What’s the Buzz? Could an ICHRA or QSEHRA Plan Be Right for You?
“ICHRAs are designed to give employers flexibility when offering a group health plan.”
~ Rebecca Yates, CEO of Ark Insurance Solutions
Individual Coverage Health Reimbursement Arrangements, most commonly known as ICHRA plans, have become increasingly popular in some areas as a flexible alternative to group plans. And since they represent a significant shift in how businesses approach health insurance, they’re worth knowing about.
ICHRA plans are relatively new. First introduced in 2020, they’ve gained some traction among businesses looking for an affordable group health insurance option. But, like anything else, ICHRA plans also come with potential drawbacks. Depending on what state you’re in, how many employees you have, and the overall health of your group, an ICHRA plan might not be the best option for you.
If you’re a business owner looking at alternative health plans like ICHRA or QSEHRA, we recommend getting an in-depth analysis with a trusted professional. While they can be particularly advantageous in states like Alaska, they aren’t so much in Utah — the nuance of which we’ll discuss below.
What exactly is an ICHRA plan?
In a nutshell, ICHRA plans allow employers to reimburse their employees for individual health insurance premiums and qualified medical expenses, and the reimbursement is completely tax-free. Rather than selecting and managing a one-size-fits-all group health plan, businesses can provide employees with a predetermined amount of money each month. Employees then use that money to purchase an individual health insurance coverage on the marketplace that best fits their specific needs.
Think of an ICHRA as essentially creating a personal expense account for each employee’s healthcare needs. When employees incur medical expenses or pay their individual insurance premiums, they can submit receipts for reimbursement up to their allowed amount. This arrangement offers a fair amount of flexibility, while still providing the same tax advantages that are typically associated with employer-sponsored health benefits.
Where ICHRAs shine
For some companies, ICHRAs present an attractive option, because they solve some of the most common challenges among business owners in providing adequate health benefits. This kind of control is valuable for growing businesses or those operating across multiple states.
ICHRAs also get rid of the administrative burden of managing a group health plan. No more annual renewal negotiations, plan design decisions, or employee enrollment periods. Instead, companies just have to decide what the employee reimbursement amounts will be and process employee receipts — this is something they should delegate to third-party administrators.
This arrangement can work pretty well for companies that have a diverse workforce spread across several states. Rather than trying to find a single group plan that satisfies everyone, employees can select the coverage that matches their needs. A young, healthy employee might choose a high-deductible plan with lower premiums, while an employee managing a chronic condition might opt for more comprehensive coverage.
“It’s not uncommon for an employer to come to us and say, ‘I have people in 20 states. How do I possibly build a group health plan for them?’ And often ICHRAs are the answer.”
The downside of ICHRAs
Despite their advantages, ICHRAs aren’t without potential drawbacks. And much of this depends on what state your business and employees are operating in. The success of an ICHRA program directly correlates with the strength of the individual insurance market in your area. So, if you take Utah for instance, the state has a much more affordable group market with excellent benefits, which ICHRA can’t compete with. It’s likely that employees would struggle to find better coverage with their ICHRA allowance. But in Alaska, ICHRA plans often present a more beneficial choice.
Whether or not ICHRA is a good idea can also come down to the size and pay scale of your workforce. Employees earning less than roughly $65,000 a year often qualify for larger subsidies on the ACA marketplace than an employer could realistically offer through an ICHRA allowance. For teams earning wages above that range, an ICHRA allowance tends to be more competitive with what they would get through subsidies alone.
ICHRA also tends to work best for employers with more than 50 full-time equivalent employees. Once a business crosses that threshold, the ACA’s employer mandate requires it to offer coverage or face steep penalties, sometimes thousands of dollars per employee, per year. That puts industries like restaurants and hotels in a tough spot — high turnover and inconsistent enrollment make it hard for them to get a traditional group plan, even though they’re required to offer something.
An ICHRA sidesteps that problem, since there’s no group underwriting or participation minimum to overcome. For a large employer that can’t get enough people to enroll in a group plan, or whose plan has been canceled by the carrier, ICHRA can present an affordable path forward. But for a small shop with only a handful of employees, it usually isn’t the right tool for the job.
