QSEHRA vs ICHRA: Pick the Reimbursement That Fits

Written By Stoy Hall

You don’t need another alphabet soup article. You need the truth about which reimbursement model actually fits your business right now, how much to budget, and a rollout plan that your people understand the first time.

Today we’ll pit QSEHRA and ICHRA head-to-head, in plain English. I’ll show you where each wins, where it backfires, how to keep this compliant, and a one-page selection flow you can run in 15 minutes.

I’m talking to you like we’re sitting across the table. Let’s get to the point.

What Each One Is, in Real Terms

QSEHRA (Qualified Small Employer HRA).
A tax-free allowance only for truly small employers. You can’t offer a group health plan at the same time. You give employees a monthly, employer-funded allowance to reimburse premiums and eligible medical expenses once they prove they have minimum essential coverage (MEC). 2025 annual caps: $6,350 self-only and $12,800 family. That’s the hard ceiling. IRS+1

ICHRA (Individual Coverage HRA).
A reimbursement arrangement any employer size can use. Employees must be enrolled in individual health insurance (or Medicare) to receive reimbursements. You can vary allowances by employee classes (e.g., full-time vs part-time, salaried vs hourly, location). If you’re an applicable large employer, affordability rules determine whether your ICHRA offer meets the employer mandate. Federal Register+1

Bottom line: QSEHRA is simple but capped and small-employer-only. ICHRA is flexible, class-based, and works at any size, with affordability rules if you’re large.

The 2025 Numbers You Must Know

  • QSEHRA caps (2025): $6,350 single / $12,800 family. You can’t go higher. Period. IRS

  • ICHRA affordability test (for large employers): Your offer is “affordable” if the employee’s cost for the lowest-cost silver plan (single) minus your ICHRA monthly allowance is ≤ 9.02% of household income for plan years beginning in 2025. IRS+1

These two stats drive almost every decision you’ll make.

When QSEHRA Wins

1) You have <50 FTEs and no group plan.
QSEHRA exists for you. If you’re small and want to stop overpaying for group coverage that half your team doesn’t use, QSEHRA makes benefits predictable and portable. It cannot run alongside a group plan, so it’s a clean pivot. IRS

2) You want one allowance, same rules for everyone.
QSEHRA is built for simplicity. Same-terms requirement, clear annual cap, straightforward reimbursements after MEC proof. Admin is light, and employees can shop the individual market that fits their doctors and meds. IRS

3) You need a fast, compliant rollout.
The law requires written notice to eligible employees, generally 90 days before the plan year begins (or by eligibility date for new hires). Get that notice right and you’re in good shape. HealthCare.gov+1

4) Your team’s incomes vary.
Employees who qualify for a Marketplace premium tax credit (PTC) may still benefit, but the PTC coordinates with your QSEHRA offer under IRS rules. Your vendor should flag affordability interactions for employees during enrollment. IRS

Watch-outs: The hard cap can be tight in high-premium regions. And because you can’t offer a group plan concurrently, QSEHRA is an “either/or” strategy.

When ICHRA Wins

1) You need flexibility across roles, locations, or entities.
ICHRA lets you define objective classes (full-time, part-time, salaried, hourly, seasonal, geographic rating area, etc.) and vary allowances by class. If you offer both a group plan to some classes and ICHRA to others, minimum class sizes apply to certain classes to prevent cherry-picking. Federal Register+1

2) You’re 50+ FTE (an ALE) and want mandate compliance.
An ICHRA can meet the ACA employer mandate if it’s affordable relative to the lowest-cost silver plan, using the 9.02% 2025 threshold and allowed safe harbors. This turns your reimbursement into a mandate-compliant offer. IRS

3) You want to steer choice without managing a group plan.
ICHRA shifts plan selection to the individual market while you set the monthly budget. You can design the ICHRA to reimburse premiums only, or premiums plus 213(d) expenses. Federal Register

4) You may pair with HSAs.
HSA contributions remain allowed only if the employee has an HSA-qualified HDHP and your ICHRA is HSA-compatible (e.g., premium-only or post-deductible/limited-purpose). Don’t accidentally kill HSA eligibility by reimbursing pre-deductible out-of-pocket costs. IRS

Watch-outs: You must deliver a 90-day ICHRA notice annually with specific content and allow employees to opt out if they want a PTC when your offer is unaffordable. Centers for Medicare & Medicaid Services

Side-by-Side: QSEHRA vs ICHRA (What Actually Matters)

Employer size

  • QSEHRA: <50 full-time equivalents only. No concurrent group plan. IRS

  • ICHRA: Any size. Can replace group coverage for some or all classes; if mixing with group, heed class rules. Federal Register

Allowance limits

  • QSEHRA: Capped at $6,350 single / $12,800 family (2025). IRS

  • ICHRA: No statutory cap; budget is up to you. Affordability matters for large employers. Federal Register

Employee eligibility

  • QSEHRA: Must have MEC to receive tax-free reimbursements. IRS

  • ICHRA: Must be enrolled in individual coverage (on or off Exchange) or Medicare. IRS

Class design

  • QSEHRA: Same terms for eligible employees; simple. IRS

  • ICHRA: Multiple classes allowed with guardrails; minimum class sizes apply when mixing ICHRA and group plan for certain classes. Take Command Health

Notices

HSA compatibility

  • QSEHRA: General-purpose reimbursements typically disqualify HSA contributions.

