The short answer: a QSEHRA is built for small employers with fewer than 50 employees who offer no group health plan, and it has a yearly dollar cap. An ICHRA (now called a CHOICE Arrangement) is open to employers of any size, has no annual maximum, and can be tailored by employee class. Both reimburse employees tax-free for health coverage and medical costs instead of putting everyone on one group plan. The right choice comes down to your headcount, your budget and how much control you want over who gets what.
TL;DR
- Size: employers of any size with at least one employee can offer a CHOICE Arrangement (ICHRA). A QSEHRA is limited to employers with fewer than 50 employees and no group health plan.
- Money: a QSEHRA is capped each year ($6,450 employee-only and $13,100 for families in 2026). An ICHRA has no annual maximum.
- Tax credits: both can affect an employee's Marketplace premium tax credit, so the way you set the allowance matters to your people.
- Flexibility: an ICHRA can be offered to some employee classes while others keep a group plan. A QSEHRA generally must be offered on the same terms to all eligible employees.
- Next step: before you set an allowance, have your team's current coverage reviewed so nobody ends up with a gap.
Table of Contents
- ICHRA and QSEHRA in plain language
- ICHRA vs. QSEHRA side by side
- Who can offer which
- Contribution limits and budgeting
- How each one affects premium tax credits
- Enrollment timing
- What to plan for with each option
- Is ICHRA growing?
- Which should you choose?
- Get help comparing coverage
- FAQ
- Sources
ICHRA and QSEHRA in plain language
Both are health reimbursement arrangements (HRAs). You, the employer, set a monthly or yearly allowance. Employees pick their own health insurance, pay for it, and you reimburse them. Reimbursements are tax-free for the employee and a deductible expense for the business.
Per HealthCare.gov, a CHOICE Arrangement, formerly called an ICHRA, lets employers of any size reimburse employees tax-free for qualifying medical expenses, including individual coverage or Medicare premiums. A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is the smaller-employer version, available to those who don't offer group health plan coverage.
You will still see "ICHRA" everywhere, including in search results and vendor material, so this guide uses ICHRA and CHOICE Arrangement as the same thing.
How an ICHRA works day to day
- You decide which employee classes get an offer (for example full-time, part-time, or by location).
- You set an allowance for each class. The amount can vary by class, within the rules.
- Employees buy individual health insurance on or off the Marketplace.
- They show proof of coverage and you reimburse them, usually through monthly payroll or an administration platform.
Employees who use an ICHRA need individual health insurance coverage, and QSEHRA reimbursements require minimum essential coverage. HealthCare.gov also notes that employees must maintain minimum essential coverage to receive reimbursements from either arrangement.
How a QSEHRA works
The mechanics look similar: set an allowance, employees buy coverage, you reimburse. The differences are in the guardrails. The allowance is capped by the IRS each year, and a QSEHRA employer is prohibited from offering any other group health plan coverage to any employees.
ICHRA vs. QSEHRA side by side
| Feature | ICHRA (CHOICE Arrangement) | QSEHRA |
|---|---|---|
| Who can offer it | Employers of any size with at least one employee | Employers with fewer than 50 employees and no group health plan |
| Annual contribution limit | No annual maximum | $6,450 employee-only, $13,100 family (2026) |
| Can sit alongside a group plan | Yes, if offered to a different employee class | No |
| Employee classes | Can offer different allowances to IRS-defined classes | Generally the same terms for all eligible employees |
| Employee must have | Individual health insurance coverage | Minimum essential coverage |
| Effect on premium tax credit | Accepting an offer bars the credit | Affordable benefit bars the credit; unaffordable reduces it |
The limits and size rules come from HealthCare.gov's HRA guide. The limits are adjusted by the IRS, so confirm the current figure on that page before you set your budget.
Who can offer which
Employer size and existing coverage
This is the first filter. If you have 50 or more employees, a QSEHRA is off the table. If you are under 50 but already offer a group plan to anyone, a QSEHRA is also out, because those employers must not offer other group coverage.
An ICHRA has no size ceiling. An employer may even run one alongside a traditional group plan, provided the ICHRA goes to a different employee class. That suits, for example, a company that keeps a group plan for full-time staff and reimburses individual coverage for part-timers or remote employees in other states.
Which employees you can leave out
With a QSEHRA, the plan must generally be provided on the same terms to all eligible employees. The IRS lets you exclude employees who have not completed 90 days of service, are under age 25, are part-time or seasonal, are covered by certain collective bargaining agreements, or are certain nonresident aliens.
An ICHRA works by class instead. You choose classes defined by the IRS and set allowances for each. That is where its extra flexibility, and its extra paperwork, comes from.
Contribution limits and budgeting
A QSEHRA has a hard ceiling. For 2026, the maximum is $6,450 for employee-only coverage and $13,100 for families. Employers with a tight, predictable budget often like that: you know the most you can spend per person.
An ICHRA has no annual maximum. You decide the amount. Many employers set allowances that rise with age or family size, since premiums do, though the rules around class-based variation are specific, so confirm the design with your benefits administrator or tax advisor before you launch.
A simple way to budget either one:
- Find what you pay now per employee for group coverage, or what a competitive offer would cost.
- Look at typical individual-market premiums for your employees' ages and ZIP codes.
- Set an allowance that covers a meaningful share of a mid-level plan.
- For a QSEHRA, confirm the number stays under the annual cap.
How each one affects premium tax credits
This is the section employees care about most, and the one employers most often get wrong in communications.
ICHRA
An employee who accepts a CHOICE Arrangement offer cannot get a premium tax credit. If the offer is affordable, covered dependents aren't eligible either. An employee who declines an unaffordable offer may still qualify if otherwise eligible. CMS confirms that when an ICHRA is deemed affordable, the employee and covered family members are ineligible for the credit.
