Choosing the Right Health Benefits Model for Your Small Business Clients: QSEHRA vs. Level-Funded vs. ICHRA

Mark Mixer has spent over 40 years helping businesses and brokers navigate the complex world of employee benefits. As CEO of HRASimple, a founding member of the HRA Council, and a certified NABIP trainer, he’s a trusted guide for brokers looking to offer smarter, more human-first health plans. Mark writes to equip advisors with strategy, not just sales tools, so they can lead their clients with confidence.

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Comparing Group Benefits Plans: QSEHRA vs. Level-Funded vs. ICHRA

Table of Contents

• Side-By-Side Comparison
• QSEHRA Group Health Plans
• Level-Funded Group Health Plans
• ICHRA Group Health Plans

If you’ve ever stared at a spreadsheet wondering whether Individual Coverage Health Reimbursement Accounts (ICHRA), level-funded, or QSEHRA is "the best fit” for your client, you’re not alone.

We get this question from brokers all the time:

“How do I know which benefits path is right for my client?”

The answer? It depends on who they are, what they value, and how they work.

So, let’s simplify the comparison and give you the tools to make the call.

First Up: What Are We Actually Comparing?

Three popular options stand out in the current landscape: QSEHRA, level-funded plans, and ICHRA. Each has its strengths, limitations, and best-use scenarios. Here's a quick chart:

Now, let’s walk through them with real-world examples so you can make an informed, strategic decision.

Option 1: QSEHRA, Qualified Small Employer Health Reimbursement Arrangement

What it is: QSEHRAs are only available to employers with fewer than 50 full-time employees who don’t offer a group plan. This tax-free reimbursement model has caps on annual contributions.

Best for: Very small teams with basic health benefit needs and no plans to offer a group health plan.

How it works: QSEHRA allows employers with fewer than 50 full-time equivalent employees to reimburse employees for individual health insurance premiums and qualified medical expenses (tax-free) up to an annual limit set by the IRS.

Use Case, The Local Bakery: “Sweet Roots” is a family-owned bakery with 9 employees, all working in person at the same location. The owners want to offer a simple benefit to offset the rising cost of healthcare, but can’t justify the complexity or cost of a traditional group plan.

They opt for a QSEHRA plan, reimbursing up to $5,850/year for single coverage and $11,800/year for family coverage. The setup is easy, and employees can choose any ACA-compliant plan that fits their lifestyle. For this business, QSEHRA hits the sweet spot: simple, straightforward, and cost-contained.

Limitations of QSEHRA Plans:

• Contribution caps may be too restrictive for employees with higher coverage needs.
• One-size-fits-all design — no differentiation between employee roles or family needs.
• Must not offer any group health plan.

Advantages of QSEHRA Plans:

• Simple to set up and administer: ideal for employers without HR staff or benefit consultants
• Tax-free reimbursements: applicable to both the employer and employees, covering individual premiums and qualified expenses
• Budget-friendly: IRS-set caps help control and predict costs
• Flexible for employees: each person can choose their own individual plan
• Great for small, local teams: great fit when everyone lives and works in the same area

Option 2: Level-Funded Plans, a hybrid between fully insured and self-funded group insurance

What it is: Often, these plans are marketed as an equivalent to fully-insured plans — but that is a false equivalency. Level-funded plans are “self” funded plans, and brokers need to be sure they understand all the compliance requirements that come along with that setup. Employers contribute a set monthly amount (based on expected claims and admin fees), and if claims are lower than expected, they may get a refund.

Best for: Businesses with relatively healthy employee populations and a tolerance for administrative complexity.

How it works: Level-funded plans use a fixed monthly payment to cover administrative costs, stop-loss coverage, and employee claims funding. If claims are lower than expected, employers may receive a refund at the end of their fiscal year. If claims are high, stop-loss insurance kicks in to reimburse the employer.