  • ICHRA: HSA-compatible if premium-only or post-deductible/limited-purpose. IRS

PTC interaction

The Clean Selection Flow (Use This)

Step 1 — Are you under 50 FTE and dropping group coverage?

  • Yes: Start with QSEHRA. It’s the simplest, capped, and clean. IRS

  • No: Go to Step 2.

Step 2 — Do you need different benefits by role or location?

  • Yes: Choose ICHRA and design classes (full-time, part-time, geographic area, salaried/hourly, etc.). If you keep a group plan for some employees, confirm minimum class sizes. Take Command Health

  • No: Go to Step 3.

Step 3 — Are you an ALE (50+ FTE) that must meet the mandate?

  • Yes: Use ICHRA and set allowances to pass affordability using 9.02% for 2025. IRS

  • No: Either model can work. Pick based on caps, admin appetite, and your market’s individual-plan quality.

Step 4 — Is HSA a must-have for your people?

  • Yes: Make sure your design preserves HSA eligibility. For ICHRA, restrict to premium-only or post-deductible/limited-purpose reimbursements. IRS

  • No: Use the broader reimbursement design that employees will use most.

Done. You have a direction.

Budgeting: What To Model Before You Announce Anything

1) Your monthly allowance strategy.

  • QSEHRA: Stay within the 2025 caps; model single and family. Consider pro-rating for mid-year hires. IRS

  • ICHRA: Start with your current per-employee cost. If you’re an ALE, run the affordability math against local lowest-cost silver premiums for each work location and safe harbor you plan to use. IRS

2) Local premium reality.
Individual market quality varies by county. Check that employees can buy plans with the doctors and drugs they actually use. Your vendor or broker can run a provider and formulary match during design.

3) Participation scenarios.
For ICHRA, plan for opt-outs if the allowance is unaffordable for some employees. Decide whether you’re okay with those employees pursuing premium tax credits instead. Centers for Medicare & Medicaid Services

4) HSA considerations.
If you want to encourage HSAs, design ICHRA as premium-only or post-deductible, and teach HSAs clearly. Pub 969 spells out what HRAs are compatible. IRS

Compliance Checklist You Can Copy

QSEHRA

  • Confirm <50 FTE and no group plan during any month you offer QSEHRA. IRS

  • Set 2025 caps in your plan document: $6,350 / $12,800. IRS

  • Issue 90-day written notice; include allowance amount and tax notes. HealthCare.gov

  • Reimburse only after employees show MEC. Keep substantiation on file. IRS

ICHRA

  • Build classes using objective criteria; if you keep a group plan for other classes, confirm minimum class sizes where required. Take Command Health

  • Deliver the annual 90-day notice with required content, including opt-out and PTC explanations. Centers for Medicare & Medicaid Services

  • Require employees to maintain individual coverage and substantiate at least annually. IRS

  • If you’re an ALE, test affordability at 9.02% for 2025 using allowed safe harbors. Document your method. IRS

Rollout Playbooks (Choose One)

A) QSEHRA “Simple and Done” Playbook

  1. Decide the monthly allowance for single and family within 2025 caps. IRS

  2. Publish a one-pager: who’s eligible, what counts, how to submit proof of MEC and receipts, and monthly reimbursement timing.

  3. Send the 90-day notice and enroll new hires on eligibility date. HealthCare.gov

  4. Host a 30-minute live demo on how to shop plans and avoid junk policies.

  5. Audit after 60 days for anyone stuck on substantiation and help them over the hump.

B) ICHRA “Flexible and Targeted” Playbook

  1. Map your classes (e.g., full-time vs part-time; TX vs IL). If keeping a group plan for a class, verify minimum class sizes for ICHRA classes where required. Take Command Health

  2. Set allowances by class and run affordability for each location if you’re 50+ FTE. IRS

  3. Choose reimbursement scope: premium-only (HSA-friendly) or premium + 213(d) expenses. If HSAs matter, keep it HSA-compatible. IRS

  4. Send the 90-day ICHRA notice with opt-out/PTC language. Build a short quiz employees must pass before election. Centers for Medicare & Medicaid Services

  5. Hold two trainings: how to shop a plan, and how reimbursements work. Record and post.

  6. Day-30 cleanup: fix missing attestations, explain why electing ICHRA blocks PTC when affordable, and assist anyone who should opt out. Centers for Medicare & Medicaid Services

Real-World Scenarios (So You Can See It)

Micro-agency, 12 employees, no HR staff

  • Decision: QSEHRA with $400 single / $800 family per month.

