HRA (ICHRA, QSEHRA): The Complete Guide to Nevada

For decades, offering employee health benefits meant choosing a single group health insurance plan—or perhaps a dual-option offering—and hoping it met the needs of a diverse workforce. You negotiated with carriers, managed participation rates, and absorbed unpredictable double-digit renewal increases every year.

Health Reimbursement Arrangements (HRAs)—specifically the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA)—flip this model entirely.

Instead of a defined benefit (where you promise to provide a specific health plan regardless of what it costs you), HRAs operate on a defined contribution model. You set a fixed, tax-free monthly budget. Your employees take that budget, shop for their own individual coverage on Nevada Health Link or directly through carriers, and you reimburse them for their premiums and qualifying medical expenses up to their allowance cap.

This guide provides a comprehensive, mechanics-level breakdown of how QSEHRA and ICHRA operate in Nevada. We will cover the specific eligibility requirements, the tax implications, the exact administrative duties required of your HR department, and how these models interact with the Affordable Care Act (ACA) Employer Mandate and Premium Tax Credits.

Whether you are a startup founder in Reno looking to offer your first benefit, or an enterprise HR director in Henderson attempting to untangle the logistics of a multi-state workforce, this guide maps the exact decision points you need to evaluate.

The Core Mechanics of Modern HRAs

Before diving into the specific rules of QSEHRA and ICHRA, it is critical to understand the financial and administrative architecture that both of these models share. An HRA is a formal, IRS-approved, employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses and personal health insurance premiums.

Notional Accounts vs. Pre-Funded Accounts

A common misconception among business owners is that offering an HRA requires depositing thousands of dollars into a trust or an escrow account at the beginning of the year. This is not the case.

HRAs are notional accounts. They represent a promised allowance, not cash in the bank.

• You do not pre-fund an employee’s HRA.
• Funds remain in your company’s general operating accounts until an employee actually incurs a qualifying expense, submits proof of that expense (substantiation), and your administration team (or your Third-Party Administrator) approves the claim.
• Only then does the money move from the employer to the employee.
• If an employee does not use their full monthly or annual allowance, the unspent money simply stays with the company. There is no cash-out provision for unused HRA funds.

The Tax Treatment

Under Internal Revenue Code Section 105, HRAs retain the exact same preferential tax treatment as traditional fully insured group health plans:

1. For the Employer: All reimbursements paid out through the HRA are considered ordinary business expenses and are 100% tax-deductible. Furthermore, these reimbursements are not subject to payroll taxes (FICA/FUTA).
2. For the Employee: The reimbursements are completely excluded from the employee’s gross income. They do not pay federal income tax, state income tax (though Nevada does not have a state income tax), or payroll taxes on these funds.

The Individual Market Requirement

To receive tax-free money through either a QSEHRA or an ICHRA, the employee must be enrolled in Minimum Essential Coverage (MEC). In almost all cases, this means they must purchase an ACA-compliant individual or family health insurance plan.

In Nevada, employees will typically secure this coverage through the state exchange, Nevada Health Link, or directly from individual market carriers operating in the state, such as Aetna, SilverSummit Health Plan, SelectHealth, Health Plan of Nevada, or Imperial Health Plan. If an employee tries to claim HRA funds but is only enrolled in a short-term limited-duration plan, a fixed-indemnity plan, or a health sharing ministry, those claims must be legally denied, as those products do not constitute MEC.

QSEHRA: The Qualified Small Employer HRA

Created by the 21st Century Cures Act, the QSEHRA was explicitly designed to give small businesses a way to help employees pay for health insurance without the overwhelming administrative burden of an ERISA-governed group plan.

QSEHRA Contribution Limits

Unlike standard traditional group plans where the employer can contribute an unlimited amount, the IRS imposes strict statutory maximums on how much an employer can reimburse through a QSEHRA. These limits are adjusted annually for inflation.

When you set up a QSEHRA, you decide your monthly allowance. You can offer any amount up to the IRS maximum, but you cannot exceed it. Furthermore, you cannot offer a larger allowance to executives and a smaller one to entry-level staff. The allowance must be offered on the “same terms” to all eligible employees.