“ICHRAs tend to be better for those large employer scenarios where they’re trying to be compliant because now they’re going to get penalized if they’re not offering, but they can’t find a good way to offer,” says Rebecca Yates, CEO of Ark Insurance Solutions. “They can be a good alternative for businesses that have a hard time meeting participation.”
Employee education represents another challenge to the overall effectiveness of an ICHRA plan. Many workers are familiar with traditional group health insurance but they might find the individual market confusing. They’ll need guidance on selecting appropriate coverage, understanding how reimbursements work, and managing their healthcare spending.
Some employees might also miss the simplicity of having their employer choose their health plan. While flexibility can be helpful, it also means employees must take more active roles in their healthcare decisions. This responsibility can feel overwhelming, especially for employees who have never had to shop for health insurance before.
QSEHRA: An Alternative to ICHRA
If your business has fewer than 20 employees, there’s another option worth exploring: the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). It also gives you the ability to reimburse employees tax-free for individual health insurance premiums, but QSEHRA comes with IRS-set contribution caps that are adjusted annually for inflation. For 2026, that cap is $6,450 per year for self-only coverage and $13,100 for family coverage.
A properly structured QSEHRA allows employees to still claim ACA marketplace subsidies alongside their reimbursement. For a small team where most employees would qualify for subsidies anyway, that combination might make the most sense.
The ICHRA-versus-QSEHRA decision comes down to headcount, wages, and how your state’s individual insurance market compares, which is exactly the kind of analysis a knowledgeable broker can help you with before you commit to either one.
Tax advantages
These plans do have their tax advantages, with reimbursements that are tax-deductible for employers and tax-free for employees. This is a significant benefit compared to simply providing extra salary for healthcare expenses. It allows businesses to provide health benefits with the same tax advantages as traditional group coverage but with greater flexibility and often lower administrative costs.
ICHRAs and QSEHRAs can also help businesses better control their long-term healthcare costs. Unlike traditional group plans, where premium increases are the norm, employers can adjust their allowances based on their budget and business performance.
“We can have you give a dollar amount to each employee, have it come out with a pre -tax benefit, and then those employees can use that money to buy a plan that works for them in their area.”
Choosing ICHRA
When it comes to implementing an ICHRA plan, you need to carefully plan and provide clear communication and assistance for your employees. This isn’t a decision to enter into lightly, and you shouldn’t do it without a broker. If your business has less than 50 employees and they aren’t making high salaries, it may be smarter to allow them to qualify for federal subsidies through the ACA marketplace instead, or explore your QSEHRA eligibility. Because there are so many caveats involved, it’s best to get help from a knowledgeable professional.
When choosing an ICHRA plan, businesses need to determine appropriate reimbursement amounts for different employee classes, making sure these amounts give employees the ability to purchase adequate coverage. They also need to establish clear policies surrounding eligible expenses and reimbursement procedures.
“Most brokers are only comfortable with group or individual plans. But at Ark, we’re well-versed in all of the options and can help you find what best fits your business,” says Yates. “It’s important to get an analysis from someone who knows what they’re doing and is established in your area.”
Making the decision
Whether an ICHRA or QSEHRA makes sense for your business or not depends on a variety of factors, like your workforce demographics, local insurance market conditions, and administrative capabilities. A thorough analysis from Ark will look at your current health benefit costs and challenges, and compare those against projected expenses. We consider everything, including the reimbursement amounts and administrative costs of your plan. It’s also important to think about your employees and their preferences. You may want to take into account the overall health of your group and their potential needs when it comes to healthcare. At Ark, we take every factor into consideration.
As healthcare costs continue to rise and workforce needs evolve, these alternatives represent a new approach to employee health benefits that may be helpful in certain states and/or situations. While they may not be the perfect solution for every business, they are worth taking into account.
Want to see which plans might best fit your needs? Click here to schedule an appointment with an Ark Insurance Solutions agent.
Navigating the complex world of health insurance can be daunting. The Ark Insurance Solutions team has the skill and experience to guide you. We’ll help you compare health plans to make the best decision based on your unique circumstances and budget. Give us a call at 801-901-7800 or click here to schedule an appointment with us.
