This guide explains how ICHRA and QSEHRA work, their key differences, how they impact ACA Marketplace subsidy eligibility, what agents need to know about enrollment rules and compliance requirements, and how to position ICHRA with employer groups for the 2027 plan year. Sources: HealthCare.gov HRA overview and IRS guidance on the Premium Tax Credit.

An Individual Coverage Health Reimbursement Arrangement (ICHRA) and a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) are both employer-funded reimbursement arrangements that can reimburse eligible medical expenses, including health insurance premiums when the applicable rules are met. An ICHRA is legally an employer-sponsored group health plan that is integrated with individual health insurance coverage or Medicare; a QSEHRA is specifically treated under federal law as not being a group health plan. Both use a defined-contribution approach in which the employer sets the available reimbursement amount rather than selecting one traditional group insurance policy for every employee. Sources: Federal ICHRA final rule, IRS Notice 2017-67 on QSEHRA, and HealthCare.gov HRA overview.

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded HRA that can reimburse employees tax-free for individual health insurance premiums purchased on or off the Marketplace and, if the employer's plan allows, other qualified medical expenses such as deductibles and copayments. To participate, the employee and any covered dependents must maintain qualifying individual health insurance coverage or qualifying Medicare coverage for each month they are covered by the ICHRA. Sources: HealthCare.gov ICHRA guide and Federal ICHRA final rule.

A simple way to describe it: the employer gives each eligible employee a health-benefit budget, and the employee uses that benefit with individual coverage that meets the ICHRA rules.

Employers of any size can offer an ICHRA to eligible common-law employees; unlike QSEHRA, there is no federal 50-employee ceiling. Self-employed individuals are not treated as employees for HRA tax-exclusion purposes, so owner eligibility depends on the business structure and the individual's tax status. Sources: Federal ICHRA final rule and IRS guidance on S-corporation health arrangements.

It depends on the entity and the owner's tax status. Sole proprietors and partners are self-employed and generally cannot participate as employees. More-than-2% S-corporation shareholders are also treated as self-employed for these fringe-benefit rules and generally cannot receive tax-free HRA benefits. A C-corporation owner who is a bona fide employee may generally participate under the same rules that apply to other eligible employees. Sources: IRS S-corporation guidance and IRS employee/self-employed rules.

Sources: HealthCare.gov ICHRA guide and Federal ICHRA final rule.

There is no federal statutory dollar cap on an ICHRA allowance. An employer may set different amounts for different permitted employee classes. Within a class, the ICHRA generally must be offered on the same terms, although amounts may vary based on age, subject to a 3:1 maximum age ratio, and based on the number of dependents covered. Geography can be used to define a permitted employee class, but it is not an unrestricted within-class pricing factor. Sources: HealthCare.gov employer ICHRA guidance and Federal ICHRA final rule.

Sources: HealthCare.gov HRA overview, IRS HRA guidance, and Federal ICHRA final rule.

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is an employer-funded reimbursement arrangement available to an eligible employer that is not an Applicable Large Employer and does not offer a group health plan to any of its employees. In general, that means the employer has fewer than 50 full-time employees, including full-time equivalents, under the ACA employer-size rules. Sources: IRS Publication 974 and IRS QSEHRA guidance.

A QSEHRA can reimburse eligible medical expenses, including individual health insurance premiums. Reimbursements are generally tax-free only for months in which the employee has minimum essential coverage (MEC). Unlike ICHRA, QSEHRA does not require the employee's underlying coverage to be an individual-market policy specifically. Sources: IRS Notice 2017-67 and CMS minimum essential coverage guidance.

QSEHRA has annual statutory contribution limits that are indexed for inflation. For 2026, the maximum permitted benefit is $6,450 for self-only arrangements and $13,100 for arrangements that provide for family reimbursements. The 2027 limits should be confirmed when the IRS publishes the applicable indexed amount before quoting 2027 QSEHRA benefits. Sources: IRS QSEHRA guidance and 2026 Form W-2 instructions.

A QSEHRA may be a suitable option for eligible small employers that want a uniform reimbursement arrangement. ICHRA offers more flexibility in employee class design and has no statutory contribution cap, but the better fit depends on the employer's size, workforce, existing benefits, and compliance needs.