You are legally permitted to vary the allowance based on only two factors:

1. Family Size: You can offer one tier for self-only coverage and a higher tier for employees with dependents.
2. Age: You can vary the allowance based on the age of the employee, provided the variation is directly tied to the age-banded premium differences in the individual insurance market.

Mid-Year Hires and Prorating Limits

If you hire an employee halfway through the year, their maximum QSEHRA limit is prorated by the month. You cannot give a December hire the entire annual maximum allowance in a single month; they are only eligible for 1/12th of the annual maximum for that one month of active employment.

QSEHRA and Spousal Plans

One of the most complex mechanical features of a QSEHRA is how it interacts with a spouse’s group health plan. If your employee does not buy their own plan on Nevada Health Link, but instead joins their spouse’s traditional group health plan at another company, they can still use your QSEHRA funds.

However, there is a catch: they can only use the QSEHRA to reimburse the employee portion of the premium paid via the spouse’s paycheck, and only if that premium was paid on a post-tax basis. Because most traditional group plan premiums are deducted pre-tax (via a Section 125 cafeteria plan), your employee cannot “double dip” and get a tax-free reimbursement for a premium that was already paid with pre-tax dollars. If the spouse’s premium is pre-tax, your employee can still use their QSEHRA allowance for out-of-pocket medical expenses (copays, deductibles, prescriptions), but not for the premium itself.

Mandatory 90-Day Notice Requirement

Compliance under QSEHRA requires stringent employee communication. Employers are legally obligated to provide a written notice to eligible employees at least 90 days before the start of the QSEHRA plan year.

This notice must include:

• The exact dollar amount of the employee’s permitted benefit for the year.
• Instructions informing the employee that they must disclose this QSEHRA allowance to Nevada Health Link if they apply for Premium Tax Credits (APTC).
• A warning that if the employee fails to maintain Minimum Essential Coverage, they may be liable for taxes on the reimbursements they receive.

Failure to provide this 90-day notice can result in a penalty of $50 per employee, per incident, capped at $2,500 annually.

ICHRA: The Individual Coverage HRA

While QSEHRA is an excellent starting point for a 10-person agency, it falls apart for larger companies due to the 50-employee cap and the strict IRS contribution maximums.

Introduced for the 2020 plan year, the Individual Coverage HRA (ICHRA) was designed to solve these limitations. It removes the size caps, removes the contribution limits, and allows employers to strategically divide their workforce into different classes. Because of its flexibility, ICHRA is rapidly becoming a viable alternative to traditional group insurance for mid-market and enterprise organizations.

Key Differences from QSEHRA

1. No Size Limit: A company with 5 employees can use an ICHRA. A corporation with 5,000 employees can use an ICHRA.
2. No Contribution Caps: There are no IRS maximum limits on what you can reimburse. You can offer $200 a month or $2,000 a month.
3. Class Stratification: You do not have to offer the ICHRA on the same terms to everyone. You can offer different amounts—or completely different benefits—to different classes of employees.
4. No Spousal Group Plan Integration: Unlike QSEHRA, an employee cannot use ICHRA funds to reimburse premiums for a spouse’s traditional group health plan. To participate in an ICHRA, the employee must be enrolled in individual market coverage or Medicare.

The 11 Permitted Employee Classes

The defining feature of an ICHRA is the ability to segment your workforce. Under traditional group rules, non-discrimination testing makes it very difficult to offer wildly different benefits to different tiers of workers. ICHRA allows you to categorize employees into 11 strictly defined IRS classes.

You can vary the allowance amount between these classes, or you can offer a traditional group plan to one class and an ICHRA to another.

The 11 permitted classes are:

1. Full-time employees
2. Part-time employees
3. Salaried employees
4. Hourly employees
5. Seasonal employees
6. Temporary employees of staffing firms
7. Employees covered by a collective bargaining agreement (Union)
8. Employees who have not satisfied a waiting period
9. Foreign employees who work abroad
10. Employees in different geographic rating areas (e.g., Nevada vs. California, or even Clark County vs. Washoe County)
11. Any combination of two or more of the above classes.

The Golden Rule of Classes: You can never offer an individual employee a choice between a traditional group plan and an ICHRA. The choice is made at the class level by the employer. For example, you can offer a fully insured HMO to your Salaried employees, and an ICHRA to your Hourly employees. When an hourly worker logs into their benefits portal, they only see the ICHRA.

