CHOICE Arrangements retain ICHRA rules while giving employees individual coverage options. Employers should compare costs, set allowances and plan administration.
For employers weighing another group plan renewal, a CHOICE Arrangement offers a different way to provide health benefits: the employer sets a contribution, and employees select individual coverage. The name is new, but the framework is the same as the individual coverage health reimbursement arrangement, or ICHRA, that has been available since 2020.
That makes the 2027 planning question practical rather than abstract. Employers need to compare local individual premiums with their group plan costs, decide which workers receive which allowances, check affordability where required and prepare to administer reimbursements. A change in terminology does not remove those design and operating decisions.
What the new name means
CMS introduced the CHOICE Arrangement name on September 3, 2026. It stands for Custom Health Option and Individual Care Expense. CMS uses the term for arrangements previously known as ICHRAs; the underlying rules and benefit structure remain the same. Employers already offering an ICHRA do not need to redesign it because of the rename.
The 2019 rules, which apply to plan years beginning on or after January 1, 2020, continue to govern how an arrangement is designed and administered. “ICHRA” remains familiar to many employers, brokers and benefits consultants, so both names may appear in materials during the transition. For employers, the useful distinction is simple: the label changed, while the existing framework still sets the boundaries.
CMS Administrator Dr. Mehmet Oz and Small Business Administration Administrator Kelly Loeffler discussed the arrangement with Texas employers at a September 30, 2026, event in Austin. Their outreach reflects an effort to make more businesses aware of this benefit option. The event also put attention on the questions employers need to answer before considering a switch: what coverage workers can buy, how much the employer will contribute and how the arrangement will be managed.
How the arrangement works
A CHOICE Arrangement is a health reimbursement arrangement. The employer provides a fixed monthly allowance that employees can use for qualifying individual health coverage. Employees choose their own plans, while the employer continues to fund the benefit under the arrangement’s terms.
Eligible coverage can include individual plans purchased through the Marketplace, such as HealthCare.gov, or ACA-compliant individual plans bought outside the Marketplace, directly from an insurer or through an agent or broker. Medicare Part A and Part B and Medicare Advantage coverage can also qualify. Short-term, faith-based, indemnity and supplemental plans do not qualify.
Employees own the policies they select. They can generally keep a policy after leaving the job if they continue paying its premiums themselves. That differs from a group plan, where the employer selects the plan offered to workers. Under a CHOICE Arrangement, the employer defines the contribution and eligible expenses, while each employee chooses qualifying coverage.
When employers may consider it
Businesses often start evaluating the model when group premiums rise sharply, when they want to begin offering health benefits, or when their employees live across several states and one group plan may not suit everyone. A flexible benefit can also be part of an employer’s recruiting approach, though the arrangement itself does not guarantee a particular hiring result.
The model can accommodate workforces with different schedules and needs. A small manufacturer, for example, may have full-time and part-time employees, or workers at very different stages of life. A restaurant may employ year-round staff alongside students who work while studying. Employee classes can let an employer structure different allowances for eligible groups, subject to the arrangement’s rules.
At the Austin event, Loeffler said affordable health coverage ranks among the leading concerns she hears from small-business owners, alongside finding qualified workers. Her examples illustrate why employers may value employee choice and the ability to set contributions by group. Whether that flexibility is useful depends on the workforce, local plan options and the employer’s budget.
Six decisions to work through
1. Compare group renewal costs with individual premiums
Begin with the numbers for the places where employees live. Compare the group plan renewal with individual-market premiums at several possible allowance levels, including what employees might pay themselves. CMS provides a cost estimator to project monthly costs for the employer and workers.
At the Austin event, Dr. Oz cited potential savings of 20% to 30% for employers that evaluate CHOICE Arrangements. He also said employers in Indiana had seen premium savings of about 20%, and described one Indiana company where employee out-of-pocket expenses fell by 60%. These were examples shared at the event, not a forecast for other employers. Costs and outcomes vary with location, workforce and plan design, so a business needs to model its own figures before making a decision.
