If your small business doesn't offer group health insurance, you have two ways to reimburse employees' medical expenses tax-free: a QSEHRA or an ICHRA. Both plans work almost the same from a setup and administration standpoint, but one difference matters far more than any other, the type of insurance an employee has determines whether they can participate.
Core Difference Between ICHRA and QSEHRA
Any employee with minimum essential coverage (MEC) can participate in a QSEHRA, while an ICHRA is limited to employees who have individual health insurance or Medicare.
Consequence: QSEHRAs cover almost everyone in your company, while ICHRAs only cover employees who get their insurance on their own.
ICHRA vs QSEHRA Eligibility Comparison
ICHRA vs QSEHRA: How Eligibility Creates Two Distinct Use Cases
The eligibility rule isn't a small detail, it's the reason QSEHRAs and ICHRAs behave so differently in practice. Once you understand who can participate in each plan, the real-world use cases fall cleanly into place.
ICHRA: Designed for Employees Who Need to Buy Their Own Insurance
Because an ICHRA can only be used by employees who have individual health insurance or Medicare, the benefit naturally centers on premium reimbursement. Most employers choose to cover premiums only, since the whole point of the benefit is to support employees who need to purchase their own coverage. When an employer adds out-of-pocket expenses to an ICHRA, the plan becomes subject to §105(h) nondiscrimination rules, which employers typically want to avoid. Reimbursing out-of-pocket expenses also prevents employees enrolled in HSA-qualified HDHPs from contributing to their HSA for that month.
Participation is lower by design. Employees covered under a spouse's, parent's, or other group plan simply aren't eligible, so the number of participants usually drops by a third to a half. The result is that an ICHRA becomes a targeted, flexible, cost-efficient alternative to group insurance, focused almost entirely on premium reimbursement.
QSEHRA: Designed for Every Employee With Any Form of MEC
A QSEHRA works differently because any employee with MEC can participate—including those with individual coverage, Medicare, a spouse's group plan, a parent's plan, COBRA, TRICARE, Medicaid, or any other MEC group coverage. Since many employees don't have individual premiums to reimburse (for example, they're on a spouse's plan), most employers include both premiums and out-of-pocket expenses in their QSEHRA. Premiums paid pre-tax through a spouse's cafeteria plan are typically excluded to prevent creating taxable reimbursements and administrative complications.
Participation usually includes nearly the entire company. Because eligibility is broad, QSEHRAs function as a universal benefit for small teams. The result is a simple, inclusive health benefit that applies evenly across the company, regardless of how employees obtain their insurance.
Other Key Differences: QSEHRA vs ICHRA
Beyond eligibility and use case, a few structural differences help explain why QSEHRAs and ICHRAs function differently inside a business.
Contribution Limits
QSEHRAs have annual IRS caps. For 2026, employers can reimburse up to $6,450 for self-only coverage and $13,100 for family coverage. These limits make QSEHRA a predictable, uniform benefit from year to year.
ICHRAs have no contribution limits, giving employers complete control over allowance levels, an advantage when replacing or competing with group insurance.
Employee Class Flexibility
QSEHRAs operate with a single employee class. All eligible employees receive the benefit on the same terms, with only age and family-size variation allowed.
ICHRAs allow employers to create distinct, non-overlapping classes based on IRS-defined criteria such as full-time vs. part-time, salaried vs. hourly, or different geographic regions. Each class can have its own base allowance, with permitted age and family-size variation inside the class. This makes ICHRA feel much more like a modern, customizable group-plan alternative.
Company Size Rules
QSEHRAs are available only to employers with fewer than 50 full-time equivalent employees.
ICHRAs are available to employers of any size. This naturally positions QSEHRA as a benefit for smaller teams and ICHRA as a structure that scales with growth or ACA compliance needs.