  • Why: Small, no group plan, wants simple administration. QSEHRA caps handle it easily. IRS

  • Tip: Create a “How to shop on Healthcare.gov” screencast and require MEC proof during onboarding. HealthCare.gov

Multi-state contractor, 140 employees, seasonal swings

  • Decision: ICHRA with classes by full-time vs seasonal and by rating area.

  • Why: Needs flexibility by class and location; also an ALE, so the CFO priced allowances to meet affordability at 9.02% in each area. IRS

  • Tip: Use premium-only ICHRA for HSA-eligible shoppers; keep a short HSA training so employees don’t lose eligibility. IRS

Healthcare clinic, 38 employees, strong local hospital network

  • Decision: QSEHRA to exit an overpriced group plan and let staff buy the local EPO on the Exchange.

  • Why: Under 50 FTE, wants out of group plan renewal drama. QSEHRA notice sent 90 days before 1/1. HealthCare.gov

Employee Communication That Actually Works

Tell them the “why.”
“We’re moving to a reimbursement model so you can pick the plan that fits your doctors, and so our budget stays predictable.”

Make shopping foolproof.
Give them the Marketplace link, a carrier directory link, and a one-page checklist: PCP, top meds, hospitals, total monthly cost, and deductibles.

Explain PTC clearly.

  • QSEHRA: Your allowance may affect premium tax credits; here’s how to check before you enroll. IRS

  • ICHRA: If the ICHRA is affordable, taking it means no PTC. If it’s unaffordable, you can opt out and pursue PTC. Include this in the notice and the meeting. Centers for Medicare & Medicaid Services

Protect HSA eligibility.
If you want HSAs in the mix, say it plainly: “Our ICHRA reimburses premiums only so HDHP + HSA users keep eligibility. Don’t submit pre-deductible out-of-pocket costs through the ICHRA.” Pub 969 backs this. IRS

Action Steps For Small Employers

  1. Choose your lane.

    • Under 50 FTE and dropping group: QSEHRA.

    • Need class flexibility or you’re 50+ FTE: ICHRA.

  2. Set 2025 numbers.

    • QSEHRA: Lock allowances ≤ $6,350 single / $12,800 family. IRS

    • ICHRA (ALEs): Price allowances to pass 9.02% affordability vs the local lowest-cost silver plan for single coverage. Document your safe harbor. IRS

  3. Write the notice now.

  4. Pick reimbursement scope.

    • Want HSAs? Make ICHRA premium-only or post-deductible/limited-purpose. IRS

  5. Train and launch.
    Two short live sessions, recorded. Open office hours for week 1. Require a 60-second “election quiz” so no one misunderstands PTC or HSA rules.

  6. 30-day tune-up.
    Fix missing attestations, adjust allowances for affordability misses, and help any opt-outs navigate the Marketplace.

Common Mistakes To Avoid

  • Offering QSEHRA while keeping a group plan. That breaks the rules. QSEHRA requires no group plan during months it’s offered. IRS

  • Ignoring ICHRA class rules when mixing with group. If you split by class, some classes must meet minimum size. Don’t wing it. Take Command Health

  • Forgetting the 90-day notice. Both models expect it. Put it on your calendar and templatize it. HealthCare.gov+1

  • Accidentally killing HSAs. Reimbursing pre-deductible out-of-pocket costs via ICHRA can disqualify HSA contributions. Design it right. IRS

  • Missing affordability for ALEs. If your ICHRA isn’t affordable, employees may opt out and keep PTC. Price it eyes-wide-open. IRS+1

Two Canonical Resources

  • IRS Publication 15-B (2025): QSEHRA rules and 2025 caps. IRS

  • 2019 Final HRA Rules (Federal Register): The backbone of ICHRA class and integration rules. Federal Register

(We cited additional official materials inline where numbers or rules matter.)

Work With Us

Black Mammoth Power Hour — Reimbursement, Sorted
Give me 60 minutes. We’ll pick QSEHRA or ICHRA, set the exact monthly allowances, write your 90-day notice, and map affordability or HSA rules so you launch clean. You walk out with a one-page plan and plug-and-play employee scripts.

Book Here


Stoy Hall https://blackmammoth.com
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