Health Reimbursement Arrangements (HRAs) offer an alternative to traditional group plans—giving employers more cost control and employees more choice. But when comparing options, small businesses often land on one question: Should we use a QSEHRA or an ICHRA?
Both allow tax-free reimbursement of individual health insurance premiums and medical expenses. But their structures, rules, and long-term implications are very different.
This guide breaks down the differences and helps you decide which HRA model fits your team and goals.
The quick cut
- QSEHRA is for small employers (<50 FTEs) and offers simplicity with contribution limits
- ICHRA works for any employer size and allows more flexibility and scalability
- ICHRA supports employee class design, higher contributions, and long-term growth
- QSEHRA is easier to set up but harder to scale
What is QSEHRA?
A Qualified Small Employer HRA (QSEHRA) lets businesses with fewer than 50 full-time equivalent employees reimburse individual insurance premiums and medical expenses—tax-free.
It’s a straightforward option with a few key limitations:
- Strict contribution limits: $6,350 for individuals and $12,800 for families in 2025
- Uniform benefit: All employees must receive the same allowance
- No other group health plans allowed: Employers can’t offer a QSEHRA alongside an employer-sponsored group health plan
QSEHRA works best for very small teams that want a set-it-and-forget-it approach, but its rigid structure can quickly become a barrier as companies grow or diversify.
What is ICHRA?
The Individual Coverage HRA (ICHRA) is available to employers of any size and allows reimbursement of individual premiums and out-of-pocket medical costs with no federal contribution cap.
Key ICHRA benefits include:
- Up to 11 standard employee classes, with tailored allowances
- Scalable design that grows with your business
- Group plan integration—offer ICHRA to one class, group coverage to another
- Compliance pathway for large employers under the ACA
ICHRA gives you more control and flexibility but may require a more strategic setup—especially when managing affordability rules or designing for multiple job types.
What is the difference between ICHRA and QSEHRA?
Here’s an at-a-glance look at the differences between ICHRA and QSERHRA.
QSEHRA:
- Employer size requirements: Fewer than 50 FTEs
- Contribution limits: $6,300 individual / $12,800 family (2025)
- Employee classes: Not allowed—benefit must be equal for all
- Group plan compatibility: Not allowed (must fully replace group coverage)
- Compliance complexity: Low
ICHRA:
- Employer size requirements: Any size
- Contribution limits: No federal cap
- Employee classes: Up to 11 classes with customized allowance levels
- Group plan compatibility: Allowed, as long as separate employee classes receive ICHRA
- Compliance complexity: Moderate—must meet ACA affordability for large employers
Is ICHRA or QSEHRA better for my business?
Both health reimbursement arrangements offer distinct advantages, but understanding their benefits and limitations helps employers choose the right long-term strategy.
When ICHRA makes more sense
QSEHRA is simple—but it doesn’t scale. Here’s when ICHRA is a better fit:
- Your company is growing and may hit or exceed 50 employees
- You have a diverse or distributed workforce and need class-based contribution flexibility
- You want to offer generous benefits beyond QSEHRA limits to attract or retain talent
- You need to meet ACA compliance requirements as a large employer
- You want to mix models—offering ICHRA to one class and group coverage to another
When QSEHRA still works well
QSEHRA is a good option if:
- You have fewer than 10 employees
- You want simple setup and fixed contribution caps
- Your team has similar coverage needs, and group insurance isn’t offered
- You’re in a lower-cost market where QSEHRA limits are adequate
Just keep in mind: hitting 50 FTEs requires a full benefits reset. QSEHRA becomes unavailable the moment you cross the threshold.
Choosing between ICHRA and QSEHRA
Both models offer tax-free reimbursements and give employees more choice than traditional group plans. But:
- QSEHRA is easier to administer upfront, with clear IRS caps and fewer moving parts
- ICHRA is more flexible, future-proof, and customizable, especially for growing or hybrid teams
Thanks to modern admin platforms like Zorro, setting up and managing an ICHRA isn’t as complex as it once was. We handle compliance, onboarding, reimbursements, and ACA documentation—so you can offer great benefits without extra overhead.
In conclusion
QSEHRA may be an easy answer for small businesses, but ICHRA is the smarter long-term strategy for companies that want to scale, adapt, and compete for top talent. And Zorro makes it easy to get started, with smart tools and human support built for growing teams.
Book a demo to see how Zorro can help you roll out ICHRA with confidence.