Budget control: With ICHRA, the employer determines the amount it will make available under the HRA instead of being tied directly to a group policy's renewal premium. Aon projected average U.S. employer health-care costs to rise 9.5% in 2027. ICHRA savings vary substantially by employer and market; a 2026 SureCo industry survey reported average estimated client savings of about 15.5%, so agents should model each group rather than promise a fixed savings percentage. These are industry figures, not CMS or IRS rules. Sources: Aon 2027 cost projection and SureCo 2026 State of ICHRA.

Employee choice: Employees offered an ICHRA can select among qualifying individual-market options available in their area rather than being limited to one employer-selected group policy. The exact number of plans varies by ZIP code, carrier participation, and market. Source: HealthCare.gov ICHRA guide.

No traditional group-policy participation minimum or medical underwriting requirement applies to the employer's ICHRA arrangement. Source: Federal ICHRA final rule.

Tax treatment: Eligible ICHRA reimbursements are generally excluded from the employee's taxable income when the applicable requirements are met. Source: IRS HRA guidance.

Portability: The individual insurance policy is owned by the employee, not the employer. Ending employment may end the employer-funded ICHRA, but the employee's underlying individual policy can generally continue if the employee remains eligible and continues paying the premium. Source: HealthCare.gov ICHRA guide.

ICHRA and QSEHRA have different underlying-coverage rules, so agents should not treat them as identical.

For ICHRA, the employee and any dependents covered by the HRA must be enrolled for each covered month in qualifying individual health insurance coverage that satisfies the federal integration rules, or in Medicare Part A and Part B or Medicare Part C (Medicare Advantage). Marketplace and qualifying off-Marketplace individual major medical coverage can qualify. Sources: HealthCare.gov ICHRA guide and Federal ICHRA final rule.

The following do not satisfy the ICHRA underlying-coverage requirement by themselves:

Once the employee has qualifying ICHRA coverage, the employer may also allow reimbursement of other Section 213(d) medical expenses under the terms of the HRA. Sources: DOL ICHRA Model Notice and IRS HRA guidance.

For QSEHRA, the rule is broader: the employee generally needs minimum essential coverage for QSEHRA reimbursements to be tax-free. MEC can include individual-market coverage, qualifying employer-sponsored coverage, Medicare Part A or Medicare Advantage, most Medicaid coverage, CHIP, TRICARE, and certain other coverage. The QSEHRA itself may reimburse eligible Section 213(d) expenses according to its plan terms. Sources: IRS Notice 2017-67 and CMS minimum essential coverage guidance.

Employers offering an ICHRA can use the federally permitted employee classes, including:

Minimum class-size rules apply in certain situations, particularly when an employer offers a traditional group health plan to one class and an ICHRA to another class using certain classifications. The federal rules generally use minimum sizes of 10 employees for employers with fewer than 100 employees, 10% of employees for employers with 100–200 employees, and 20 employees for employers with more than 200 employees, subject to the detailed regulatory rules and exceptions. Source: Federal ICHRA final rule.

Employee classes are also the mechanism that can allow an employer to offer traditional group health coverage to one permitted class and ICHRA to another; the employer generally cannot offer the same employee a choice between traditional group coverage and ICHRA within the same class under the current rules. Source: Federal ICHRA final rule.

An ICHRA offer can affect whether a client qualifies for the Premium Tax Credit (PTC/APTC) on Marketplace coverage. A client cannot receive ICHRA reimbursements and claim a Premium Tax Credit for the same month. Sources: IRS Premium Tax Credit Q&A and HealthCare.gov Marketplace HRA guidance.

If the ICHRA is considered affordable:

If the ICHRA is not considered affordable:

Because affordability affects both employer-mandate compliance and an employee's Marketplace subsidy eligibility, allowance design matters. Sources: HealthCare.gov employer ICHRA guidance and HealthCare.gov Marketplace HRA guidance.

Important QSEHRA distinction: an unaffordable QSEHRA does not follow the same all-or-nothing rule as ICHRA. An employee may still be eligible for a Premium Tax Credit, but the credit is generally reduced by the QSEHRA permitted benefit for the month. Sources: IRS Publication 974 and HealthCare.gov Marketplace HRA guidance.

