ICHRA vs. QSEHRA: Navigating the Complex Landscape of Health Reimbursement Arrangements

As companies seek more flexibility and customization in offering health benefits to their employees, Health Reimbursement Arrangements (HRAs) have emerged as a potential solution. Within the spectrum of HRAs, two types—ICHRA (Individual Coverage Health Reimbursement Arrangement) and QSEHRA (Qualified Small Employer Health Reimbursement Arrangement)—stand out. While they share similarities, they cater to different organizational needs and have distinct characteristics. Here's a deep dive into the differences between ICHRA and QSEHRA.

1. Eligibility & Employer Size

ICHRA:

• Available to employers of all sizes.

• No restrictions on the number of employees.

QSEHRA:

• Specifically designed for small employers.

• Only available to companies with fewer than 50 full-time equivalent employees.

• Employers offering QSEHRA cannot offer a traditional group health plan to any of its employees.

2. Contribution Limits

ICHRA:

• No maximum contribution limit. Employers can decide how much they want to contribute based on their budget and the needs of their workforce.

QSEHRA:

• Has annual contribution limits set by the IRS. As of the last update in 2022, the annual limits were $5,300 for self-only employees and $10,700 for employees with a family.

3. Offering Structure

ICHRA:

• Allows employers to structure their offerings based on specific employee classes, such as full-time, part-time, seasonal, salaried, hourly, or employees in distinct geographic areas.

• Different classes can receive different reimbursement amounts.

QSEHRA:

• Requires the same terms for all eligible employees, though amounts can vary based on the age of the employee or the number of family members.

4. Employee Health Coverage

ICHRA:

• Employees must have individual health insurance coverage that complies with the Affordable Care Act (ACA) to participate. This includes insurance purchased on the open market or through a state exchange.

QSEHRA:

• Employees can have any type of minimum essential coverage, including catastrophic policies or policies that don't fully comply with ACA requirements.

5. Tax Benefits

Both ICHRA and QSEHRA offer tax benefits:

• Reimbursements are tax-free for employees.

• Employers receive a tax deduction for the reimbursements. However, the specifics of how these benefits are realized might differ based on the company's size and structure.

6. Reporting & Compliance

ICHRA:

• Employers must adhere to specific reporting requirements under Section 6055 and 6056 of the ACA, depending on the company's size.

QSEHRA:

• Requires annual notice to eligible employees about the amount of the monthly allowance. Employers also need to report the amount of the annual benefit on the employee's W-2 under the "Other" section.

7. Affordability & Premium Tax Credits

ICHRA:

• The arrangement can be set up in a way that ensures it is affordable according to ACA standards. If it's deemed unaffordable, employees can opt out of ICHRA and apply for premium tax credits on the ACA exchange.

QSEHRA:

• Employees who receive reimbursements under QSEHRA can still qualify for premium tax credits, but the amount of the credit will be reduced dollar-for-dollar by the QSEHRA allowance.

Conclusion

Both ICHRA and QSEHRA are tools for employers aiming to offer flexible, cost-effective health benefits. While ICHRAs offer greater flexibility for larger employers with diverse workforces, QSEHRAs provide a solution for smaller businesses wanting a simple, budget-friendly approach. Companies must assess their specific needs, size, and employee demographics before determining if this arrangement is the right fit.