QSEHRA and ICHRA: Health Benefits Without a Group Plan

For years the intuitive move — "we can't afford a group plan; we'll just reimburse your premium" — was an ACA violation carrying $100 per day per employee in excise taxes, because a reimbursement arrangement is itself a group health plan that fails the market reforms when standing alone. Congress built two doors out: the QSEHRA (2016) for small employers, and the ICHRA (2020) for everyone. Both let employers put tax-free dollars behind employees' individual-market coverage — with rules that are simple to follow and expensive to freelance. Employers near the 50-FTE line should read this beside the employer-mandate guide: the same count that triggers the mandate closes the QSEHRA.

Qualified Small Employer HRA: for employers with fewer than 50 FTEs that offer no group health plan to anyone. The employer funds it entirely (no salary reductions), up to IRS annual limits indexed each year — one limit for self-only, a higher one for family — on the same terms for all eligible employees (amounts may vary only by age and family size, per the individual-market premium curve). Employees must carry minimum essential coverage for reimbursements to be tax-free, and the arrangement requires a written notice 90 days before each plan year stating the benefit amount — which the employee must report when applying for marketplace subsidies, since the QSEHRA reduces any premium tax credit dollar for dollar. Reimbursements can cover premiums and, if the plan says so, out-of-pocket medical expenses under IRS Publication 502 definitions.

The Individual Coverage HRA drops the size cap and the dollar limits. Any employer may offer any amount — but by class: full-time vs part-time, salaried vs hourly, geographic rating area, seasonal, and a few others, with minimum class sizes when a class gets an ICHRA while another gets the group plan. Within a class, terms must be uniform (age and family-size scaling allowed), and no employee may be offered both the group plan and the ICHRA. Employees must be enrolled in individual coverage or Medicare — verified by attestation — and get a 90-day advance notice explaining the subsidy interaction: an affordable ICHRA offer (measured against the same percentage-of-income standard as the employer mandate) ends marketplace-subsidy eligibility; an unaffordable one lets the employee opt out and keep the subsidy. For ALEs, that affordability math matters twice: an affordable ICHRA to 95% of full-timers satisfies the employer mandate.

Under 50 with a modest budget and no group plan: the QSEHRA's simplicity usually wins. Growing past 50, wanting different treatment for different workforces, or funding above the QSEHRA caps: the ICHRA. The subsidy interaction decides edge cases — for a lower-wage workforce, a small HRA that extinguishes larger marketplace subsidies can leave employees net worse off, so model real employees before launching. Run either through a written plan document, deliver the annual notices on time, collect coverage attestations, and reimburse only against substantiation — administration platforms cost little compared to an excise-tax letter. And note both HRAs still ride the ordinary benefits machinery: ERISA plan documents and the notice calendar apply to them like any other plan.