The arrangement also changes how risk is distributed. In a small group plan, one employee’s serious illness can have a large effect on the group’s costs. With individual policies, coverage is purchased in the individual market. Employers should still compare the actual available plans and contributions in their employees’ areas rather than assume the change will reduce costs.
2. Set employee classes
Employee classes determine which workers can receive different allowance terms. The rules recognize 10 classes, including full-time, part-time and seasonal employees; salaried and hourly workers; employees covered by a collective bargaining agreement; employees in a waiting period; workers in the same rating area; temporary staffing-firm employees; and nonresident aliens working abroad. Employers may combine classes where the rules permit.
A CHOICE Arrangement can operate alongside a traditional group plan if the employer offers each option to a different employee class. The same class cannot be offered a choice between the group plan and the CHOICE Arrangement. Employers should define classes carefully before setting allowances, since class design affects who receives each benefit and how the arrangement works across the workforce.
3. Choose allowance amounts and eligible expenses
Employers decide how much to contribute and which qualified expenses to reimburse. Allowances may vary by age, but the oldest employee’s allowance cannot exceed three times the youngest employee’s amount. For instance, if the youngest worker receives $200 monthly, the oldest may receive no more than $600 under that age-based structure.
Contributions may also vary with family size. An employer could use flat dependent add-ons, increase the amount by family size, or set tiers such as self-only, self-plus-one and family coverage. The employer must also decide whether the allowance covers premiums alone or premiums and other qualified medical expenses.
The arrangement is funded by employer contributions. Employees buying coverage outside the Marketplace may be able to pay any premium balance before tax through a Section 125 cafeteria plan. That option is generally unavailable for Marketplace plans, so the payment approach should be considered alongside the coverage employees are likely to choose.
4. Check affordability if you are an ALE
Applicable large employers, generally those with at least 50 full-time employees including full-time equivalents, should assess affordability before finalizing allowances. The calculation starts with the monthly premium for the lowest-cost silver plan for self-only coverage in an employee’s rating area. The employer’s monthly self-only allowance is subtracted, and the remaining amount is compared with the applicable affordability percentage of household income.
The result can affect both the employer and employees. For an applicable large employer, affordability is part of assessing its responsibilities under the ACA. An employee offered an affordable CHOICE Arrangement is not eligible for a premium tax credit. If the offer is unaffordable, the employee may opt out and could qualify for a premium tax credit instead. Employers should model affordability for the relevant employee groups before settling on contribution levels.
5. Decide how premiums will be paid
Employees cannot take the allowance as unrestricted cash; it must go toward qualifying coverage. Depending on the setup, employees may buy a plan and submit a reimbursement request, or the arrangement may pay premiums more directly. Either way, the employer funds the benefit while the employee chooses the plan.
Clear instructions can help employees understand how to select eligible coverage, submit documentation and use the benefit. Workers who have only had group coverage may need support comparing individual plans and understanding how the allowance applies to their premium.
6. Plan for ongoing administration
Launching the arrangement is only the start. Employers need a process to verify eligible coverage and expenses, keep records, process reimbursements and handle tax reporting. A third-party administrator can support onboarding, employee communications, enrollment verification, reimbursement documentation, reporting and ongoing employee questions.
CMS publishes a list of administrators that support CHOICE Arrangements. Employers should account for administrative needs when comparing the model with a group plan, including who will answer employee questions and keep required records.
What employers should watch next
CMS Deputy Administrator Peter Nelson said updated rules are in development, with the goal of making CHOICE Arrangements easier for businesses to use. No proposed changes had been published at the time of the Austin event. Some possible changes would require legislation, and Loeffler said CMS and the Small Business Administration were seeking feedback from employers as the rollout continued.
Adoption has also grown: more than 500,000 people were covered through ICHRAs at the start of 2026, according to HRA Council data reported by Becker’s Payer Issues. That figure signals increasing use, but it does not indicate whether an arrangement will fit a particular business.
For a 2027 decision, employers can start by comparing renewal costs with individual premiums in each employee’s area. From there, they can set classes and allowances, assess affordability where applicable, and decide how reimbursements and employee support will work. Those steps give a business a clearer view of the cost and workload before it chooses a benefit structure.