For plan years beginning in 2027, the ACA required-contribution percentage is 10.22%, up from 9.96% for plan years beginning in 2026. For ICHRA affordability (Premium Tax Credit), the employee's required contribution is the monthly premium for the lowest-cost Silver self-only plan offered on the Exchange for the rating area where the employee lives, minus the monthly self-only ICHRA amount. That residual is compared to 10.22% of one-twelfth of the employee's yearly household income, not to a federal poverty line dollar amount. Sources: IRS Revenue Procedure 2026-26 and HealthCare.gov employer ICHRA guidance.

The 10.22% percentage is the highest ACA affordability percentage to date and the first to exceed 10%. Because the percentage increased from 2026, agents should re-check affordability for 2027 rather than carrying forward a prior-year result. Sources: IRS Revenue Procedure 2026-26 and IRS Revenue Procedure 2025-25 for 2026.

Do not use a federal poverty line dollar amount as the ICHRA Premium Tax Credit test. The $135.92 figure that appears in some 2027 employer-mandate writeups is a conservative floor of the IRC 4980H FPL safe harbor for Applicable Large Employers (2026 one-person poverty guideline of $15,960 times 10.22%, divided by 12 equals $135.93 to the nearest cent). That safe harbor is a different test from ICHRA affordability. An ICHRA can block the Premium Tax Credit at a much higher residual cost if household income is high, and can fail affordability at less than $135.92 if household income is low. Alaska and Hawaii use different poverty-guideline amounts, and non-calendar-year plans can be affected by the poverty guideline in the permitted lookback period. Sources: IRS Revenue Procedure 2026-26 and HHS 2026 poverty guidelines.

Clients can use the HealthCare.gov HRA decision guide to understand how an HRA offer may affect Marketplace savings.

If a client's employer offers an ICHRA, the employer generally must provide a written notice describing key terms, including:

The notice generally must be provided at least 90 calendar days before the beginning of each plan year. For an employee who becomes eligible later, the notice generally must be provided no later than the date the employee is first eligible to participate. Sources: DOL Reporting and Disclosure Guide and DOL ICHRA Model Notice.

For an ICHRA that starts January 1, 2027, employees using HealthCare.gov should generally enroll during Open Enrollment by December 15, 2026 if they want Marketplace coverage to start January 1. Employees must have qualifying individual coverage or qualifying Medicare in effect for each month they are covered by the ICHRA. Source: HealthCare.gov ICHRA guide.

A January 1 start date often simplifies coordination with individual-market Open Enrollment, but an employer can establish a non-calendar-year ICHRA. Source: Federal ICHRA final rule.

If a client is newly offered an ICHRA outside Open Enrollment, including because of a mid-year ICHRA start or new employment, the client may qualify for a Special Enrollment Period. Depending on the circumstances, enrollment can generally occur during the 60 days before the ICHRA can start and, for certain mid-year/newly eligible situations, up to 60 days after that date. Agents should use the Marketplace's current SEP rules for the client's specific situation rather than assuming every ICHRA SEP is only a pre-start 60-day window. Sources: CMS HRA FAQ and HealthCare.gov ICHRA guide.

Employers offering an ICHRA generally must:

Because these requirements depend on employer size, plan funding, participant count, and plan design, agents should not assume every ICHRA employer has identical filing obligations. Sources: DOL Plan Information, DOL Reporting and Disclosure Guide, IRS ALE guidance, and Federal ICHRA final rule.

Generally yes for private-sector employers subject to ERISA. An ICHRA is an employer-sponsored group health plan, even though it is integrated with individual insurance coverage. Governmental and church plans can fall outside ERISA, so the statement is not universal to every employer. Sources: HealthCare.gov HRA overview and DOL Plan Information.

An ICHRA sponsored by an employer subject to COBRA is generally subject to COBRA continuation rules. However, it is not accurate to state that the COBRA premium always equals the monthly ICHRA allowance plus 2%. COBRA generally permits a plan to charge up to 102% of the applicable premium, and IRS guidance explains that the applicable premium for an HRA may not simply be based on the individual participant's reimbursement balance. Employers should obtain the COBRA rate from their administrator or benefits counsel. Sources: IRS Notice 2002-45 and IRS COBRA premium regulations.

