Health insurance if you work for a small business: Understanding QSEHRA and ICHRA

Working for a small business often comes with unique advantages, but when it comes to health insurance, small businesses play by a different set of rules. Unlike large companies, they aren’t legally required to provide a group health plan if they have fewer than 50 full-time employees. That means your experience as an employee can vary widely. While some small employers still offer traditional group insurance, many do not.

If you’re in that situation, there are two programs  — QSEHRA and ICHRA — that are changing the way small businesses help employees with health coverage. 

These aren’t health insurance plans themselves — they’re reimbursement arrangements. Your employer designates a set amount of money, which you can use to buy your own individual health plan. It’s a flexible alternative to the traditional “one-size-fits-all” group coverage model.

What QSEHRA means for you

QSEHRA, short for Qualified Small Employer Health Reimbursement Arrangement, was designed for businesses with fewer than 50 employees that don’t offer a traditional group health plan.

From an employee’s perspective, here’s how it works: instead of enrolling in a company-sponsored plan, you shop for your own coverage on the ACA Marketplace (HealthCare.gov or your state exchange). After you purchase a policy and pay the premiums, your employer reimburses you for some or all of those costs. These reimbursements are tax-free and don’t count as income, making QSEHRA a flexible, budget-friendly alternative to group insurance.

But there are limits — the IRS caps how much an employer can reimburse each year. In 2025, the maximum is $6,350 for self-only coverage or $12,800 if you’re covering a family. Employers can offer less, but not more. The idea is to give small businesses a manageable way to contribute without putting them on the hook for rising group premiums.

For you as an employee, QSEHRA means freedom. You’re no longer tied to whatever group plan your company negotiates — you can choose a plan that fits your doctors, prescriptions, and family needs. And if you ever leave your job, the insurance goes with you, though the reimbursements stop.

How ICHRA builds on QSEHRA reimbursements 

If QSEHRA is the starter version, ICHRA the (Individual Coverage Health Reimbursement Arrangement) is the more flexible, open-ended version.

Unlike QSEHRA, ICHRA can be offered by businesses of any size. A company with 10 employees can use it, and so can a company with 1,000. There are also no reimbursement caps. The employer decides how much to contribute, a modest monthly allowance or a much more generous subsidy.

ICHRA also gives employers more freedom in how they structure benefits. They can define “classes” of employees, for example, offering ICHRA only to part-timers or seasonal workers while still providing a group plan to full-time staff. Or they could offer different contribution amounts to different employee groups.

For you, the employee, the experience still feels similar to QSEHRA. You go out and shop for your own ACA-compliant health plan, you pay the premium, and then your employer reimburses you tax-free up to the amount they’ve promised. The difference is scale: ICHRA can come with larger reimbursements and is more likely to appear at bigger companies that are rethinking how they provide benefits.

Comparing QSEHRA and ICHRA

The key differences between QSEHRA and ICHRA come down to who can offer them and how flexible each program is.

QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is designed for small businesses with fewer than 50 employees and comes with IRS-set reimbursement caps. It’s straightforward and uniform — every eligible employee must be offered the same terms, with only minor adjustments allowed for factors like age or family size.

ICHRA (Individual Coverage Health Reimbursement Arrangement), on the other hand, can be offered by employers of any size and has no reimbursement limits. It’s far more customizable — employers can tailor allowances based on defined employee classes, meaning your benefit amount may vary depending on your role, status, or hours worked.

Here’s a side-by-side comparison to help you see how the two arrangements differ from a consumer perspective:

What this means for your coverage and control

If you work for a small business, your health insurance options typically fall into four main categories:

• A traditional group plan, if your employer offers one.
• A QSEHRA, where your employer provides a set reimbursement to help cover the cost of a plan you choose.
• An ICHRA, which works similarly but allows more flexibility and doesn’t have reimbursement caps.
  Individual coverage through the ACA Marketplace, if no benefits are offered — often with subsidies available to lower your monthly premium.

Some workers also turn to short-term medical plans as a temporary option, but these aren’t ACA-compliant and lack the same consumer protections and essential benefits.

The growing use of QSEHRA and ICHRA highlights a broader shift toward more personalized health benefits. Instead of a single group plan that may not fit everyone, employers are giving workers more control — offering funds to buy their own coverage and choose what works best for their needs and families.

For employees, this model brings more choice, greater responsibility, and often more stability. Your coverage is no longer tied to your employer’s group plan — it’s yours to keep, even if you change jobs.

Why a small business might choose QSEHRA

QSEHRA was created specifically for small employers with fewer than 50 full-time employees who do not offer a group plan. For many family-run companies or small teams, this option is the easiest fit.

• Simplicity. QSEHRA is straightforward to set up. The rules are uniform, meaning all employees are treated the same with only minor adjustments allowed for family size or age. There are no complicated employee classes to manage, and the reimbursement amounts are capped by the IRS, which keeps the program predictable.
• Cost control. The reimbursement caps set by the IRS create a clear ceiling on costs. For 2025, that is $6,350 for individual coverage or $12,800 for family coverage. Business owners like knowing there is a maximum limit to what they will spend.
• Compliance safety. Because QSEHRA is standardized, it is less intimidating for small business owners who do not have a full HR or compliance team.

A company that wants to give employees financial support without taking on the complexity of a group plan often chooses QSEHRA.

Why a small business might choose ICHRA

ICHRA can be offered by businesses of any size. Some small companies adopt it because they want more flexibility or expect to grow beyond 50 employees.

• No caps. ICHRA does not have IRS reimbursement limits. This appeals to employers who want to be more generous or competitive in attracting talent.
• Flexibility with employee groups. ICHRA allows companies to define classes of employees. A small business with both full-time and seasonal workers could offer different benefits to each group.
• Future planning. A business that expects to scale beyond 50 employees may choose ICHRA from the beginning. Since QSEHRA is only available under the 50-employee threshold, they would eventually need to switch if they grew larger.
• Strategic design. Owners who want their benefits strategy to look and feel more like a large company often prefer ICHRA. It lets them tailor support while avoiding the burden of managing a traditional group plan.

How to decide between QSEHRA and ICHRA

QSEHRA is best when a business wants something simple, capped, and easy to administer. It is about offering affordable help to employees without adding complexity.

ICHRA is best when a business wants flexibility, scalability, and potentially higher contributions. It is about tailoring benefits to different groups of employees and preparing for long-term growth.