A QSEHRA (Qualified Small Employer HRA) and an ICHRA both let an employer reimburse employees, tax-free, for health insurance they buy themselves. The QSEHRA came first, in 2017, and was built only for the smallest employers. The ICHRA, from 2020, is broader and more flexible — but the QSEHRA is still simpler in a few ways.
The differences that matter
| Feature | ICHRA / CHOICE | QSEHRA |
|---|---|---|
| Who can offer it | Employers of any size | Under 50 full-time equivalents |
| With a group plan? | Yes, for different classes | No — only if no group plan is offered |
| 2026 annual limit | None | $6,450 self-only / $13,100 family |
| Different amounts by group | Yes, by class | No — same terms for all eligible employees |
| Variation by age / family | Yes (age up to 3:1) | Only in line with the cost of a reference policy |
| Coverage employees need | Individual health insurance or Medicare | Any minimum essential coverage, including a spouse’s group plan |
| Premium tax credit | Either ICHRA or credit, not both | Credit reduced by the QSEHRA amount if unaffordable |
| Affordability benchmark | Lowest-cost silver plan | Second-lowest-cost silver plan |
| Employee notice | 90 days before the plan year | 90 days before the plan year |
When a QSEHRA can be the better fit
- Many of your employees are covered through a spouse. A QSEHRA can reimburse an employee whose coverage is a spouse's group plan. An ICHRA can't — it requires individual coverage.
- You want one simple rule for everyone and the annual caps are higher than you'd contribute anyway.
- Your lower-paid employees rely on subsidies. With an unaffordable QSEHRA, an employee can keep a reduced tax credit alongside it, rather than choosing one or the other.
When an ICHRA is usually the better fit
- You're near or above 50 full-time equivalents, or expect to be — a QSEHRA stops being available.
- You want to contribute more than the QSEHRA caps — for example, to cover family coverage for older employees.
- You want different amounts for different groups — full-time vs part-time, or different locations.
- You also offer a group plan to some employees.
Can you switch later?
Yes. Many small businesses start with a QSEHRA and move to an ICHRA as they grow or want more flexibility. The switch follows the same rhythm as any new plan year: decide the terms, and give eligible employees written notice at least 90 days before it starts.
If you're leaning toward an ICHRA, the small business setup guide walks through allowances and timing.
Sources
- HealthCare.gov — HRAs for small employers (QSEHRA)
- HealthCare.gov — CHOICE Arrangements (for employers)
- IRS Rev. Proc. 2025-32 — 2026 inflation adjustments, including QSEHRA limits
- IRS Rev. Proc. 2025-25 — 2026 required contribution percentage (9.96%)
General information, not tax, legal or insurance advice. Rules change and individual situations differ — confirm specifics with your tax adviser or benefits counsel.