Minimum Class Size Rules

To prevent employers from strategically dumping high-risk, expensive employees into the individual market while keeping healthy employees on a group plan, the IRS instituted minimum class size rules.

If you offer a traditional group plan to at least one class of employees, and an ICHRA to another class based on full-time/part-time status, salaried/hourly status, or geographic rating area (if the area is smaller than a state), the ICHRA class must meet a minimum size:

• Employers with fewer than 100 employees: The ICHRA class must have at least 10 employees.
• Employers with 100 to 200 employees: The ICHRA class must be at least 10% of the total workforce.
• Employers with more than 200 employees: The ICHRA class must have at least 20 employees.

If you are offering an ICHRA to all employees and dropping your traditional group plan entirely, these minimum class size rules do not apply.

ICHRA and the ACA Employer Mandate (For Applicable Large Employers)

If your organization has 50 or more Full-Time Equivalent (FTE) employees, you are an Applicable Large Employer (ALE). Under the ACA Employer Mandate, you are legally required to offer affordable, minimum-value health coverage to at least 95% of your full-time employees, or face severe IRS penalties (the 4980H(a) and 4980H(b) penalties).

Because QSEHRA is restricted to companies under 50 FTEs, ALEs cannot use it. However, ALEs can use an ICHRA to fully satisfy the Employer Mandate, provided they navigate the affordability calculations correctly.

How to Calculate ICHRA Affordability

With a traditional group plan, calculating affordability is relatively simple: you look at the employee’s payroll deduction for your cheapest self-only plan.

With an ICHRA, the employer does not control the cost of the insurance plan. The employee is shopping on Nevada Health Link, and premiums vary wildly based on the employee’s age and exact zip code.

To determine if your ICHRA allowance is “affordable” under the ACA, the IRS requires you to use the Lowest Cost Silver Plan (LCSP) available to the employee in their rating area.

The formula is: [LCSP Premium for the Employee’s Age/Location] – [Your ICHRA Monthly Allowance] = [Employee’s Required Contribution]

If the Employee’s Required Contribution is less than the IRS affordability percentage for that tax year (which fluctuates annually but generally sits around 8.5% to 9.5% of the employee’s household income), the ICHRA is deemed affordable, and you are protected from ACA penalties.

The Affordability Safe Harbors

Because an employer cannot legally know an employee’s total household income, and calculating the exact LCSP for every single employee’s specific home zip code and exact age every month is an administrative nightmare, the IRS provided safe harbors for ALEs using ICHRA:

1. Location Safe Harbor: Instead of calculating the LCSP for where the employee lives, the employer can calculate affordability based on the LCSP of the employee’s primary site of employment (e.g., your office address in Reno or Las Vegas).
2. Age Band Safe Harbor: Instead of tracking the exact age of every employee, you can look at the premium of the LCSP for a 20-year-old, and index it using the ACA’s standard 3:1 age curve.
3. Income Safe Harbors: To replace “household income,” you can test affordability against the employee’s W-2 Box 1 wages, their Rate of Pay (hourly wage x 130 hours), or the Federal Poverty Line.

If you use these safe harbors and structure your ICHRA allowance so that the resulting employee contribution falls below the required threshold, your enterprise has safely bypassed the traditional group insurance market while maintaining full ACA compliance.

Interaction with Premium Tax Credits (APTC)

When employees shop for individual insurance on Nevada Health Link, their household income determines if they qualify for Advance Premium Tax Credits (APTC)—commonly called subsidies.

The interaction between HRAs and APTC is the single biggest source of confusion for employees during an HRA rollout. HR departments must understand this interaction perfectly to prevent employees from facing massive tax liabilities in April.

QSEHRA and Subsidies: A Dollar-for-Dollar Reduction

If you offer a QSEHRA, your employees are legally required to report that offering when they apply for coverage on Nevada Health Link.

• If the employee qualifies for a $500/month subsidy, and you offer a $300/month QSEHRA allowance, their subsidy is reduced dollar-for-dollar. Nevada Health Link will only grant them a $200/month subsidy.
• The employee still gets the full value of the insurance, but the funding source shifts from the federal government to you, the employer.
• Employees cannot opt out of a QSEHRA to keep their full subsidy.

