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
Individual and Group Insurance Qualifications
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
Premium Tax Credits
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.
