ICHRA and QSEHRA: when your employer gives you money to buy your own plan

There's a newer way employers — especially small ones — offer health benefits: instead of buying a group plan, they give you a tax-free allowance to buy your own individual coverage and get reimbursed. Two arrangements make this possible: the QSEHRA (for small employers) and the ICHRA (for employers of any size). If your job offers one of these instead of a traditional group plan, the rules are different enough that misunderstanding them can cost you your subsidy or leave you underinsured. Here's how they actually work.

The two arrangements

• QSEHRA (Qualified Small Employer HRA): for employers with fewer than 50 full-time-equivalent employees that don't offer a group plan. The employer reimburses premiums and sometimes medical expenses up to an annual cap set by the IRS.
• ICHRA (Individual Coverage HRA): available to employers of any size. The employer sets an allowance (no federal cap) to reimburse individual health insurance premiums and possibly other medical costs. Employers can offer it to different 'classes' of employees at different amounts.
• Both require you to have your own qualifying individual coverage (a marketplace or off-exchange ACA plan, generally) to use the money — you buy the plan, they reimburse you tax-free.

The critical subsidy interaction

This is the part that trips people up. If your employer offers an ICHRA that's considered 'affordable' under IRS rules, you generally cannot also claim a premium tax credit (marketplace subsidy) — you must choose the ICHRA. If the ICHRA is deemed unaffordable, you can opt out and take the subsidy instead. For a QSEHRA, the rules are different: you can potentially use both, but your subsidy is reduced dollar-for-dollar by the QSEHRA amount. Getting this wrong can mean owing back a subsidy at tax time.

How to use an HRA offer well

1. 1
   Get the allowance amount and rules in writing

   Ask exactly how much the HRA reimburses, whether it covers only premiums or also out-of-pocket expenses, and the deadlines for enrolling in your own plan.

2. 2
   Compare the ICHRA path vs. the subsidy path

   For an ICHRA, determine whether it's 'affordable.' If it is, you take the ICHRA (no subsidy). If not, compare taking the ICHRA against declining it and claiming a marketplace subsidy — whichever leaves you paying less.

3. 3
   Buy a qualifying individual plan

   You must enroll in qualifying individual coverage to draw the HRA money. The HRA offer itself opens a special enrollment period to buy that plan.

4. 4
   Submit for reimbursement

   Pay your premium (and eligible expenses), then submit proof to get reimbursed tax-free up to your allowance. Keep records.

The bottom line

ICHRAs and QSEHRAs flip the script: instead of a one-size group plan, your employer hands you tax-free dollars to buy your own individual coverage, which you keep if you leave. The key is the subsidy interaction — an affordable ICHRA replaces your marketplace subsidy, while a QSEHRA reduces it dollar-for-dollar — so run the affordability math before enrolling. Get the allowance and rules in writing, pick the plan that fits your doctors and needs, and claim every tax-free dollar. Done right, it's flexible, portable coverage; done carelessly, it's a surprise subsidy bill in April.