ICHRA and Subsidies: The Binary Opt-In / Opt-Out Rule

ICHRA handles subsidies completely differently. It is a binary choice based on affordability.

When you offer an ICHRA, the employee must run a calculation:

1. If the ICHRA is Affordable: If the ICHRA allowance makes the Lowest Cost Silver Plan affordable for them, the employee is strictly prohibited from receiving any APTC. Even if they decline the ICHRA, they cannot get subsidies on the exchange.
2. If the ICHRA is Unaffordable: If your allowance is too small, and the resulting LCSP cost exceeds the IRS threshold of their household income, the ICHRA is considered unaffordable for that specific employee. In this scenario, the employee must make a choice: they can either accept your ICHRA allowance and forfeit their subsidy, OR they can waive your ICHRA entirely and take their full APTC on Nevada Health Link.

This means that if you deliberately set a low ICHRA allowance, your lower-income employees will likely waive your HRA and take federal subsidies instead. This is entirely legal and often represents a strategic decision by employers with highly bifurcated wage distributions.

Administrative Burden: Operating an HRA in Nevada

Moving from a traditional fully insured plan to a defined contribution HRA does not eliminate administrative work; it changes the nature of the work. You are no longer managing carrier negotiations, but you are taking on compliance, substantiation, and privacy duties.

Why You Need a TPA (Third-Party Administrator)

While it is legally possible to self-administer a QSEHRA or ICHRA via spreadsheets, it is practically disastrous. Because HRAs reimburse medical expenses and premiums, they are subject to HIPAA privacy rules.

If you self-administer, your HR department will have employees handing them medical receipts for prescriptions, therapy sessions, and specialist copays. This exposes the company to massive HIPAA liability.

Instead, almost all successful HRA implementations use a modern Third-Party Administrator software platform.

• The employer defines the budget and wire-transfers the funds (or connects a corporate account).
• The employee snaps a photo of their insurance premium bill (their EOB or carrier statement) and uploads it to the TPA app.
• The TPA verifies the receipt, ensures it meets IRS Section 213(d) eligible medical expense rules, and initiates a direct deposit to the employee’s bank account.
• The employer only sees a generic ledger entry (“$400 reimbursed to John Smith”), keeping the employer completely blind to the employee’s specific medical data.

Substantiation Requirements

The IRS requires strict substantiation for every dollar paid out of an HRA. Employees cannot just say they spent the money; they must prove it.

For premium reimbursements, the employee must provide documentation showing:

1. The name of the person covered.
2. The dates of coverage (e.g., January 1 - January 31).
3. The name of the insurance carrier.
4. The premium amount.

Furthermore, ICHRA regulations require employees to attest every single month that they are still enrolled in Minimum Essential Coverage before a reimbursement can be released. A good TPA automates this attestation process via a one-click mobile app notification.

W-2 Reporting

HR administrators must coordinate with their payroll providers at year-end.

• QSEHRA: The total amount of the QSEHRA benefit that the employee was eligible to receive (regardless of whether they actually spent it) must be reported in Box 12 of the employee’s Form W-2 using Code FF.
• ICHRA: Generally, ICHRA reimbursements do not require specific W-2 Box 12 reporting the way QSEHRA does, but you still must comply with ACA reporting requirements (Forms 1094-C and 1095-C) if you are an ALE, using the specific ICHRA codes introduced by the IRS to indicate affordability and class offerings.

ERISA and COBRA Considerations

• ERISA: Both QSEHRA and ICHRA are considered group health plans under ERISA. This means the employer must maintain a written plan document, distribute a Summary Plan Description (SPD) to employees, and act as a fiduciary for the plan. TPAs typically generate these legal documents for you as part of onboarding.
• COBRA: This is a critical distinction. QSEHRA is statutorily exempt from COBRA. If an employee leaves a company with a QSEHRA, their HRA ends immediately. ICHRA, however, is subject to COBRA. If an employee with an ICHRA terminates employment, you must offer them the ability to continue their ICHRA by paying the monthly allowance amount (plus a 2% admin fee) with post-tax dollars. While continuing an ICHRA via COBRA rarely makes financial sense for the employee (since they are just paying you to get their own money back), the legal obligation to send the COBRA notice remains strict.