Premium Tax Credit (PTC) Interactions
The two plans interact with premium tax credits very differently. Employees cannot opt out of a QSEHRA. If the QSEHRA is affordable, the employee is not eligible for a PTC. If it is unaffordable, they may still receive a PTC, but the credit is reduced dollar-for-dollar by the QSEHRA amount.
ICHRAs work differently. If an ICHRA is unaffordable, employees may opt out entirely and retain the full PTC. If the ICHRA is affordable, the employee loses eligibility for the credit. QSEHRA either eliminates or reduces the PTC; ICHRA gives employees the ability to reject an unaffordable offer and keep their Marketplace subsidy. (Full affordability rules are explained in our PTC guide.)
Tax Reporting Requirements
For small employers, the administrative burden is low under both plans, but the required filings differ.
QSEHRA allowances must be reported on the employee's W-2 (Box 12, Code FF).
ICHRAs require Forms 1095-B and 1094-B instead.
Outside of this single annual difference, the administrative experience is essentially the same.
QSEHRA vs ICHRA: Key Differences Summary
How ICHRA and QSEHRA Are Similar
Despite these structural differences, QSEHRAs and ICHRAs work almost identically in day-to-day use. For employers, reimbursements under both plans are treated as ordinary business expenses, reducing taxable income just like any other deductible cost. Employees receive the same tax advantage, eligible reimbursements are excluded from income and not subject to payroll taxes.
The reimbursement workflow is the same as well. Expenses can be reviewed manually or automatically, and reimbursements can run as quickly as the next business day through individual ACH transfers. Employers who prefer predictable cash flow can also consolidate all reimbursements into a single monthly ACH pull.
Setup and compliance follow the same process. Employers provide company details, define eligibility, choose eligible expenses, and set allowance amounts. Salusion then generates all required plan documentation—plan documents, summary plan descriptions, annual notices, and the regulatory materials employees must receive. Maintaining either plan throughout the year follows the same workflow, with the sole administrative difference being the annual tax reporting requirement: QSEHRA uses the employee's W-2; ICHRA requires Forms 1095-B and 1094-B.
Employees also experience the plans the same way. They verify coverage, submit expenses, track balances, and receive reimbursements on the same timeline through the same portal. From the employee's perspective, the two plans are indistinguishable.
ICHRA vs QSEHRA: Which Plan Is Right for Your Business?
Once you understand how eligibility shapes the use cases for each plan, the choice between a QSEHRA and an ICHRA becomes straightforward. If you want a benefit that applies to everyone—regardless of where they get their insurance—and you prefer a simple, predictable structure for a small team, a QSEHRA is almost always the better fit. If your goal is to support employees who need to buy their own coverage, replace or avoid a group health plan, or tailor benefits across different employee groups, an ICHRA gives you the flexibility to do that.
Both plans reimburse medical expenses tax-free, both follow the same setup and administrative workflow, and both deliver the same experience for your employees. The question isn't which plan is "better"—it's which one aligns with how your team gets its insurance and how you want to structure your benefit.
Either way, you end up with a compliant, tax-efficient health benefit that gives you control over your budget and gives employees the freedom to choose the coverage that works best for them.
Get Started with Your HRA Today
Whether you choose an ICHRA or QSEHRA, Salusion makes setup simple. We handle all plan documentation, compliance, and ongoing administration, so you can focus on running your business.
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- Internal Revenue Service. "Revenue Procedure 2025-35: Indexed Limits for Qualified Small Employer Health Reimbursement Arrangements." IRS.gov, 2025.
- Internal Revenue Service. "Individual Coverage HRAs: Employee Classes." IRS Notice 2018-88, 2018.
- Internal Revenue Service. "Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)." IRS Publication 15-B, 2025.
- Centers for Medicare & Medicaid Services. "Premium Tax Credits and Employer Coverage." HealthCare.gov, 2025.
- Internal Revenue Service. "Reporting Requirements for Health Reimbursement Arrangements." IRS.gov, 2025.
- Internal Revenue Service. "Health Reimbursement Arrangements (HRAs)." IRS Publication 969, 2025.
