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ICHRA vs. QSEHRA: Understanding Employer Reimbursements and Marketplace Savings

Employers can help employees pay for health insurance through two types of tax-free reimbursement arrangements — ICHRA (Individual Coverage Health Reimbursement Arrangement) and QSEHRA (Qualified Small Employer Health Reimbursement Arrangement).

Zachary Ortiz avatar
Written by Zachary Ortiz
Updated today

ICHRA (Individual Coverage HRA)

  • Who can offer it: Employers of any size.

  • How it works: The employer sets a monthly allowance that employees can use to be reimbursed for individual Marketplace or other qualified health plans.

  • Coverage requirement: Employees must be enrolled in individual health coverage (not a group plan) to use ICHRA funds.

  • Flexibility: Employers can offer different reimbursement amounts to different employee classes (e.g., full-time vs. part-time, salaried vs. hourly).

  • Subsidy impact:

    • If the ICHRA is considered affordable, the employee cannot receive Marketplace premium tax credits.

    • If the ICHRA is not affordable, the employee may opt out and apply for Marketplace savings instead.

  • An ICHRA is defined as affordable if the employee’s out-of-pocket premium cost for the lowest-cost silver, self-only plan on the marketplace, after the employer's ICHRA contribution, is no more than 9.96% of their household income.

QSEHRA (Qualified Small Employer HRA)

  • Who can offer it: Only small employers with fewer than 50 full-time employees and no group health plan.

  • How it works: Employers provide a fixed, tax-free reimbursement amount for employees to use toward individual health insurance premiums and qualified medical expenses.

  • Uniformity: All eligible employees must be offered the same terms (the same maximum reimbursement amount, prorated for part-year coverage if applicable).

  • Limits: Annual maximum reimbursement amounts are set by the IRS each year.

  • Subsidy impact:

    • If the ICHRA is considered affordable, the employee cannot receive Marketplace premium tax credits.

    • If the ICHRA is not affordable, the employee may opt out and apply for Marketplace savings instead.

      • A QSEHRA is defined as affordable if the employee’s out-of-pocket premium cost for the lowest-cost silver, self-only plan on the marketplace, after the employer's QSEHRA contribution, is no more than 9.96% of their household income.



How QSEHRA Affects Marketplace Savings

  • When applying for coverage, enter your employer’s QSEHRA contribution exactly as shown in your employer’s notice.

  • The Marketplace will automatically calculate whether your employer’s QSEHRA is considered affordable and adjust your premium tax credit (PTC) accordingly.

  • If your employer’s contribution makes coverage affordable, you’ll receive no PTC.

  • If it’s not affordable, you may receive a reduced PTC.

Quick Tips

  • Keep your QSEHRA letter from your employer handy — you’ll need it to complete your Marketplace application accurately.

  • If your employer offers either a QSEHRA or ICHRA, you can use your reimbursement to shop for and enroll in Marketplace coverage through HealthSherpa.

  • Need help? Contact our Consumer Advocate team at 855-772-2663, Monday–Friday, 6 a.m.–4 p.m. PT.

In Summary

Feature

ICHRA

QSEHRA

Who can offer

Any employer

Employers with < 50 full-time employees

Reimbursement type

Monthly allowance for individual coverage

Fixed, annual allowance for premiums & expenses

Flexibility

Varies by employee class

Same terms for all eligible employees

Set limits

Employer-defined

IRS-defined annual maximum

Subsidy impact

Marketplace checks affordability; if affordable, no PTC

Marketplace checks affordability using 8.39% rule for 2026; may reduce or eliminate PTC

Eligible coverage

Individual market plans only

Individual market plans only

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