If you run a small shop, you may want to help your crew with health costs without buying a group plan. Two tools can do that. One is a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement). The other is an ICHRA (Individual Coverage Health Reimbursement Arrangement).
A new name: as of October 3, 2026, CMS and HealthCare.gov call the ICHRA a "CHOICE Arrangement." CMS announced the name in September 2026. The ICHRA rules in this post come from the 2019 federal rule that created it.
This is general information, not tax or legal advice. Talk to a tax pro before you set up either plan.
The main rules, side by side
In both plans, workers pay for their own coverage or care. Then they show proof, and the employer pays them back. The money you pay back for covered costs is generally not taxed to the worker.
Who can offer each one
A QSEHRA is only for smaller employers. The employer generally must have had fewer than 50 full-time workers, counting full-time equivalents, in the prior year. The employer also can't offer a group health plan to any worker.
An ICHRA works for employers of any size. You need at least one worker who isn't a self-employed owner or an owner's spouse. Neither plan is for the owner alone. For a QSEHRA, the IRS says an owner with more than 2% of an S corporation doesn't count as an employee.
You can't offer both. A federal rule says an ICHRA is a group health plan, and a QSEHRA can't exist alongside any group health plan.
How much you can give
With a QSEHRA, you pick the amount, up to a yearly IRS limit. For 2026, the IRS limit is $6,450 for a worker alone and $13,100 for a worker with family. As of October 3, 2026, the IRS had not posted the 2027 limits we could find. Check before you send your 2027 notice.
With an ICHRA, there is no federal minimum or maximum. Within a class of workers, the amount can go up with age, but the oldest worker can't get more than 3 times the youngest. It can also go up with the number of family members.
Who gets it: same terms vs. classes
A QSEHRA must be offered on the same terms to all eligible workers. The amount can vary only by age and family size. You may leave out some groups. Examples are workers with less than 90 days on the job, workers under 25, and part-time or seasonal workers.
An ICHRA lets you set classes. Examples include full-time, part-time, seasonal, salaried, and hourly workers, and workers in different areas. Within a class, everyone gets the same terms.
You can give a group plan to one class and an ICHRA to another. You can't let the same class pick between them. If you do both and have fewer than 100 workers, some ICHRA classes need at least 10 people.
What coverage your workers need
For a QSEHRA, workers need minimum essential coverage, like a Marketplace plan or a spouse's job-based plan.
For an ICHRA, workers need individual health insurance that follows the ACA's rules, like a Marketplace plan or an ACA plan bought straight from an insurance company. Short-term plans and dental-only or vision-only plans don't count. CMS also says faith-based, indemnity, and supplemental plans don't count.
Workers can get a Special Enrollment Period when they are newly offered either plan. A January 1 start lines up with open enrollment. As of October 3, 2026, under current law, it runs November 1, 2026, to January 15, 2027. A court case about these dates is still on appeal, so check HealthCare.gov. See our Florida open enrollment guide.
How each one affects tax credits
- QSEHRA: If it counts as affordable for a worker, that worker and their covered family can't get a premium tax credit. If it isn't affordable, the worker's tax credit goes down by the QSEHRA amount.
- ICHRA: If a worker accepts it, they can't get a tax credit. If it counts as affordable, they can't get one even if they turn it down. If it isn't affordable, they can turn it down and may get a tax credit.
For an ICHRA, the test uses the lowest-cost Silver plan where the worker lives. After your payment, the worker's cost for that plan must be under a share of their income. As of October 3, 2026, HealthCare.gov lists 9.96% for 2026 and 10.22% for 2027.
The Small Business Health Care Tax Credit generally only comes with a SHOP group plan, not with either HRA.
Examples from trades crews
These are made-up examples to show how the rules work. They are not real clients. Your facts may lead to a different answer.
- A 7-person HVAC shop with no group plan could look at either one. A QSEHRA keeps the budget under the IRS limit. An ICHRA has no cap.
- An electrical contractor with 60 full-time workers can't use a QSEHRA. An ICHRA is still an option.
- A lawn care company with a full-time crew and summer help could use ICHRA classes. Full-time workers could get one amount, and seasonal workers could get a different one or none.
- A plumbing company that keeps a group plan for salaried office staff could offer an ICHRA to its hourly field crew. Class-size rules may apply. A QSEHRA is out, because the company offers a group plan.
See how we help your line of work on our industries we serve page.
Notices, records, and paperwork
Both plans need a written notice to workers at least 90 days before the plan year starts. New hires get it when they become eligible. A missed QSEHRA notice can cost $50 per worker, up to $2,500 a year.
Before you pay anything back, you need proof of the worker's coverage and costs. For a QSEHRA, the IRS says the amount a worker can get shows up on their Form W-2, in box 12 with code FF.
ICHRA workers must get the chance to opt out once a year. Some employers hire a third-party administrator to handle the paperwork.
Still weighing a regular group plan? Read our guide to small group health insurance in Orlando.