As of January 2017, churches with 50 full-time employees or less can opt for the Qualified Small Employer HRA to cover employee medical costs and individual insurance premiums. Churches set a monthly allowance for employees’ medical expenses, and when an employee incurs an out-of-pocket medical cost, they submit it for verification before receiving reimbursement from that allowance.

The IRS sets monthly and yearly maximum allowances for the QSEHRA, so an individual can receive up to $5,300 a year, and families can receive up to $10,700 a year, usually divided into monthly increments. The allowance rolls over month to month and year to year, but it cannot exceed these allowance caps.

What is the ICHRA?

Starting in January 2020, churches can use the Individual Coverage HRA, which provides more flexibility for churches of all sizes. For example, a church that provides group insurance for full-time employees may offer ICHRA benefits for part-time or seasonal employees.

With this HRA type, the church funds a monthly allowance to reimburse ICHRA-eligible employees for qualified medical expenses and health insurance premiums. To qualify for reimbursements from an ICHRA, employees must be enrolled in an individual health insurance plan and cannot receive premium tax credits.

There are no limits on the allowance set for ICHRA funds, but churches should offer the same amount to employees in the same class (e.g. all seasonal employees should receive the same monthly allowance). This allowance rolls over month to month and year to year (unless the employee leaves the church—in this case, the HRA doesn’t go with them).

Because the QSEHRA and the ICHRA are both types of HRAs, they function the same way:

• Churches set the monthly reimbursement allowance for employees using tax-free funds.

• When an employee spends money on a qualified medical expense or pays for their individual health insurance premiums, they can submit their proof of payment to the church for reimbursement.

The right option for your church will depend on many factors. Consider your church and the benefits you currently offer employees when considering the HRA, QSEHRA, and the ICHRA. Do you employ less than 50 full-time workers? Is it unfeasible to offer a group insurance policy for employees? 

Then a QSEHRA may be a great option for your church. Meanwhile, if you have a church wants to extend health care benefits to part-time, hourly wage workers, and/or employees living abroad, then incorporating an ICHRA into your benefits program may be a great choice.