The core difference: a QSEHRA is only for employers with fewer than 50 employees and has an IRS-set annual contribution cap. An ICHRA works for employers of any size, has no contribution cap, and lets you vary contributions by IRS-defined employee class. Both reimburse employees tax-free for individual health insurance, and both can satisfy the ACA employer mandate when designed correctly. The right pick depends on your size, your budget, and how much flexibility you want.
This guide explains each one in plain English, compares them side by side, and shows when to choose which.
Last updated: June 2026.
Key takeaways
- QSEHRAs are only for employers with fewer than 50 full-time-equivalent employees that do not offer a group plan.
- ICHRAs are open to employers of any size and have no federal contribution cap.
- QSEHRA contributions are capped by an IRS limit set each year; ICHRA contributions are set by the employer.
- ICHRAs let an employer vary contributions across defined employee classes; QSEHRAs apply on the same terms to all eligible employees, with some variation for family size.
- Both reimburse employees tax-free for individual health insurance and can satisfy ACA rules when designed correctly.
QSEHRA vs ICHRA at a glance
| Factor | QSEHRA | ICHRA |
|---|---|---|
| Which employers can offer it | Only employers with fewer than 50 full-time-equivalent employees that do not offer a group plan | Employers of any size |
| Annual contribution limit | Yes, an IRS limit that is set each year | No federal limit, the employer decides |
| Employee classes | The same terms for all eligible employees, though amounts can vary by family size | Allowances can vary across defined employee classes |
| What the employee needs | Individual coverage to be reimbursed tax-free | Enrollment in individual health coverage or Medicare |
| Premium tax credits | The employee may still take a partial marketplace subsidy if the QSEHRA is considered unaffordable | If the ICHRA is affordable the employee cannot also take a subsidy; if it is unaffordable they can opt out and take it |
| Best fit | Very small employers who want a simple, capped reimbursement | Employers who want flexibility, classes, or larger contributions |
What Is a QSEHRA?
QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. Congress created it in 2016 to give small businesses a simple, tax-advantaged way to offer health benefits without buying a group plan. Under a QSEHRA, the employer sets a monthly amount (within IRS caps), the employee buys their own individual health insurance, and the employer reimburses qualifying premiums and (optionally) medical expenses tax-free.
QSEHRA is only available to employers with fewer than 50 full-time equivalent employees who do not offer a group health plan. The IRS publishes the annual contribution caps each year in a Revenue Procedure. Search "QSEHRA contribution limit" plus the current year on IRS.gov for the exact figures.
What Is an ICHRA?
ICHRA stands for Individual Coverage Health Reimbursement Arrangement. It was created by a 2019 federal rule from the IRS, the Department of Labor, and HHS and took effect in January 2020. It works like a QSEHRA, but with three key differences: no employer-size limit, no IRS contribution cap, and the ability to vary the contribution by IRS-defined employee class. For a deeper walkthrough, see our ICHRA guide for small businesses.
Side-by-Side Comparison
| Feature | QSEHRA | ICHRA |
|---|---|---|
| Employer size limit | Fewer than 50 FTEs, no group plan | Any size |
| Annual contribution cap | Yes, set by the IRS each year | None |
| Vary contribution by employee class | No (uniform terms, with limited variation for family size and age) | Yes, by IRS-defined classes (full-time vs part-time, salaried vs hourly, geographic rating area, etc.) |
| Interaction with ACA subsidies | Subsidy is reduced dollar-for-dollar by the QSEHRA amount if affordable | Affordable offer disqualifies the employee from a subsidy; unaffordable lets them opt out |
| What can be reimbursed | Premiums and (optionally) eligible medical expenses | Premiums and (optionally) eligible medical expenses |
| Administrative complexity | Lower (uniform terms, capped budget) | Higher up front (class design), then routine |
When QSEHRA Usually Wins
- You have fewer than 50 employees and want the simplest possible plan.
- Your budget per employee is at or below the IRS QSEHRA cap.
- You want a uniform benefit for everyone with no class-design decisions.
- You do not need to offer different amounts to different employee groups.
When ICHRA Usually Wins
- You have 50 or more employees (QSEHRA is not available).
- Your budget per employee exceeds the QSEHRA cap.
- You want to vary the contribution by class (for example, more for full-time than part-time, or different amounts by geographic rating area).
- You want the flexibility to design around a remote or multi-state team.
How Each Affects ACA Subsidies
This is the most-overlooked piece. A lower-income employee who would have qualified for a large ACA premium tax credit can end up worse off under either arrangement if it is considered affordable. The QSEHRA reduces the subsidy dollar-for-dollar. An affordable ICHRA disqualifies the employee from a subsidy entirely for that plan year. A licensed agent can model both before the employer locks in the contribution.
What About a Traditional Group Plan?
If you are still deciding between an HRA approach and a traditional group plan, start with the side-by-side cost comparison: ICHRA vs Traditional Group Health Insurance: Cost Comparison. For the broader landscape of small-employer options, see the pillar: Group Health Insurance Alternatives for Small Businesses. If you are leaning toward a real group medical plan with a more predictable cost structure, also consider level-funded health plans.
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Frequently Asked Questions
What is the difference between a QSEHRA and an ICHRA?
QSEHRA is only for employers with fewer than 50 FTEs and has an annual IRS-set contribution cap. ICHRA has no size limit, no cap, and allows class-based variation.
Can a business with 60 employees offer a QSEHRA?
No. QSEHRA is limited to employers with fewer than 50 full-time equivalent employees. A larger employer must use an ICHRA or another arrangement.
What is the QSEHRA contribution limit?
The IRS publishes separate annual caps for self-only and family coverage and updates them each year. Confirm the current-year figures on the IRS website before setting your QSEHRA budget.
Can I give different employees different amounts under a QSEHRA?
No. QSEHRA requires uniform terms. Only ICHRA lets you vary the contribution by IRS-defined employee class.
How do QSEHRA and ICHRA interact with ACA subsidies?
QSEHRA reduces the subsidy dollar-for-dollar if affordable. An affordable ICHRA disqualifies the employee from a subsidy for that plan year. An unaffordable ICHRA lets the employee opt out and claim the subsidy.
What can be reimbursed under each?
Both can reimburse qualifying individual premiums and (optionally) eligible medical expenses, tax-free to the employee and deductible to the employer.
Which one is simpler to administer?
QSEHRA is simpler because the terms are uniform and the cap is fixed. ICHRA is more flexible, which means more design decisions up front. Most employers use a third-party administrator for either.
Want help deciding between QSEHRA and ICHRA? I'm a licensed independent agent based in Omaha. I can model both for your business and show you which one fits your size, budget, and team. Free consultation, no obligation, no pressure.
Book a free consultation with Nick Depke or call (402) 680-6171.