Employees and covered dependents must have qualifying coverage for each month they are covered by an ICHRA. The federal rules require reasonable procedures to substantiate coverage, including annual substantiation and substantiation with reimbursement requests under the regulatory framework. Administration methods vary by vendor, so agents should not promise that every administrator uses automatic monthly carrier data feeds. Sources: Federal ICHRA final rule and HealthCare.gov ICHRA guide.

Depending on the vendor and service agreement, an ICHRA administrator may handle plan setup, required notices, plan documents, reimbursement processing, coverage substantiation, employee support, COBRA coordination, and reporting support. The employer remains responsible for ensuring its plan complies with applicable law, so agents should confirm exactly which compliance functions are included in the administrator's contract rather than assuming every administrator performs every function. Sources: DOL Reporting and Disclosure Guide and Federal ICHRA final rule.

Messer does not advise quoting or enrolling ICHRA clients inside MyMFG because it can remove the client's subsidy. If you have questions about how to handle an ICHRA client, contact Producer Support by phone at (866) 568-9649 or by chat directly from your account.

QSEHRA clients can be quoted and enrolled inside MyMFG. If you have specific questions about the process, contact Producer Support by phone at (866) 568-9649 or by chat directly from your account.

Off-exchange plans are not supported in MyMFG. To quote and enroll a client in an off-exchange plan, go directly to the carrier's website.

"Think of it as a company-funded health benefit budget. You set the amount; eligible employees choose qualifying individual coverage available to them. The employer gets more control over the contribution budget, while the employee gets individual-market plan choice." Source for the underlying mechanics: HealthCare.gov employer ICHRA guidance.

"If we could provide you with a defined-contribution program that allows you to allot a certain amount of money toward employee health insurance, would you give us an opportunity to come in and share the benefits with you?"

"I noticed your group renewal is coming up and health-care costs are rising again. Would you be open to a 5-minute conversation about an option that lets you set the employer contribution while giving employees access to individual-market choices?" Employer health-care costs are projected to rise sharply in 2027, but an agent should use the employer's actual renewal rather than assume a particular increase. Source: Reuters/Aon 2027 employer cost projection.

"If we have a program that allows businesses to allocate a defined amount toward employee health benefits, would that be something you would be interested in taking a look at?"

The goal of the initial conversation is to determine whether an ICHRA analysis and follow-up meeting would be useful for the employer.

"ICHRA can give employees more individual-market plan choice while letting the employer define its contribution. That flexibility may be attractive in recruiting and retention, but the value will depend on the plans, networks, premiums, and employee demographics in the employer's market." A 2026 industry survey reported that 83% of surveyed employees preferred access to all available plans in their area if the employer contributed, but this is industry survey data rather than a universal workforce statistic. Source: SureCo 2026 State of ICHRA report.

Objection: Employees have to shop for their own plan.

"Employees do select individual coverage, but they do not have to do it without support. The agent, enrollment platform, or administrator can help employees compare premiums, provider networks, prescriptions, and plan designs." Do not promise that every employee can keep a specific doctor; network participation must be verified for the plan selected. Source: HealthCare.gov ICHRA guide.

Objection: Employees will have too much choice.

"Plan choice can feel overwhelming, so guided enrollment matters. Industry survey data suggests many employees value broader choice: SureCo's 2026 survey reported that 83% preferred choosing from all plans available in their area when the employer contributes. The exact employee experience depends on the market and the support provided." Source: SureCo 2026 State of ICHRA report.

Objection: This sounds like more work for the employer.

"A third-party administrator can perform much of the day-to-day administration, including reimbursements and coverage substantiation, depending on the service agreement. The employer still has ultimate plan-sponsor responsibilities, so we will confirm what the administrator handles before implementation." Sources: Federal ICHRA final rule and DOL Reporting and Disclosure Guide.

Not necessarily. ICHRA may be a strong fit for employers seeking more predictable contribution budgeting or more individual plan choice, but results depend on the employer's workforce, locations, individual-market premiums and networks, current group-plan costs, subsidy implications, and benefits goals. Agents should run a market-specific cost and coverage analysis before recommending a switch.

