Traditional group health insurance can be expensive and complicated for a small business. Two alternatives — the QSEHRA and the ICHRA — let employers reimburse employees tax-free for individual health insurance and medical expenses, with a fixed, predictable budget.
Key takeaways
- Both are health reimbursement arrangements (HRAs): the employer sets an allowance, employees buy their own coverage, and reimbursements are tax-free.
- QSEHRA: only for employers with fewer than 50 full-time employees, with annual IRS caps.
- ICHRA: any size employer, no maximum allowance, and allowances can vary by employee class.
- Owners of sole proprietorships, partnerships and most S corporations generally can’t participate themselves.
How an HRA works
- The employer chooses a monthly allowance.
- Employees buy individual health insurance (on the Marketplace or directly from an insurer).
- Employees submit proof of premiums or eligible expenses.
- The employer reimburses them, up to the allowance, tax-free.
Employers only pay for what’s actually reimbursed, and there’s no group plan to manage or minimum participation requirement.
QSEHRA vs. ICHRA
| QSEHRA | ICHRA | |
|---|---|---|
| Employer size | Fewer than 50 full-time employees, no group plan | Any size |
| Allowance limits | Annual IRS maximums (adjusted each year) | No maximum |
| Vary by employee | Only by age and family size | By employee class (e.g., full-time, part-time, location) |
| Employee coverage required | Minimum essential coverage | Individual health insurance or Medicare |
| Effect on premium tax credits | Reduces the credit by the allowance | Employee can’t get a credit if the ICHRA is “affordable”; can opt out if not |
| Counts for ACA employer mandate | N/A (small employers) | Yes, if affordable |
Pros for employers
- Predictable costs — you set the budget
- Tax-deductible reimbursements, with no payroll taxes
- No group plan administration or participation minimums
- Employees choose plans that fit their own doctors and needs
Things to watch
- Written plan documents and required employee notices (usually 90 days before the plan year)
- Interaction with premium tax credits — employees need clear guidance
- Individual market quality varies by area; check what plans your employees can buy
- Using an HRA administrator can simplify compliance
Can business owners use them?
Sole proprietors, partners and more-than-2% S corporation shareholders generally can’t participate in their own HRA. They can usually use the self-employed health insurance deduction instead. C corporation owners who are employees can often participate.
Frequently asked questions
Does an ICHRA create a Special Enrollment Period?
Yes. Newly gaining access to an ICHRA or QSEHRA lets employees enroll in or change individual coverage outside open enrollment.
Can an ICHRA reimburse Medicare premiums?
Yes, for employees enrolled in Medicare, if the employer’s plan allows it.
Can I offer an ICHRA and a group plan?
Yes, but not to the same class of employees. For example, a group plan for full-time staff and an ICHRA for part-time staff.
Related: Health insurance for the self-employed
Sources: IRS Notice 2017-67 (QSEHRA); HHS, DOL and Treasury HRA final rule (ICHRA); HealthCare.gov. Rules are complex — consult a benefits or tax professional. For education only. Last reviewed October 2026.
