manage reimbursements through a streamlined process, avoiding the complexities of traditional group insurance plans.
Tax advantages: Contributions are tax-free for both employers and employees, reducing overall healthcare costs.
QSEHRA is only available to small businesses, so larger companies must explore other health benefit options that offer more flexibility.
Which HRA is right for your business?
When deciding between an ICHRA and a QSEHRA, it’s important to consider the size and structure of your business, as well as your employees’ needs. Let’s break down the benefits of each to help guide you in the right direction.
The benefits of choosing ICHRA
An ICHRA offers a high level of flexibility that can accommodate the unique needs of larger businesses or those experiencing growth. It provides more customization options, which makes it a great choice for companies looking to offer tailored benefits to their employees.
Choose an ICHRA if:
Your business is growing or has over 50 employees.
You want to offer different reimbursement amounts for different employee groups.
You want no reimbursement limits.
You want to offer group health insurance to some employees while others use an ICHRA.
The benefits of choosing QESHRA
A QSEHRA provides simplicity and ease of implementation, making it an attractive option for small businesses with straightforward needs. With fixed contribution limits, it helps smaller companies manage costs effectively while offering tax-free reimbursements.
Choose a QSEHRA if:
Your business has fewer than 50 employees.
You want a simple, tax-free reimbursement structure.
You’re comfortable with a cap on annual contributions.
Getting Your Business HRA Up and Running
Setting up an HRA for your business is straightforward when you know the right steps to follow. By choosing the right type of HRA and leveraging an efficient administration platform you can ensure your employees receive the health benefits they need while managing your costs effectively.
Here’s a step-by-step guide to setting up an HRA for your business.
Step 1. Determine which HRA type fits your group
Deciding which type of plan best suits your business needs is your first priority. An ICHRA is ideal for businesses of any size, especially larger companies or those with varied employee needs.
On the other hand, a QSEHRA is a great choice for businesses with fewer than 50 employees, especially if you want a simpler, more predictable reimbursement structure.
Think about your company’s size, employee demographics, and the level of flexibility you need when making this decision.
Step 2. Choose an administration platform or a TPA
Once you’ve decided on the HRA type, you’ll need to choose an administrator or self admin administration platform to manage the plan. A good platform can streamline the process, ensuring contributions, reimbursements, and compliance are handled smoothly.
Step 3. Figure out how much to pay and the rules
After selecting your HRA type and platform, the next step is to define your reimbursement amounts and policies, which an administrator can help you do. With an ICHRA, you’ll have the flexibility to establish different reimbursement levels based on employee classes. With a QSEHRA, the amount is capped by law.
It’s important to consider your budget and employee needs when determining reimbursement amounts. If you’re using an ICHRA, your ICHRA administrator can help you clearly define which employee groups will receive different amounts and ensure your reimbursement policies comply with legal requirements.
Step 4. Share the plan with the team and get everyone on board
Clear communication is key to ensuring your employees understand and can take full advantage of the new benefit. Work with your platform administrator to be transparent about how the HRA works, how employees can submit claims for reimbursement, and any important deadlines.
An administrator can also ensure your plan complies with federal and state regulations, particularly when it comes to offering tax-free reimbursements. By following these steps, you can set up an HRA that benefits both your business and your employees.
Click below to download our QSEHRA vs ICHRA comparison chart