Employers are always searching for cost-effective ways to provide employees with affordable health benefits that also offer flexibility and choice. Those that have researched a variety of benefits may wonder if ICHRA or QSEHRA is right for their business. While both have emerged as leading solutions that help business owners navigate rising healthcare costs and compliance challenges, each has its own advantages.

Today, many businesses of all sizes are shifting toward Health Reimbursement Arrangements (HRAs), recognizing the value of defined contribution models for health benefits. According to the latest 2024 HRA Council Data Report, ICHRA adoption grew 29% year-over-year, with a staggering 84% increase among large employers (Applicable Large Employers, or ALEs). So how does a business owner decide which arrangement is best?

“In today’s market, the impact of innovative health solutions like ICHRA continue to change the benefits landscape. These solutions are giving both employers and employees the tools they need to tackle healthcare head-on. As we see the power of personalized choices with the HRA Council’s newest data report, it’s becoming clear: the future of employer-sponsored healthcare lies in proactive decision-making and tailored solutions that allow for more employee choice, ensuring a healthier, more empowered workforce.”

Eric Allen, CEO and Founder of Flyte HCM

 

Understanding the Shift to HRAs

The transition from traditional group health insurance to HRAs is largely driven by two key factors: rising healthcare costs and demand for more personalized benefits. Employers, particularly small and mid-sized businesses, often struggle to afford competitive group health insurance. At the same time, employees want more control over their health coverage and need plans that align with their personal and family needs.

This is where Individual Coverage Health Reimbursement Arrangements (ICHRA) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) shine. Instead of offering a one-size-fits-all group plan, employers can set a budget and reimburse employees for qualified medical expenses, allowing them to purchase their own individual policies.

Data-Backed Insights on HRA Growth

The HRA Council’s 2024 report highlights several trends that underscore the growing importance of HRAs:

  • 83% of employers adopting ICHRA or QSEHRA had no previous health coverage, demonstrating how these solutions fill gaps left by traditional group plans.
  • More than 200,000 employees are now covered through ICHRA or QSEHRA, with projections suggesting the market could exceed 500,000 lives soon.
  • High retention rates, 4 in 5 businesses are renewing their HRA each year, proving the sustainability of this benefits model.
  • 60% of employees use their HRA allowance to purchase ACA Gold and Silver plans, ensuring access to quality healthcare coverage.
  • Large employers are increasingly adopting ICHRA, with more than half of new enrollees previously offering traditional group plans. This signals a shift in how businesses approach health benefits.

Key Differences: ICHRA vs. QSEHRA

Both ICHRA and QSEHRA allow employers to reimburse employees for individual health insurance premiums and out-of-pocket medical expenses, but their eligibility and structure differ significantly:

  • ICHRA is available to businesses of any size and offers flexibility in designing benefit classes for different employee groups. There are no contribution limits, making it a scalable solution for growing companies.
  • QSEHRA is designed specifically for small businesses with fewer than 50 employees. It provides tax-free reimbursement within set annual limits and must be offered uniformly to all eligible employees.
  • ICHRA allows businesses to set varying contributions based on employee classes, such as full-time vs. part-time, salaried vs. hourly, or by geographic location. QSEHRA requires uniform contribution across all employees.
  • QSEHRA works alongside premium tax credits, reducing the credit dollar-for-dollar, whereas ICHRA requires employees to waive tax credits if they accept the benefit.
  • ICHRA offers greater long-term flexibility, making it an ideal choice for businesses planning to scale beyond 50 employees.

Beyond these structural differences, factors such as employee demographics, tax considerations, and integration with other benefits play a crucial role in selecting the right plan.

“Not only are a majority of small employers able to offer health insurance for the first time, a majority of their employees have never had their own health insurance. ICHRA and QSEHRA are enabling more Americans to choose quality, ACA-compliant health plans with mental and behavioral health care and other essential benefits.”

Robin Paoli, Executive Director of the HRA Council

 

Employer Considerations When Choosing an HRA

When deciding between ICHRA and QSEHRA, employers should evaluate:

  • Size & Growth Projections: If your business has fewer than 50 employees and wants a simple, fixed-cost solution, QSEHRA may be a good fit. If you anticipate expansion or want to structure benefits for different employee classes, ICHRA offers more flexibility.
  • Budget Control: ICHRA has no contribution limits, allowing for greater control in designing a cost-effective health benefits program.
  • Compliance & Tax Benefits: Employers should consider how each arrangement impacts compliance with ACA, ERISA, and IRS reporting requirements. For example, ICHRA requires annual ACA reporting (Forms 1094/1095), while QSEHRA does not.
  • Integration with Other Benefits: QSEHRA cannot be paired with other group health benefits, whereas ICHRA can be combined with dental, vision, and HSAs.

Download the ICHRA or QSEHRA Comparison Guide

Selecting the right health benefit strategy requires a deeper understanding of the advantages and limitations of ICHRA and QSEHRA. To help employers and brokers make an informed decision, we’ve created ICHRA or QSEHRA: A Complete Comparison Guide, a comprehensive resource that includes:

  • Side-by-side comparison of ICHRA and QSEHRA
  • Common employer FAQs
  • Tips for selecting the right HRA
  • Key compliance considerations

This guide is filled with the latest data and expert insights, helping employers to confidently determine which approach aligns best with their business needs. Download your copy now and take the next step toward a flexible, cost-effective health benefits strategy.