Employer Health Stipends: How ICHRA and QSEHRA Work

The basic idea

Instead of choosing one group plan for everyone, the employer sets a monthly allowance. Employees buy an individual health plan, on the Marketplace or a private plan, and the employer reimburses premiums and sometimes other medical costs up to the allowance. Reimbursements under a properly established arrangement are generally tax-free to the employee and deductible for the business. General information, not tax advice — confirm with your CPA based on your specific entity structure.

There are two main versions.

QSEHRA: for small employers

A qualified small employer health reimbursement arrangement is available to employers with fewer than 50 full-time equivalent employees that do not offer a group health plan.

• Limits: the IRS sets an annual maximum. For 2026 it was $6,450 for self-only and $13,100 for family coverage; the IRS publishes new limits each year.
• Who gets it: generally all full-time employees, with the same terms for everyone, though amounts can vary by age and family size if based on the cost of a plan.
• Tax credit interaction: a QSEHRA does not automatically make employees ineligible for the Marketplace credit, but it reduces the credit. Employees must report the allowance on HealthCare.gov.

ICHRA: for employers of any size

An individual coverage health reimbursement arrangement has no federal dollar cap and can be offered by employers of any size.

• Classes: the employer can set different allowances for different classes of employees, such as full-time and part-time, salaried and hourly, or employees in different locations.
• Coverage required: employees must be enrolled in individual health coverage to be reimbursed.
• Tax credit interaction: this is the key rule. If the ICHRA is considered affordable, the employee cannot take the Marketplace credit. Affordability compares what the employee would pay for the lowest-cost silver plan in their area, after the allowance, with a share of household income: 10.22 percent for 2027. If the ICHRA is unaffordable, the employee can decline it and may be able to claim the credit instead.

Which is better?

For employers under 50 employees, a QSEHRA is simpler and works well when the budget is modest. An ICHRA fits employers that want higher allowances, different amounts for different groups, or that have 50 or more employees. Larger employers must also consider whether their ICHRA satisfies the employer mandate.

The right choice also depends on the employees. A team of lower-income employees who already get large Marketplace credits may be better off with a QSEHRA, or even no arrangement at all, than with an affordable ICHRA that wipes out their credits. I run the numbers for the actual workforce before an employer chooses.

If you are an employee offered a stipend

1. Find out which type it is and the monthly amount for you.
2. Check affordability if it is an ICHRA, because it determines whether you can get a tax credit.
3. Shop for a plan that qualifies. For an ICHRA, it must be individual health coverage. Short-term plans and health sharing ministries generally do not qualify.
4. Consider private plans too. If you are healthy, a private plan priced on health may cost less than a Marketplace plan, and the allowance applies to qualifying individual coverage either way.
5. Keep proof of coverage and premium payments for reimbursement.

Being offered an ICHRA also opens a special enrollment period on the Marketplace, so you are not limited to open enrollment when the arrangement starts.

If you are an employer

• Set it up formally. Plan documents, employee notices and, for a QSEHRA, the annual notice at least 90 days before the plan year. Informal reimbursements outside these arrangements can trigger tax problems and penalties.
• Decide your classes and amounts using the employees you actually have.
• Give employees help choosing a plan. The arrangement only works if employees enroll in coverage that fits them. That is where a broker who sells both Marketplace and private plans is useful.
• Coordinate with payroll so reimbursements are tracked correctly.

Owners and stipends

Partners in a partnership and owners of more than 2 percent of an S-corporation generally cannot participate as employees in these arrangements. The LLC and S-corp owner guide explains how owners usually handle their own coverage.

An example

A Tampa design firm with 12 employees and no group plan wants to spend about $500 per employee per month. A QSEHRA at that level fits within the federal limit, keeps things simple, and still lets two lower-income employees keep part of their Marketplace credits. A competing firm with 70 employees in three states chooses an ICHRA with separate classes by state, because premiums differ by location and the firm must meet the employer mandate. Both employers send employees to the same place for help picking a plan: someone who can compare Marketplace and private options for each person.

Setting the allowance

Employers often start with a round number. A better starting point is what coverage actually costs for the people you employ:

1. List employees by age, family size and zip code. Individual premiums vary by all three.
2. Pick a benchmark plan, for example a silver plan in each employee's area.
3. Decide how much of the benchmark you want to cover, for employees and, if you choose, their families.
4. For an ICHRA, test affordability for each class, especially if you have 50 or more full-time employees and want to meet the employer mandate.
5. For a QSEHRA, stay within the annual IRS limit.

How employees experience it

The arrangement works only if employees can choose well. Most need help understanding the difference between Marketplace and private plans, how the allowance affects their tax credit and which plans cover their doctors. Employers who provide that help see better enrollment and fewer complaints. I offer it to employees at no cost to them or to the employer.

Moving from a group plan to an HRA

Employers leaving a group plan should time the change carefully. Give employees notice well before the plan year, align the HRA start with open enrollment or the group plan's end date, and make sure employees understand that losing the group plan and gaining an ICHRA both open special enrollment periods. Employees with health conditions remain fully protected because Marketplace plans accept everyone.

Talk to me about it

Whether you are an employer designing a stipend or an employee trying to use one, I can show which plans qualify, what each costs after the allowance and how it affects any tax credit. I work with employers in Florida, Texas, Georgia and the other states I am licensed in. No fee. Get a quote or call or text (786) 218-2384.