ICHRA vs. QSEHRA: which one fits my business?

Both the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA) let an employer reimburse employees tax-free for individual health insurance, but they suit very different situations.

QSEHRA comes from the 21st Century Cures Act and is limited to employers with fewer than 50 full-time-equivalent employees that offer no group health plan. It has statutory annual caps (for 2026, $6,450 self-only and $13,100 family) and terms must be uniform (varying only by self-only vs. family, age, and family size). Importantly, a QSEHRA is not a group health plan for the ACA market reforms or COBRA, but it remains an ERISA employee welfare benefit plan (plan document, SPD and, unless the small-plan exemption applies, Form 5500 still apply), and reimbursement is reported with W-2 Code FF.

ICHRA is available to employers of any size, has no dollar cap, and allows up to 11 permissible employee classes with different allowances by class. It can be offered alongside a traditional group plan for other classes. But an ICHRA is an ERISA group health plan, so COBRA, Form 5500, and ACA reporting obligations attach.

A rough rule of thumb: a very small employer that wants simplicity and no COBRA often prefers a QSEHRA; a larger employer, or one that wants higher or class-differentiated allowances, generally needs an ICHRA. The two also measure premium-tax-credit affordability against different benchmark plans (see the related FAQ).

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