Offering health benefits without a traditional group plan.

Published June 9, 2026 · By Tom Wertish, Options.Health

A full group health plan makes sense for some employers and is genuinely out of reach for others — the minimum participation requirements, annual renewal negotiations, and cost of sponsoring a plan can be a lot for a five- or ten-person shop. A growing number of small businesses around Chaska are solving this a different way: reimbursing employees directly instead of sponsoring a plan at all.

Why fewer small employers are going the traditional route

Traditional group health insurance usually requires a minimum number of enrolled employees, comes with an annual renewal that can swing significantly based on your group’s claims history, and locks everyone into the same plan design regardless of what an individual employee actually needs. For a small, tight-margin business, that’s a lot of fixed cost and administrative overhead for a benefit that may not even fit everyone on the team.

The alternative that’s picked up real traction: Health Reimbursement Arrangements (HRAs), specifically QSEHRA and ICHRA. Instead of sponsoring one group plan, the employer sets a monthly reimbursement allowance, and employees buy their own individual health coverage and get reimbursed tax-free.

QSEHRA: the simpler option for really small teams

A Qualified Small Employer HRA (QSEHRA) is built specifically for businesses with fewer than 50 full-time equivalent employees that don’t offer a group plan. It’s straightforward to administer, but the IRS caps how much you can reimburse each year. For 2026, those caps are:

• $6,450 per year ($537.50/month) for self-only coverage
• $13,100 per year ($1,091.66/month) for family coverage

You have to offer it to all full-time W-2 employees on the same terms. Employees need to maintain minimum essential coverage (MEC) to receive tax-free reimbursements — and that’s broader than it sounds. MEC includes an individual marketplace plan, but also coverage through a spouse’s or parent’s employer group plan, Medicare, or Medicaid. So an employee already covered under a spouse’s work plan can still use QSEHRA funds.

QSEHRA reimbursement also isn’t limited to premiums: it covers out-of-pocket medical costs too — copays, deductibles, prescriptions, and other Section 213(d) expenses — as long as MEC is in place. There’s no minimum contribution — you set an amount that fits your budget, up to the federal cap.

ICHRA: more flexibility, no cap — but a stricter coverage rule

An Individual Coverage HRA (ICHRA) works on the same basic principle — reimburse employees instead of sponsoring a group plan — but without QSEHRA’s employee-count limit or contribution cap. ICHRA also lets you offer different allowance amounts to different classes of employees (full-time vs. part-time, or by location), which QSEHRA doesn’t allow.

The tradeoff: ICHRA has a stricter coverage requirement than QSEHRA. Employees must be enrolled in their own individual health insurance policy (purchased on or off the marketplace) or Medicare to receive reimbursement — coverage through a spouse’s or parent’s employer plan does not qualify for ICHRA, even though it would for QSEHRA. You’ll also want clearly defined employee classes and consistent terms within each class to stay compliant.

For businesses that have outgrown QSEHRA’s dollar caps, or that want more flexibility in how allowances are structured across different roles, ICHRA is usually the better fit — provided employees are willing and able to hold their own individual policy.

Getting started

Either structure starts the same way: decide on a monthly allowance your budget can sustain, confirm your employee classes, and put a compliant plan document in place before the plan year begins. From there, employees with QSEHRA confirm they have MEC in place — their own plan or a spouse’s — and submit expenses for reimbursement; employees under ICHRA shop for their own individual policy, on MNsure or off. We help Chaska-area employers figure out which structure fits, and walk employees through whichever path applies to them.