Updated November 2026 with 2027 limits. An ICHRA (Individual Coverage Health Reimbursement Arrangement) lets an employer give workers a tax-free monthly allowance to buy their own individual health insurance, instead of offering a traditional group plan. The worker picks a plan on the ACA Marketplace or directly from an insurer, and the employer reimburses premiums and, if it chooses, other medical costs up to the allowance. A QSEHRA (Qualified Small Employer HRA) is a smaller, capped version for businesses with fewer than 50 full-time employees.
More than 20,000 employers offered an ICHRA or QSEHRA in 2026, and ICHRAs covered more than 500,000 people, according to the HRA Council, an industry group. That is still small next to the roughly 150 million people in employer plans, but it is the fastest-growing corner of employer coverage.
ICHRA vs QSEHRA at a Glance
| Feature | ICHRA | QSEHRA |
|---|---|---|
| Employer size | Any size | Fewer than 50 full-time equivalent employees, no group plan |
| Annual allowance limit | None | 2027: $6,700 self-only, $13,550 family (2026: $6,450 / $13,100) |
| Can vary allowance by employee class | Yes, by classes such as full-time, part-time, salaried, hourly and location | Only by age and family size, per plan cost |
| Can offer alongside a group plan | Yes, to different classes, never the same class | No |
| Counts toward the ACA employer mandate | Yes, if affordable | Not applicable |
| Employee must have individual coverage | Yes, ACA-compliant individual plan or Medicare | Yes, qualifying health coverage |
How an ICHRA Works
A 2019 federal rule created the ICHRA, effective for plan years starting January 1, 2020 (84 Fed. Reg. 28888). The basic steps are the same at every company:
- The employer sets a monthly allowance for each class of employee.
- Employees buy an individual plan and show proof of coverage.
- The employer reimburses premiums, and optionally other costs, up to the allowance, tax-free.
- Unused money stays with the employer except where the plan design provides otherwise.
Losing or gaining an ICHRA offer opens a special enrollment period, so new hires can buy a Marketplace plan outside Open Enrollment.
The Affordability Test and Premium Tax Credits
An ICHRA is “affordable” if the employee’s cost for the lowest-cost silver plan in their area, after the allowance, is no more than a set share of household income: 9.96% for 2026 and 10.22% for 2027 (IRS Rev. Proc. 2026-26).
The test matters to both sides. If the offer is affordable, the employee cannot claim Marketplace premium tax credits. If it is unaffordable, the employee can decline the ICHRA and take the tax credits instead, but cannot use both. Employers with 50 or more full-time workers usually need an affordable offer to avoid ACA employer mandate penalties.
Who ICHRAs Make Sense For
- Small employers that cannot get or afford a group plan.
- Companies with workers in many states, since each employee buys a local plan.
- Employers facing large group renewals that want a fixed, predictable cost.
- Part-time or seasonal staff classes that would not qualify for the group plan.
The weak spot is the individual market itself. Many Marketplace plans use narrow HMO or EPO networks, and premiums for older workers can be three times those for younger ones. The 2026 loss of the expanded premium tax credits also changed the math for lower-wage workers deciding between an ICHRA and subsidies; see our ACA Marketplace enrollment by state data.
QSEHRA in Brief
A QSEHRA, available since 2017, is limited to small employers with no group plan. Allowances must be offered to all eligible employees on the same terms, and the 2027 cap is $6,700 for self-only and $13,550 for family coverage (IRS Rev. Proc. 2026-35). Unlike an ICHRA, a QSEHRA reduces the employee’s Marketplace tax credit rather than replacing it.
What Congress Is Considering
The House passed the CHOICE Arrangement Act (H.R. 6703), which would write ICHRAs into law under a new name and add a tax credit for small employers, by a 216-211 vote in December 2025. The Senate has not acted, and the current rule remains in place.
Questions To Ask Before Accepting an ICHRA
- How much is the monthly allowance, and does it vary by age or family size?
- Which plans in my county will my doctors accept?
- Does the allowance cover only premiums, or also deductibles and copays?
- Is the offer affordable under the IRS test for my household income?
- How and when will reimbursements be paid?
For coverage options, see our guides to individual health insurance plans, self-employed health insurance and self-funded and level-funded plans.
Sources
Health Reimbursement Arrangements and Other Account-Based Group Health Plans, final rule (June 20, 2019); IRS Revenue Procedures 2026-26 and 2026-35; HRA Council 2026 report; Congress.gov, H.R. 6703.