ICHRA vs. QSEHRA vs. Group Health Plan
Small employers that want to help with health costs usually choose among three tools. A group plan buys one policy for the whole team, while the two reimbursement arrangements hand employees money toward coverage they pick themselves.
The three options side by side
| Question | Small-group health plan | ICHRA (CHOICE Arrangement) | QSEHRA |
|---|---|---|---|
| What the employee receives | A place on one plan the employer picked | A tax-free allowance toward individual coverage | Tax-free reimbursement toward their own coverage |
| Size line to know | California small group: 1 to 100 employees | Class-size minimums when mixed with a group plan | Only below 50 full-time and equivalents |
| How the money moves | Premiums go to the insurer | Employer funds it; sets the amount, no floor or cap | Employer only, no salary reduction |
| Doctors and network | One network for the whole team | Each person’s own policy | Each person’s own policy |
| Different terms for different staff | Set by the plan’s eligibility rules | Yes, by employee class | No, one set of terms |
| Room for a dental or vision plan | Yes | Allowance can’t be spent on dental-only cover | No, it counts as a group plan |
| Main paperwork | Summary of benefits, plan description, enrollment notices | Written notice 90 days before the plan year | Written notice 90 days before the year |
Put simply, a group plan chooses the coverage for everyone, an ICHRA gives each person a set allowance and lets you treat classes of staff differently, and a QSEHRA is the leanest of the three but rules out every other group health benefit while it runs.
How a small-group plan works
A group plan is an insured policy the company sponsors, regulated by the state. In California, small-group law reaches employers with 1 to 100 employees, most of whom work in the state, counted the federal way with full-time equivalents included. Covered California for Small Business also wants at least one W-2 employee who is not the owner’s spouse, so an owner-only company is not eligible there.
A group plan brings paperwork of its own: a summary of benefits and coverage on a standard template, a summary plan description, and a notice of special enrollment rights that lets someone join mid-year within 30 days of losing other coverage, marrying or having a child. Eligible people cannot be kept waiting more than 90 days for coverage to begin.
A group plan bought through the SHOP Marketplace can also open the Small Business Health Care Tax Credit, for employers with fewer than 25 full-time equivalents and average wages under an inflation-adjusted line that pay at least half the cost of employee-only coverage. It can be claimed for two consecutive tax years on Form 8941.
What an ICHRA does differently
CMS now calls the individual coverage HRA a CHOICE Arrangement. Where a group plan buys one policy for the whole team, an ICHRA funds a tax-free allowance that each employee spends on individual health insurance in their own name.
Its flexibility comes from classes: it can go to everyone or to defined classes on identical terms within each, with a group plan kept for other classes. Two limits apply when the two run side by side: nobody may be offered a choice between the group plan and the HRA, and minimum class sizes can apply. Which policies qualify and how contributions are tested are set out in our guide to ICHRA and QSEHRA for startups.
Where a QSEHRA fits
The qualified small employer HRA is built for companies below the applicable large employer line, meaning fewer than 50 full-time employees and equivalents in the prior year, that offer no group health plan at all. The IRS reads “group health plan” widely: a stand-alone dental or vision plan, a health FSA or another HRA each rules a QSEHRA out.
Next to an ICHRA it is the simpler tool: the company funds it alone, with no salary reductions, and every eligible employee gets the same terms, so there are no classes to design.
Questions that usually settle the choice
Work through these before you choose:
- Do you want one shared network? Only a group plan gives everyone the same doctors.
- Will you add dental or vision? A stand-alone dental or vision plan counts as a group health plan, so it removes the QSEHRA option, and dental-only cover does not count as the individual coverage an ICHRA pays toward.
- Do some roles need different treatment? Only the ICHRA allows classes of employees.
- Is the team spread out? CMS names a multi-state workforce as one reason to use a CHOICE Arrangement.
- Is the company still owner-only? Group options generally wait for the first non-owner employee, and the founder coverage guide covers the individual market in the meantime.
Growth, departures and the 50-employee line
The employer mandate begins with applicable large employers, those averaging at least 50 full-time employees, counting equivalents, in the prior year. A company that passes 50 during a year is not treated as large until January 1 of the next year, leaving time to move off a QSEHRA.
Departures matter most on a group plan. Federal COBRA reaches private-sector group plans of employers with at least 20 employees on more than half their business days in the prior year, and California’s Cal-COBRA covers employers with 2 to 19 employees. Have a tax professional confirm your headcount, the treatment of owners and the payroll setup before you commit to any of the three.
Remote and international team members
All three tools are built around US coverage, from the individual and Medicare plans CMS lists for an ICHRA to a small-group plan written under one state’s rules. Someone living abroad starts with the country’s own system and the employer setup there, which our comparison of employer of record, local entity and contractor walks through. State-by-state questions for a US team are in health insurance for remote employees in other states.
Asking for an introduction
When your team works across several states or countries and you want to explore remote-team or international health cover, use the quote form on this page to list the states and countries involved and how many people are in each. We will pass it to a benefits partner that handles international and remote-team coverage, and the partner and the insurer decide eligibility, plans and pricing. The employee benefits hub links every guide in this section.
A few useful answers
Common questions
What is the main difference between an ICHRA and a QSEHRA?
A QSEHRA is limited to employers under 50 full-time employees and equivalents that offer no group health plan, and it runs on one set of terms for everyone. An ICHRA, now also called a CHOICE Arrangement, can be offered by class and can sit beside a group plan offered to other classes.
Can a company with a group plan also offer an ICHRA?
It can, as long as the two go to different classes of employees. No one may be given a choice between the group plan and the ICHRA, and minimum class sizes can apply when the two are combined.
Does a small employer have to offer health coverage?
Not under federal law when it is below the applicable large employer line of 50 full-time employees, counting equivalents, in the prior year.
Can an owner-only company set up a small-group plan?
Most small-group plans need at least one employee who is not an owner or an owner’s spouse, and Covered California for Small Business asks for a W-2 employee who is not the owner’s spouse.
How does Mithril1 help with health cover for a spread-out team?
For remote and international teams, we can introduce you to a benefits partner, and the partner and the insurer decide eligibility, plans and pricing.