The ICHRA and QSEHRA are Health Reimbursement Arrangements that allow employers to reimburse employees for health expenses including insurance premiums. They are especially useful to small businesses looking to keep down benefit costs but can also be structured for large employers.

What is an ICHRA?

ICHRA stands for “Individual Coverage Health Reimbursement Arrangement.” It is a type of employer sponsored health benefit that allows employers to contribute funds toward employees’ individual health insurance premiums. ICHRAs can cover just individual premium costs, or the plan can also include 213(d) expenses on a tax-free basis. This allows employees to choose their own individual health insurance plan and get reimbursed by their employer for eligible expenses.

  • No company size restrictions
  • Unlimited contribution amounts
  • Employee’s must enroll in an individual market plan or if eligible, Medicare Parts A & B, or Part C.
  • Employers can choose to treat different classes of employees differently based on 11 distinct classes


If an employer chooses to offer an ICHRA to one class of employees and a group health plan to another class of employees, minimum class sizes vary by employer size, based on employee counts on the first day of the ICHRA plan year.

  • Employers with fewer than 100 employees must have at least 10 employees in a class
  • Employers with 100-200 employees must have at least 10% of the total number of employees in a class
  • Employers with greater than 200 employees must have at least 20 employees in a class

How Much Does it Cost?

There are no limits to how much an employer can offer for reimbursement under an ICHRA. Employers can choose what they want their ICHRA to reimburse:

  • Give every employee a flat contribution amount
  • Vary contribution amounts by family size
  • Vary contributions by employee age. Higher amounts for older employees but must be structured using a 1:3 ratio. For example, a 21-year-old could get $100 and a 62-year-old could get $300.
  • Very by both age and family size.
  • These contribution rules could be applied to all employees, or just a class of employees.

For Applicable Large Employers (ALES)

Large employers must structure the contributions to meet the ACA’s minimum affordability safe harbor.

  • ICHRA is affordable per the IRS if the remaining amount the employee must pay is less than 8.39% (2024) of the employee’s household income.
  • The ICHRA contribution must be greater than the lowest cost silver plan an employee can purchase minus 8.39% times the employees household income.

The formula for this calculation looks like:

  • Household income x .0839 = X
  • X/12 = Y
  • Lowest cost silver plan – Y = Minimum affordable ICHRA monthly allowance

Affordability is also important for small employers because it impacts an employees’ ability to receive a premium tax credit (PTC) to help pay for their premiums. If an ICHRA’s contribution amount is affordable, employees are not eligible for the PTC. If the ICHRA contribution is unaffordable, employees can choose either the ICHRA or the PTC.

When to Establish an ICHRA

There is a Special Enrollment Period (SEP) for employees to enroll in the individual health market. Employees can enroll in an individual health insurance plan 60 days before the ICHRA starts, or 60 days after. The SEP will be available annually at the start of each ICHRA’s plan year.

Annual 1095 Reporting

The IRS mandates the reporting of ICHRAs on Form 1095 B/C, regardless of company size.

In 2021, the IRS made some changes to Form 1095-C, which added two new 1095-C codes for employers to meet the ICHRA reporting requirements.

  • 1T. The employee’s primary residence location ZIP code is used to determine the Individual coverage HRA offered to the employee and spouse (no dependents) and affordability.
  • 1U. The employee’s primary employment site ZIP code affordability safe harbor is used to determine the Individual coverage HRA offered to the employee and spouse (no dependents) and affordability.

For Small Employers the QSEHRA

With a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)  employers can reimburse employees for individual plan premiums (and other medical expenses) but must have fewer than 50 employees and cannot class out the plans.

A QSEHRA allows small employers to provide non-taxed reimbursement of certain health care expenses, like health insurance premiums and coinsurance, to employees who maintain minimum essential coverage, including an individual Marketplace plan.

  • Have fewer than 50 full-time employees
  • Provide the arrangement on the same terms to all full-time employees (reimbursement amounts may only vary based on age and the number of individuals covered)
  • Not offer a group health plan, like SHOP coverage or a flexible spending account (FSA)

With a QSEHRA, small employers can decide what they’ll contribute to their employees’ health care costs, up to an annual maximum that is set by the IRS.  For 2024 the maximums are $6,150 ($512.50 monthly) and $12,450 ($1,037.50 monthly).