QSEHRA and ICHRA: The Difference Between Qualified Small Employer HRA and Individual Coverage HRA Plans

White House Announces New HRA Plans in 2020

The Health Reimbursement Arrangement (HRA) model has made it possible for more employers to provide health care benefits for their employees with complete control over costs and plan designs. There are multiple HRA types to choose from, such as the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) , and as of January 2020, employers can offer the newest HRA option—the Individual Coverage Health Reimbursement Arrangement (ICHRA) .

While having more HRA options is great for employers, you may be wondering whether the QSEHRA or the ICHRA is best for your company, so we’ve prepared a guide to help you understand how they work.

What is the QSEHRA?

As of January 2017, companies with 50 full-time employees or less can opt for the Qualified Small Employer HRA to cover employee medical costs and individual insurance premiums. Employers set a monthly allowance for employees’ medical expenses, and when an employee incurs an out-of-pocket medical cost, they submit it for verification before receiving a reimbursement from that allowance.

The IRS sets monthly and yearly maximum allowances for the QSEHRA, so an individual can receive up to $5,150 a year and families can receive up to $10,450 a year, usually divided into monthly increments. The allowance rolls over month to month and year to year, but it cannot exceed these allowance caps.

To summarize: The QSEHRA offers small employers the opportunity to provide health care benefits to attract and retain talented workers in situations when group insurance plans aren’t a possibility.

What is the ICHRA?

Starting in January 2020, employers can use the Individual Coverage HRA, which provides more flexibility for employers of all sizes. For example, a large company that provides group insurance for full-time employees may offer ICHRA benefits for part-time or seasonal employees.

With this HRA type, employers fund a monthly allowance to reimburse ICHRA-eligible employees for qualified medical expenses and health insurance premiums. To qualify for reimbursements from an ICHRA, employees must be enrolled in an individual health insurance plan and cannot receive premium tax credits.

There are no limits on the allowance set for ICHRA funds, but employers should offer the same amount to employees in the same class (e.g. all seasonal employees should receive the same monthly allowance). This allowance rolls over month to month and year to year (unless the employee leaves the employer—in this case, the HRA doesn’t go with them).

To summarize: The ICHRA gives employers more ways to offer employees health care benefits when they don’t qualify for a QSEHRA because of their size.

What are the Key Differences Between QSEHRA and ICHRA?

Eligibility

Employers

QSEHRA
  • Businesses with 50 full-time employees or less that don’t offer group insurance can offer QSEHRA benefits for all employees

ICHRA
  • Businesses of any size, regardless of whether they offer group insurance plans, can provide ICHRA benefits for some or all employees.

Employees

QSEHRA
  • Any employee can qualify for individual and family QSEHRA benefits no matter their worker class status.

ICHRA
  • An employer may choose to offer ICHRA benefits to all employees if there is no group insurance plan in place, or they can offer benefits to certain classes of employees such as full-time or part-time, workers in certain locations, or hourly vs. salaried workers. Employee classes and minimum group sizes are defined in this IRS Fact Sheet (Page 3).

Individual and Group Insurance Qualifications

QSEHRA
  • Employees with an individual insurance plan, coverage through a spouse, alternative health care coverage, or no insurance can qualify for benefits through the QSEHRA.

ICHRA
  • Employees must have coverage through an individual health insurance plan or Medicare (Parts A, B, or C) to qualify for benefits through the ICHRA.

  • Employees enrolled in a company’s group insurance plan cannot be given the option to participate in that same company’s ICHRA program.

What do the QSEHRA and ICHRA have in common?

Because the QSEHRA and the ICHRA are both types of HRAs, they function the same way:

  • Employers set the monthly reimbursement allowance for employees using tax-exempt funds.

  • When an employee spends money on a qualified medical expense or pays for their individual health insurance premiums, they can submit their proof of payment to the employer for reimbursement.

  • The employer verifies the expense and draws on the HRA funds designated for that employee to reimburse the cost.

  • Businesses are exempt from payroll taxes on money they spend reimbursing employees for eligible medical expenses, and employees who have their own health insurance plan don’t pay income or payroll taxes on reimbursements either.

Reimbursement Allowance and Rollover

QSEHRA
  • The IRS sets yearly and monthly maximum allowances for the QSEHRA, so an individual can receive up to $5,150 a year ($429.17 a month) and employees who need family coverage can receive up to $10,450 a year ($870.83 a month).

  • The allowance rolls over month to month and year-to-year, but it cannot ever exceed those allowance caps.

ICHRA
  • There are no limits on the maximum allowance a company can offer through the ICHRA, but they have to offer the same amount to employees of a certain class.

  • The allowance rolls over month to month and year to year.

Premium Tax Credits

QSEHRA
  • Employees who receive premium tax credits to pay for health insurance premiums can still participate in the QSEHRA, but the reimbursement amounts they receive will directly reduce their tax credit amounts.

ICHRA
  • Employees who receive premium tax credits to pay for health insurance premiums cannot also receive reimbursements through the ICHRA program.

Which Option Is Right for You?

The right option for your company will depend on many factors. Consider your company and the benefits you currently offer employees when considering the QSEHRA and the ICHRA.

Do you employ less than 50 full-time workers? Is it unfeasible to offer a group insurance policy for employees? Do you want to provide health care benefits to attract and retain top talent? Then a QSEHRA may be a great option for your business.

Meanwhile, if you have a large company with over 50 full-time employees, but you want to extend health care benefits to part-time, hourly wage workers, and employees living abroad, then incorporating an ICHRA into your benefits program may be a great choice.

We hope our guide makes understanding the differences of the QSEHRA and the ICHRA clearer as a fresh benefits plan year approaches with another HRA option on the scene.

Find a flexible HRA benefits plan that will best serve the needs of your company and your employees.

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By |2019-11-25T08:50:12-05:00November 22nd, 2019|HRAs|
Disclaimer: ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.