The Nevada Employee Experience: Nevada Health Link

For an HRA to succeed, the local individual insurance market must be robust. If there are no good individual plans available, giving employees money to buy them is counterproductive.

Fortunately, Nevada operates its own robust state-based exchange: Nevada Health Link.

When you announce an ICHRA or QSEHRA, it triggers a Special Enrollment Period (SEP) for your employees. They have 60 days to log into Nevada Health Link and select a plan, even if it is the middle of the year.

Managing Network Expectations

HR departments must proactively educate employees about the difference between group and individual networks.

Traditional large-group fully insured plans often feature broad national PPO networks (e.g., a broad Aetna or Cigna PPO allowing out-of-state care). The individual market in Nevada is predominantly built on HMO (Health Maintenance Organization) and EPO (Exclusive Provider Organization) chassis.

Carriers like Health Plan of Nevada, SilverSummit, and Imperial Health Plan operate tightly managed, regional networks. While the quality of care is high, employees accustomed to walking into any specialist’s office nationwide without a referral will experience friction if they are not warned.

If you have employees with complex, ongoing medical treatments, you should provide them with resources to verify that their specific oncologists or pediatric specialists are in-network with the ACA plans available on Nevada Health Link before the transition occurs.

Step-by-Step Implementation Guide

If you have decided that controlling your costs via a defined contribution model is the right strategic move, transitioning to an HRA requires a disciplined rollout.

Step 1: Determine Eligibility and Structure Identify whether you are under 50 FTEs (QSEHRA eligible) or over 50 FTEs (ICHRA required). Decide if you want to completely replace your group plan, or (with ICHRA) keep the group plan for management and offer the HRA to hourly workers.

Step 2: Calculate the Allowance Look at what you currently spend per employee on your group plan. Decide if you want to match that spend, increase it, or decrease it. If you are an ALE using ICHRA, run the affordability safe harbor calculations against the Lowest Cost Silver Plan in your geographic rating area to ensure compliance.

Step 3: Select a TPA Do not attempt to administer this in-house. Select a software-driven Third-Party Administrator that handles HIPAA compliance, document generation, and direct-deposit reimbursements.

Step 4: Draft Plan Documents Work with your TPA to generate the formal ERISA plan document and the Summary Plan Description (SPD). Establish your plan year (it does not have to be a calendar year).

Step 5: Fulfill Notice Requirements For a QSEHRA, you must distribute the required written notice to all eligible employees exactly 90 days before the plan starts. For an ICHRA, the notice must be distributed at least 90 days prior to the start of the plan year (with exceptions for newly established plans).

Step 6: Employee Education and SEP Enrollment Conduct town-hall-style meetings to explain the shift. Provide employees with guides on how to navigate Nevada Health Link. Remind them that the rollout triggers a 60-day Special Enrollment Period, and that they must secure an ACA-compliant individual plan by the deadline to receive any funds.

Strategic Use Cases: When to Pull the Trigger

HRAs are not a perfect fit for every company, but they solve specific, painful problems exceptionally well. You should strongly consider an HRA if:

• You are facing an untenable renewal increase: If your fully insured carrier just handed you a 25% rate hike due to a high-cost claimant on your staff, switching to an ICHRA moves your population out of the group risk pool and into the ACA individual risk pool. You cap your costs instantly.
• You have a highly distributed workforce: If your headquarters is in Henderson, but you have remote workers in Texas, Ohio, and Florida, finding one group health plan with a network that works in all those states is incredibly difficult and expensive. With an ICHRA, you give everyone a $600 allowance. The Nevada employees buy a plan on Nevada Health Link, the Texas employees buy on Healthcare.gov, and everyone gets localized coverage that works.
• You want to offer benefits to part-time workers: Traditional group plans usually require employees to work 30+ hours to participate. With an ICHRA, you can carve out a specific class for part-time workers and offer them a smaller, targeted allowance (e.g., $150/month) to help them buy their own coverage without throwing off your core benefits budget.

By shifting the burden of network selection and risk pooling from the employer to the individual market, HRAs allow Nevada business owners to return their focus to running their company, rather than functioning as an amateur insurance brokerage.

Frequently Asked Questions