The IRS treats an ICHRA as a group health plan, so it must meet affordability standards to protect employee eligibility for the credit. In practice, an allowance set too low can leave an employee with an offer that is unaffordable and a choice to make.
QSEHRA
With a QSEHRA, an affordable benefit bars the credit. If it is unaffordable, the employee must reduce the advance credit payment by the QSEHRA amount. Affordability for a QSEHRA uses the employee's self-only second-lowest-cost silver plan premium.
The practical lesson is the same for both: tell employees about this before open enrollment, in writing, and encourage them to run the numbers with their tax preparer or an independent agent. If your team also pairs reimbursements with tax-advantaged accounts, it helps to understand how HSA and FSA card acceptance works at the point of purchase. For the account rules themselves, see our guide to HSA vs. FSA limits.
Enrollment timing
Employees who newly gain access to an ICHRA or QSEHRA qualify for a special enrollment period to buy individual coverage. That means you can start an arrangement at a time that suits your business and not only at the Marketplace's annual window. Employees still need time to shop, so build in a few weeks between announcing the benefit and the first reimbursement.
For the annual window itself, see our open enrollment overview. Self-employed owners who are weighing their own coverage can read our self-employed health coverage guide.
What to plan for with each option
Neither arrangement is difficult, but each has parts you should plan for.
With an ICHRA
- Define employee classes carefully and apply them consistently.
- Set allowances so the offer is affordable for the people you want to keep eligible for the best outcome.
- Prepare employees to shop for individual plans, which is a new task for many.
- Choose how you will verify coverage and process reimbursements each month.
With a QSEHRA
- Stay under the annual cap, which changes with the IRS adjustment.
- Offer the same terms to all eligible employees, apart from the permitted exclusions.
- Make sure you offer no other group health plan to anyone.
- Give employees the written notice the rules require before the plan year.
If you outgrow 50 employees, a QSEHRA no longer fits and an ICHRA is the natural next step. Planning that move early avoids a scramble.
Is ICHRA growing?
Yes. Healthcare Dive reported that ICHRA adoption rose 34% from 2024 to 2025 among employers with at least 50 full-time employees. It also reported about 450,000 U.S. employees and dependents were offered an ICHRA or QSEHRA for the 2025 plan year, while noting that a lack of industry-wide data makes nationwide adoption hard to measure. An earlier industry report found ICHRA adoption grew 29% from 2023 to 2024, nearly on par with QSEHRA adoption.
Which should you choose?
Use these situations as a starting point.
- Eight employees, no group plan, want a fixed budget. A QSEHRA is a clean fit. The cap gives you cost certainty and the rules are simple.
- Thirty employees, some in other states, varied needs. Either can work. An ICHRA lets you vary the allowance by class, while a QSEHRA keeps things uniform.
- Sixty employees. A QSEHRA is not available. An ICHRA is the option.
- A group plan you like for full-timers, but part-timers have nothing. An ICHRA for the other class can fill that gap while the group plan stays.
- You want to give a generous allowance above the QSEHRA cap. An ICHRA has no annual maximum.
Whichever you pick, the arrangement only works if employees end up in coverage that fits them. That is where an independent view helps.
Our perspective
A reimbursement plan is only as good as the individual coverage your people buy with it. When we sit down with a business owner, the question is rarely "ICHRA or QSEHRA?" first. It is "what does each employee actually need?" One person has a spouse on another plan, another has a chronic condition and wants a low deductible, another rarely sees a doctor.
That is why we compare options across more than 25 A-rated carriers instead of pushing one product, and why we explain coverage in plain language instead of jargon. Employees who understand their deductible, network and out-of-pocket maximum make better choices with the allowance you give them. Owners who see those choices clearly set better allowances.
Our free policy review looks at what you and your team have now and points out gaps, with no obligation. If an allowance is on your mind, start there, then decide on the structure.
David
Get help comparing coverage
Whether you reimburse or run a group plan, we can help you and your employees understand the coverage in play. Our free policy review looks at your existing policies, explains them in plain language and flags gaps, and it costs nothing. You can also request an insurance quote or read about our health insurance options. Owners can pair this with a look at business insurance to make sure the rest of the company is protected.
Start with a free policy review and we will walk through what you have, what is missing and what your options look like across carriers.
FAQ
Which is better, ICHRA or QSEHRA?
Neither wins everywhere. A QSEHRA suits employers with fewer than 50 employees and no group plan who want a capped, simple benefit. An ICHRA suits employers of any size that want no annual cap or different allowances for different employee classes.
Can a small business use an ICHRA instead of a QSEHRA?
Yes. Employers of any size with at least one employee can offer a CHOICE Arrangement, so a small business can pick either one. The QSEHRA is the option limited to employers with fewer than 50 employees and no group coverage.
Do employees lose their premium tax credit with these plans?
It depends on the offer. Accepting an ICHRA offer bars the premium tax credit. With a QSEHRA, an affordable benefit bars it, and an unaffordable one reduces the advance credit payment by the QSEHRA amount. Employees should confirm their situation with a tax professional.
Can I offer an ICHRA and a group health plan together?
Yes, as long as the ICHRA goes to a different employee class than the group plan. A QSEHRA cannot be combined with group health coverage for any employee.
Sources
- Deciding between group coverage and an HRA, HealthCare.gov
- Health Reimbursement Arrangements for small employers, HealthCare.gov
- FAQ on employer options to offer ICHRAs and QSEHRAs
- IRS Notice 2017-67, Qualified Small Employer HRAs
- CMS, Individual Coverage HRAs overview
- IRS Publication 974, Premium Tax Credit
- RSM, Individual coverage and excepted benefit HRAs
- Healthcare Dive, ICHRA adoption grows
- HRA Council 2024 data report