ICHRA vs. QSEHRA: Understand Health Reimbursement Accounts

Health Reimbursement Arrangements including the Individual Coverage Health Reimbursement Arrangement (ICHRA) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) provide healthcare reimbursement options for businesses. ICHRAs are flexible, scalable, easy to administer, and available to businesses of any size but may lead to higher costs for some employees. QSEHRAs are less flexible, have caps on reimbursement amounts and only available to small businesses with less than 50 employees but are more predictable in cost management for both employers and employees.

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I. Main differences between ICHRA and QSEHRA 

ICHRA Overview

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a relatively new health insurance option. It's a health benefit solution that businesses can offer to their employees, no matter the company's size. Employers provide a certain amount of money each month, which employees can then use to buy individual insurance or Medicare policies.

One of the ICHRA’s distinguishing features is that it does not have a maximum contribution limit, which is crucial in giving employers flexibility to design their benefits package. The ICHRA's adjustable character allows businesses to offer different reimbursements depending on factors such as job classification, geographic location, and the number of dependents. Moreover, the reimbursements are tax-free, meaning you don’t have to hold back the funds for taxes each month. 

However, a key drawback to the ICHRA is that employers have the discretion on reimbursements. Some critics argue that it may lessen the employers’ responsibility towards their employees' health care as companies could potentially shift costs to workers. 

QSEHRA Overview

Unlike the ICHRA, the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is only available for small businesses with fewer than 50 employees. It allows employers to reimburse employees tax-free for their individual health insurance premiums and other qualified medical expenses. The advantage of a QSEHRA is that all employees receive the same reimbursement amount, which upholds the principle of equality among the workforce.

Key features of the QSEHRA include annual contribution limits. As of 2020, the cap is $5,250 for self-only employees and $10,600 for employees with a family. These figures are prorated based on when the employee became eligible. The plans are also versatile as they work with any type of health insurance, including coverage from an employee's spouse, short-term health insurance, and more.

A potential drawback of the QSEHRA is the contribution limits, which may not suffice for employees in high-cost areas or with severe health issues. Another drawback is that QSEHRAs must be offered on the same terms to all eligible employees, so employers cannot adjust benefits based on variables like job classification or number of dependents.