Can I have an ICHRA and Medicare at the same time?

Yes. Medicare Part A and Part B together, or Medicare Part C (Medicare Advantage), can satisfy the ICHRA underlying-coverage requirement. A person covered by an ICHRA through Medicare must maintain qualifying Medicare coverage for each month of ICHRA coverage. Eligible dependents covered by the ICHRA must separately maintain qualifying individual coverage or qualifying Medicare coverage. Sources: HealthCare.gov ICHRA guide and CMS HRA FAQ.

Medicare clients should separately evaluate prescription-drug coverage. A Medicare beneficiary who goes 63 or more consecutive days without Part D or other creditable prescription-drug coverage after becoming eligible can face a Part D late-enrollment penalty. Source: Medicare.gov creditable drug coverage.

Can a client use both an ICHRA and the ACA Premium Tax Credit?

Not for the same month. If the ICHRA is affordable, the employee generally is not eligible for the Premium Tax Credit even if the employee declines the ICHRA. If the ICHRA is unaffordable and the employee opts out of the ICHRA, the employee may be eligible for a Premium Tax Credit if all other PTC requirements are met. Sources: IRS Premium Tax Credit Q&A and HealthCare.gov Marketplace HRA guidance.

Can an employer offer group health insurance to some employees and an ICHRA to others?

Yes, if the offers are separated using permitted ICHRA employee classes and the employer satisfies the applicable class-size and same-terms rules. Under the current federal rules, an employer generally cannot offer employees in the same class a choice between a traditional group health plan and ICHRA. Source: Federal ICHRA final rule.

Can an employer change the ICHRA allowance amount each year?

Yes. The employer can redesign the amount for a new plan year, subject to the ICHRA's permitted-class and same-terms rules, required notices, and any other applicable plan-amendment requirements. Sources: Federal ICHRA final rule and DOL ICHRA Model Notice.

What happens if an employee loses qualifying coverage mid-year?

ICHRA coverage/reimbursements cannot continue for medical expenses incurred after the qualifying individual coverage terminates unless the employee obtains other qualifying coverage that satisfies the ICHRA rules. Whether the loss itself creates a Marketplace Special Enrollment Period depends on the circumstances; loss of qualifying health coverage generally can qualify for a 60-day Marketplace SEP. Sources: Federal ICHRA final rule and HealthCare.gov SEP guidance.

What is the best time for an employer to start an ICHRA?

January 1 is often administratively convenient because it aligns with the individual market's annual Open Enrollment cycle and deductible year for many plans, but an ICHRA can use a non-calendar plan year. If employees become newly eligible outside Open Enrollment, the ICHRA offer can create a Special Enrollment Period under the applicable rules. Sources: HealthCare.gov ICHRA guide and CMS HRA FAQ.

What are the 2027 updates to ICHRA?

The ACA required-contribution percentage for plan years beginning in 2027 is 10.22%, up from 9.96% in 2026. This can make an employer offer easier to satisfy as affordable than it would be under the lower 2026 percentage, all else equal. For ICHRA Premium Tax Credit affordability, use the lowest-cost Silver self-only Exchange plan in the employee's residence rating area, minus the monthly self-only ICHRA amount, compared with 10.22% of one-twelfth of yearly household income. Do not treat a federal poverty line dollar amount as that test. Sources: IRS Revenue Procedure 2026-26 and HealthCare.gov employer ICHRA guidance.

ICHRA continues to operate under the 2019 federal final rules. CHOICE Arrangement legislation has been proposed repeatedly, including H.R. 5463 and S. 2875 in the 119th Congress, but as of August 26, 2026 those bills are introduced/referred measures rather than enacted law. Similar CHOICE provisions appeared in the House-passed 2025 reconciliation text but were not included in the final Public Law 119-21. Agents should therefore continue using the existing ICHRA rules unless new legislation is enacted. Sources: GovInfo H.R. 5463, GovInfo S. 2875, and Public Law 119-21.

For additional help, please contact Producer Support, which is available by chat directly from your account, by phone at (866) 568-9649, or by email at [email protected].