ICHRA QSEHRA Impact
Individual coverage HRAs, or ICHRAs, are a relatively new option that became available in 2020. The employer funds the employee's ICHRA with a set amount that fully or partially reimburses the employee for their health insurance costs using pre-tax dollars. Employees then turn to the healthcare marketplace to purchase their own individual health insurance. Assuming the contribution meets the ACA affordability test, the individual will not be entitled to premium tax credits. Qualified small employer HRAs, or QSEHRAs, allow small employers to contribute to the QSEHRA instead of offering group health coverage. The employee then uses the funds to purchase individual health coverage. QSEHRA contributions are capped (at $6,350 for individual coverage or $12,800 for family coverage in 2025), while ICHRAs are not subject to an annual limit.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about whether ICHRAs and QSEHRAs have a positive impact on employer-sponsored health coverage.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: ICHRAs and QSEHRAs provide powerful tax incentives for small business owners to offer some type of health benefits to their employees. It's important that we recognize that business owners are in all different types of positions—and some aren't in the position to be able to offer traditional group health coverage. When we provide employers with options, we greatly increase the likelihood that they'll find an option that works for them and choose to offer some type of valuable health benefit to employees.
Byrnes: Few employers have even decided to adopt these ICHRAs and QSEHRAs. The fact is, these options are overly complicated--and the amounts that can be contributed are extremely limited. The low employer adoption rate reflects the limited usefulness of ICHRAs and QSEHRAs, which simply push employees onto a health insurance market cluttered with health plans that come with sky-high deductibles, making them virtually useless to lower-income employees who can't afford the deductible.
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Bloink: Group health coverage can be prohibitively expensive for many smaller business owners. The government has recognized that with these valuable health savings options for employers. These types of health savings vehicles allow employers to help employees obtain their own health coverage through the health marketplace without the need to purchase often-unnecessarily expensive group health coverage.
Byrnes: For many low-income workers, QSEHRAs and ICHRAs can do more harm than good--because any amounts that are contributed are deducted from the amount of premium tax credit the employee can receive. Thus, it's almost as if the worker is punished because their employer has contributed to a custom type of health savings account.
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Bloink: ICHRA and QSEHRA contributions also further employee choice--allowing employees to make their own decisions with respect to the level of health coverage they purchase, while still giving them access to comprehensive health coverage they need and deserve. Allowing individuals to choose how to allocate their health spending dollars motivates them to take ownership over their decisions, resulting in a more cost-efficient system for everyone involved.
Byrnes: ICHRA and QSEHRA offerings only serve to over-complicate an already complex landscape dotted with a myriad of unnecessary health savings vehicles--when we could simply consolidate and allow only one type of health savings vehicle. When we overwhelm employers and employees with complicated choices, it actually becomes more likely that they could simply throw up their hands and decide not to bother with any type of health savings program at all.