If you want to offer health benefits without buying a group plan, two tax-advantaged options do the same core job in different ways: a QSEHRA and an ICHRA. Both let you reimburse employees for coverage they buy themselves — but they differ sharply on who qualifies, how much you can give, and how much flexibility you get. Here's how to tell them apart.
This is an independent guide from QuoteSweep, which maps the modern commercial insurance landscape. QuoteSweep does not compete with any of these companies.
TL;DR: A QSEHRA (Qualified Small Employer HRA) and an ICHRA (Individual Coverage HRA) both let an employer reimburse employees tax-free for their own individual health insurance instead of sponsoring a group plan. A QSEHRA is for small employers only — under 50 employees, no group plan allowed, and reimbursement capped at annual IRS limits. An ICHRA has no size limit and no contribution cap, and lets you vary allowances across defined employee classes. Take Command administers both; Thatch and StretchDollar focus on ICHRA.
What are QSEHRA and ICHRA
Both are health reimbursement arrangements (HRAs) — employer-funded arrangements that reimburse employees, tax-free, for qualified health costs. The variants here are built for the same modern idea: rather than the employer picking one group health plan for everyone, the employer sets aside money and each employee buys their own individual coverage on the marketplace.
- QSEHRA (Qualified Small Employer HRA): designed for small businesses. It's available only to employers with fewer than 50 full-time-equivalent employees that do not offer a group health plan, and reimbursements are limited to annual maximums set by the IRS.
- ICHRA (Individual Coverage HRA): the more flexible successor, available to employers of any size. There's no cap on how much you can reimburse, and you can offer different allowances to different classes of employees (for example, full-time vs. part-time, salaried vs. hourly, or by location).
The shared premise: the employer funds coverage, but the employee owns the plan choice. That's the opposite of a traditional group plan, where the employer picks a single plan (or short menu) for the whole company.
How it works
The mechanics are similar for both:
- The employer sets an allowance. A monthly dollar amount each eligible employee can be reimbursed for individual health insurance (and, in many setups, other qualified medical expenses).
- Employees buy their own individual coverage. Each employee shops the individual market and enrolls in a plan that fits their needs and network.
- The employer reimburses tax-free. Once an employee shows proof of coverage, the employer reimburses up to the allowance — free of payroll and income tax when the rules are followed.
- An administrator handles compliance. IRS and ACA rules, documentation, and reporting are managed by an HRA administration platform rather than the employer.
The key structural difference is scope. A QSEHRA applies a single set of small-employer rules with statutory caps. An ICHRA lets you segment your workforce into classes and set a different allowance for each — which is why larger and more complex employers gravitate to it.
| QSEHRA | ICHRA | |
|---|---|---|
| Company size | Under 50 employees | Any size |
| Group plan allowed? | No (can't offer both) | Not to the same class |
| Contribution cap | Annual IRS maximum | No cap |
| Vary allowance by class | No | Yes (defined employee classes) |
| Employee coverage | Buys individual plan | Buys individual plan (or Medicare) |
| Compliance | Handled by administrator | Handled by administrator |
Key considerations
When a QSEHRA makes sense
- You're a small business (under 50 employees) and don't already run a group plan.
- You want the simplest version of the model, with a single allowance and IRS-defined guardrails.
- Predictable, capped spend is a feature, not a limitation, for your headcount.
The trade-offs: the IRS caps limit how generous you can be, you can't also offer a group plan, and you can't tailor allowances to different groups of workers. A QSEHRA also interacts with employees' marketplace premium tax credits, so the value to a subsidy-eligible employee can be reduced — worth checking with a tax advisor.
When an ICHRA makes sense
- You have more than 50 employees, or expect to grow past that line.
- You want to vary contributions — say, more for full-time staff, less for part-time, or different amounts by location.
- You want no ceiling on how much you can reimburse.
The trade-offs: an ICHRA that's deemed "affordable" generally makes an employee ineligible for a marketplace subsidy, and the added flexibility of classes means a bit more design up front. As with a group plan, shifting plan selection to employees means they'll want guidance choosing coverage.
Common to both: you hand plan choice to employees (which most platforms support with enrollment help), and you rely on an administrator to keep the arrangement compliant. Neither is a P&C insurance product — they're benefits arrangements layered on top of individual coverage that employees buy from carriers.
Who offers it
A handful of specialized platforms administer these arrangements — setting up the allowance, handling IRS/ACA compliance, and helping employees enroll. From the health & benefits insurtech hub:
- Take Command — administers both QSEHRA and ICHRA, positioned as one of the largest and earliest end-to-end administrators. It runs QSEHRA for small businesses (1–49) and ICHRA for mid-market and enterprise, and is notable for offering in-house individual enrollment support. If you're specifically weighing QSEHRA vs ICHRA, it's the one of these three that handles both.
- Thatch — an all-in-one ICHRA platform where the employer sets a per-employee budget, employees pick their own plans, and any leftover budget can go on a Thatch Visa card. One of the best-funded pure-plays in the category.
- StretchDollar — a small-business ICHRA platform with a fixed pre-tax allowance model and transparent, published flat pricing ($100/month plus $25 per participating employee). Built for small firms new to offering benefits.
A note on pricing: StretchDollar publishes flat pricing, while Take Command and Thatch don't post a public flat rate (Take Command is quote/demo-based; Thatch is self-serve but doesn't publish a flat fee). Always confirm current pricing and terms directly with each provider.
Frequently Asked Questions
What's the main difference between QSEHRA and ICHRA?
Company size and flexibility. A QSEHRA is limited to employers with fewer than 50 employees that offer no group plan, with reimbursement capped at annual IRS limits. An ICHRA works for any size employer, has no contribution cap, and lets you vary allowances across defined employee classes. Both reimburse employees tax-free for individual coverage.
Can a business offer both a QSEHRA and a group health plan?
No. A QSEHRA is only available to small employers that do not offer a group health plan. An ICHRA likewise can't be offered to the same class of employees that's already offered a group plan — the two models are alternatives to group coverage, not add-ons.
Which one should a small business choose?
If you're under 50 employees, don't offer a group plan, and want the simplest capped arrangement, a QSEHRA fits — and it's the lightest-weight option. If you want no cap on contributions or the ability to vary allowances by employee class (or expect to grow past 50), an ICHRA is the more flexible choice. Platforms like StretchDollar and Take Command target small businesses specifically.
Who administers QSEHRA vs ICHRA?
Specialized HRA platforms. Take Command administers both QSEHRA and ICHRA; Thatch and StretchDollar focus on ICHRA. They set up the allowance, handle IRS/ACA compliance, and help employees enroll in individual plans.
The bottom line
QSEHRA and ICHRA are two versions of the same tax-advantaged idea — fund employees, let them buy their own coverage — separated mainly by scale and flexibility. A QSEHRA is the simpler, small-employer-only option with IRS-set caps; an ICHRA removes the size limit and the cap and adds employee classes. If you're under 50 and want the lightest lift, look at a QSEHRA; if you want flexibility or room to grow, an ICHRA. Compare administrators on the health & benefits hub, see the best ICHRA platforms, or weigh the model against a PEO in PEO vs ICHRA.
