Two HRAs, One Decision
If you've decided to reimburse employees for their own health coverage instead of buying a group plan, you have two main vehicles: the ICHRA (Individual Coverage HRA) and the QSEHRA (Qualified Small Employer HRA, pronounced "cue-sarah"). Both let you give employees tax-free money for health coverage. The right one depends on your company's size, how much you want to contribute, and how much flexibility you need.
Note: general education, not tax or legal advice. Contribution limits and thresholds are set by the IRS and change annually — confirm current figures with a benefits professional.
The short answer
- Under 50 employees and want simple? A QSEHRA may be all you need.
- 50+ employees, growing toward 50, or want no caps and per-class flexibility? The ICHRA is usually the better fit.
ICHRA vs QSEHRA comparison table
| Feature | ICHRA | QSEHRA |
|---|---|---|
| Employer size | Any size | Fewer than 50 full-time-equivalent employees |
| 2026 contribution limit | None — employer decides | $6,450 self-only / $13,100 family (IRS Rev. Proc. 2025-32) |
| Can employer also offer a group plan? | Yes — to different employee classes | No — offering any group plan disqualifies the QSEHRA |
| Vary allowances | By permitted employee classes (up to 11 class types) | Only by age and family size |
| Coverage employees need | Individual health insurance (or Medicare) | Minimum essential coverage of any kind |
| Premium tax credit interaction | All-or-nothing: an affordable offer ends subsidy eligibility | Subsidy is reduced by the QSEHRA amount |
| Can reimburse DPC memberships | Yes, with compatible coverage | Yes, with compatible coverage |
Employer size: the first gate
The QSEHRA is only for employers that are not "applicable large employers" — in practice, businesses with fewer than 50 full-time-equivalent employees. The ICHRA has no size restriction at all. If you're near the 50-employee line and growing, note that outgrowing a QSEHRA means switching benefits mid-stream; starting with an ICHRA avoids that disruption.
Contribution limits: capped vs uncapped
The IRS caps QSEHRA reimbursements each year. For 2026, the limits are $6,450 for self-only coverage and $13,100 for family coverage (about $537 and $1,091 per month, per IRS Revenue Procedure 2025-32). The ICHRA has no federal cap: you can contribute $100 a month or $2,000 a month — whatever your budget supports. If you want to fund a generous benefit, the ICHRA is the only one of the two that lets you.
Flexibility: classes vs one-size
An ICHRA lets you create permitted employee classes — full-time, part-time, seasonal, by geography, and more — and offer each class a different allowance (or no ICHRA at all, with a group plan for another class). A QSEHRA must be offered to all eligible employees on the same terms, with variation allowed only for age and family size. For a uniform small team that simplicity is fine; for a mixed workforce it can be limiting.
The premium tax credit difference
This is subtle but can matter a lot for lower-wage teams. With a QSEHRA, employees who qualify for ACA marketplace subsidies keep them, but must reduce the subsidy by the QSEHRA benefit amount. With an ICHRA, it's all or nothing: if the offer is affordable under IRS rules (for 2026, the employee's share of the lowest-cost silver plan is at most 9.96% of household income), the employee cannot claim any premium tax credit. Whichever HRA you choose, model the after-subsidy math for your actual employees.
Both work beautifully with Direct Primary Care
Either HRA can reimburse a Direct Primary Care membership when the employee carries compatible coverage — and since January 1, 2026, DPC fees under $150/month individual ($300 family) are qualified medical expenses under the One Big Beautiful Bill Act. Pairing an HRA-funded individual plan with a DPC membership (averaging about $91/month across practices listed on Connectedly Health) gives employees insurance for major events plus unlimited everyday primary care. See how employers structure this in our ICHRA + DPC guide.
Decision checklist
- Count your full-time-equivalent employees. At 50 or more, the QSEHRA is off the table.
- Decide your budget. Above the QSEHRA caps? You need the ICHRA.
- Map your workforce. Need different treatment for different groups? ICHRA classes handle that.
- Check your employees' subsidy picture. Heavy marketplace-subsidy usage changes the math for both HRAs.
- Plan the primary care layer. Compare DPC practices near your team on the National DPC Pricing Index or by state.
ICHRA + DPC employer guide | ICHRA pros and cons | Small business health plans with DPC