Use Case, The Mid-Size Agency: “Atlas Creative,” a 30-person marketing firm with mostly young, healthy employees, wants to offer a group plan while keeping costs predictable.

They opt for a level-funded plan that gives them access to broad provider networks and possible premium returns at the end of the year. The risk pays off for the first two years, but after a few high-cost claims, they’re hit with a significant renewal increase and find themselves reconsidering the sustainability of this model.

Limitations of Level-Funded Plans:

• Renewal volatility can strain budgets after high claims years.
• Administrative overhead still resembles a traditional group plan.
• Limited choice for employees tied to a specific carrier or network.

Advantages of Level-Funded Plans

• Potential for premium refunds: employers may get money back if claims are low.
• Lower premiums than fully insured plans: higher likelihood if the group is generally healthy
• Familiar experience: feels like a traditional group plan for employees, with networks and deductibles
• Access to provider networks: employees can still use preferred doctors/hospitals, depending on the carrier
• Predictable monthly costs: with stop-loss insurance, owners cap financial exposure

Option 3: ICHRA, Individual Coverage Health Reimbursement Arrangement

What it is: A flexible, tax-free way for employers to reimburse employees for individual coverage premiums and qualified medical expenses. ICHRAs work for businesses of any size, and integrates with ACA plans.

Best for: Employers of any size looking for flexibility, scalability, and employee choice.

How it works: With an ICHRA, employers set a monthly allowance for employees to use to purchase individual health insurance and/or get reimbursed for medical expenses, tax-free. Unlike QSEHRA plans, there are no caps, no minimums, and no participation requirements. Employers can tailor benefit amounts across different employee classes.

Use Case, The Growing Tech Startup: “Nimbus Software,” a remote-first company with 65 employees across six states, wants a flexible health benefit model that can scale with their rapid growth.

They implement an ICHRA and create custom classes based on location and employment type (full-time, part-time, remote). Employees appreciate the ability to choose plans that fit their doctors, families, and lifestyles. The leadership team appreciates the cost control, privacy protections, and compliance support. As the company grows past 100 employees, the ICHRA adapts seamlessly.

Limitations of ICHRA Plans:

• Employees must purchase their own individual insurance, and some may find this unfamiliar or intimidating without guidance. Choosing an HRA Administrator can help ensure a smooth transition.
• Not compatible with traditional group plans (though group excepted benefits like dental and vision are allowed).
• Requires employees to enroll in a qualified health plan to receive reimbursements. Without a plan, employees receive no payout.
• Employer reimbursements must be consistent within defined employee classes, which adds some initial setup planning.

Advantages of ICHRA Plans:

• Unlimited employer contributions: owners set the budget; no federal caps
• Flexible benefit design: tailor allowance amounts by job class, location, hours worked, etc.
• Supports remote, part-time, and gig workers: works for today’s dynamic workforce
• Total employee choice: employees pick the plan that fits their family, doctor, and budget
• Reduced compliance risk: employees purchase their own plans, simplifying employer liability
• Tax-advantaged for all: contributions are tax-free for employers and employees
• Scalable as your group grows: whether the group has 2 employees or 200, the model adjusts
• Compatible with other benefits: dental, vision, disability, and more can be layered in

Final Thoughts: Which One Is Right for Your Client?

There’s no one-size-fits-all answer. Each plan option has its place depending on your client’s size, structure, risk tolerance, and future growth plans. The fact that you’re considering this question means that you have set yourself apart as a strategic broker.

When you can confidently explain the pros, cons, and best-fit options for each of these models, you stop being a vendor and start being a visionary. Clients want someone who can look around corners and advise them. Like anything, the goal here isn’t to know everything about all insurance plans. It’s to know who to ask and what questions to consider.

QSEHRAs, level-funded group health plans, and ICHRAs are tools for specific needs. When you know the right tool for your client, you win loyalty, renewals, and long-term growth.

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Posted by Mark Mixer on Friday, August 1, 2025 in Group Benefits

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