If you’ve ever wished you could support your team’s health coverage without managing a full group plan, this post is for you. Two modern options—ICHRA and QSEHRA—let churches and small nonprofits reimburse employees for individual health insurance and certain medical expenses, tax-free. Below is a plain-English overview of how they work, where each shines, and how to get started.
Quick note on naming: It’s QSEHRA (Qualified Small-Employer HRA)—you’ll sometimes see it mistyped as “QSHERA,” but you can say it however you want ;).
TL;DR (the 30-second version)
- Both ICHRA and QSEHRA: let you reimburse employees tax-free for premiums/medical expenses, are employer-funded only (no employee contributions), and can be self-administered with simple guardrails.
- ICHRA: works for employers of any size and has no federal dollar cap on the allowance. It coordinates with Marketplace subsidies via an affordability check and includes an opt-out option.
- QSEHRA: only for small employers (generally fewer than 50 FTEs), cannot be offered alongside a group plan, and has annual caps—but year-end reporting is simpler.
- For a one-employee church (pastor only): either can work. If you want maximum flexibility, ICHRA. If you prefer a cap and simpler reporting, QSEHRA.
What they are (in one paragraph each)
ICHRA (Individual Coverage HRA)
An ICHRA lets you set a monthly allowance that employees use to buy individual health insurance (on- or off-Exchange) or, if you choose, to be reimbursed for other §213(d) medical expenses. It’s available to employers of any size and uses “classes” of employees to ensure consistent terms. Premium Tax Credits (PTC) depend on whether the ICHRA is affordable in the employee’s rating area; employees can opt out annually if it’s not advantageous.
QSEHRA (Qualified Small-Employer HRA)
A QSEHRA is available only to small employers (non ALE, generally under 50 FTEs) who don’t offer any group health plan. You set an allowance (subject to annual caps) and reimburse employees with minimum essential coverage for premiums and/or other §213(d) expenses. At year-end you report the permitted benefit on the employee’s W-2 (Code FF).
Shared benefits (why churches love both)
- Budget control: You choose the allowance; costs stay predictable and transparent.
- Choice & portability: Employees pick the plan that fits their doctors, meds, and network needs.
- Tax efficiency: Reimbursements are generally tax-free to employees and deductible to the church.
- Right-sized admin: No carrier negotiations, no open-enrollment herding—just simple monthly substantiation.
- Pastor-friendly: Works whether the pastor buys on the Exchange, off-Exchange, or is Medicare-eligible.
Key differences at a glance
- Eligibility & size
- ICHRA: Any size employer; you can mix classes (e.g., full-time vs. part-time) as long as each class gets the same terms.
- QSEHRA: Only for small employers; no group plan alongside it.
- Allowance
- ICHRA: No federal cap—set what your budget allows.
- QSEHRA: Subject to annual IRS caps (indexed).
- Marketplace subsidy (PTC) interaction
- ICHRA: An affordability test determines whether the employee can claim a PTC. If the ICHRA is affordable, no PTC; if not, the employee can opt out and pursue a PTC.
- QSEHRA: If an employee qualifies for a PTC, the PTC is typically reduced by the QSEHRA amount.
- Pre-tax payroll coordination
- Both: You cannot run Exchange (Marketplace) premiums through a cafeteria plan. Off-Exchange premiums may be salary-reduced pre-tax if you adopt a §125 plan.
- Year-end reporting
- ICHRA: Treats as a self-insured plan for ACA information reporting (non-ALE: furnish/file 1095-B/1094-B).
- QSEHRA: No 1095-B just for having a QSEHRA; instead, report the annual permitted benefit on the W-2 (Code FF).
- PCORI
- Both owe the small PCORI fee annually (filed on Form 720).
When ICHRA tends to win
- You want higher or customized allowances and don’t want to be constrained by annual caps.
- You have (or may later have) different classes of workers and want a scalable framework.
- You want clean coordination with Marketplace subsidies via the affordability + opt-out mechanism.
When QSEHRA tends to win
- You’re a very small employer with no group plan and you prefer simple reporting.
- Your budget fits comfortably within the annual caps.
- You want a “set-it-and-forget-it” allowance with straightforward monthly reimbursements.
What about a one-employee church with a pastor?
- Either option can work smoothly.
- If the board is comfortable setting a fixed monthly amount and doesn’t expect to exceed the annual QSEHRA caps, QSEHRA is simple and tidy (plus the W-2 Code FF makes the reporting clear).
- If you want the freedom to set a larger allowance—or anticipate adding staff later with different classes—ICHRA offers more headroom.
Common misconceptions (quick clarifications)
- “We need a third-party administrator.”
Not required. You can self-administer with good templates, a monthly coverage attestation, and secure recordkeeping. - “We can pre-tax Marketplace premiums through payroll, right?”
No. Exchange premiums cannot be salary-reduced pre-tax. (Off-Exchange premiums can be, if you adopt a §125 plan.) - “HIPAA will bury us in red tape.”
A self-administered plan with fewer than 50 participants is generally not a HIPAA-covered entity—still handle PHI prudently (limit access, store securely).
How to get started (simple, step-by-step)
Works for both ICHRA and QSEHRA
- Decide your plan year (calendar year is easiest) and what you’ll reimburse: premiums only or premiums + §213(d) expenses.
- Choose a monthly allowance that fits your budget (QSEHRA must stay within annual caps).
- Adopt a short Plan + SPD and deliver the required employee notice before the plan year (different language for ICHRA vs. QSEHRA).
- Collect coverage proof: initial confirmation and a brief monthly coverage attestation before reimbursing.
- Reimburse via A/P, not through payroll; keep a tidy file with receipts/attestations.
- Do the annuals: pay the PCORI fee and complete the appropriate year-end reporting (ICHRA: 1095-B; QSEHRA: W-2 Code FF).
Final thought
For many churches, moving from a traditional group plan to an HRA is a breath of fresh air—cost control for the church, real choice for the pastor or staff, and less administrative friction. Whether you land on ICHRA or QSEHRA, you can implement it in days with a clear policy, two simple forms, and a monthly routine.
Want a ready-to-use implementation kit (plan document, notices, monthly attestation, and a one-page checklist)? I can tailor both ICHRA and QSEHRA versions for your church’s name, plan year, and allowance.