CHOICE Arrangement (formerly ICHRA)
A note on terms: a CHOICE (Custom Health Option and Individual Care Expense) Arrangement, previously referred to as an ICHRA (Individual Coverage Health Reimbursement Arrangement), is the same benefit under its current name. The Centers for Medicare & Medicaid Services (CMS) now uses the CHOICE name, and this page uses both terms.
What is a CHOICE Arrangement?
A CHOICE (Custom Health Option and Individual Care Expense) Arrangement is a type of health reimbursement arrangement (HRA) that lets an employer give employees tax-free money to buy their own individual health insurance, instead of offering a traditional group health plan. CHOICE Arrangements were previously known as Individual Coverage Health Reimbursement Arrangements (ICHRAs).
Instead of choosing one group plan for everyone, the employer sets a fixed monthly amount. Each employee uses that allowance toward the individual coverage that fits them, and the employer can choose to extend the allowance to spouses and dependents.
Is CHOICE the same as ICHRA?
Yes. CHOICE is the current name CMS uses for the arrangement previously called an ICHRA. The name change does not, on its own, change how the benefit works. You will still see "ICHRA" in older guidance, plan documents, and IRS forms, so SimplyHRA uses both terms together, often written as CHOICE (ICHRA).
Separately, Congress has considered bills that would write CHOICE Arrangements into federal law and add new features. Proposed legislation is not the same as enacted law, so check the current rules before relying on any feature described only in a bill.
How does a CHOICE Arrangement work?
The employer decides which employees are eligible and how much each eligible class receives each month.
Employees enroll in qualifying individual coverage that fits their budget, doctors, prescriptions, and family needs.
Employees show proof of coverage and eligible expenses, and the employer (or an administrator such as SimplyHRA) reimburses them up to the allowance.
Employees own the individual coverage they choose. If they leave the job, they can generally keep that coverage by continuing to pay the premiums, although the employer's allowance stops.
What coverage qualifies?
According to CMS, a CHOICE Arrangement can reimburse premiums for:
Individual health insurance bought on the Marketplace, such as through HealthCare.gov
Individual coverage bought off-exchange, directly from an insurer or through an agent, broker, or enrollment platform
Medicare Part A and Part B
Medicare Advantage (Part C)
Short-term, faith-based, indemnity, and supplemental plans do not qualify. Employers can reimburse premiums only, or premiums plus other qualified medical expenses, depending on how they design the plan.
Who can be offered a CHOICE Arrangement?
Employers can offer it to all employees or to specific permitted employee classes. The permitted classes are full-time, part-time, seasonal, salaried, non-salaried (such as hourly), temporary employees of staffing firms, employees covered by a collective bargaining agreement, non-resident aliens with no U.S.-based income, employees who have not finished a waiting period, and employees in the same rating area. Classes can also be combined.
Because it is an employee benefit, a CHOICE Arrangement cannot be offered to self-employed independent contractors.
How much can an employer contribute?
There is no federal minimum or maximum contribution. Within a class, an employer can give everyone the same amount or vary it by age and family size:
Age: the oldest employee's amount can be no more than three times the youngest employee's amount. For example, if the youngest receives $200 a month, the oldest can receive up to $600.
Family size: employees covering a spouse or children can receive a larger amount, applied consistently within the class.
CHOICE Arrangements are funded entirely by the employer. Reimbursements are generally tax-free to employees and tax-deductible to employers when the requirements are met.
How does a CHOICE Arrangement work with a Section 125 plan?
If an employee's premium is more than the allowance, the employer can pair the CHOICE Arrangement with a Section 125 cafeteria plan so the employee pays the difference pre-tax. This generally works only for coverage bought off-exchange. Employees cannot use a cafeteria plan to pay the rest of the premium for coverage bought through a Marketplace.
What do larger employers need to know?
An Applicable Large Employer (ALE) must offer coverage that meets the ACA's affordability standard or risk an employer shared responsibility payment. For a CHOICE Arrangement, affordability is measured against the cost of the lowest-cost silver plan available to the employee, after the employer's allowance. The IRS explains the rules on its employer shared responsibility page.
How does it affect premium tax credits?
An employee who accepts a CHOICE Arrangement cannot also receive premium tax credits for the same months. An employee who is offered an arrangement that counts as affordable is not eligible for premium tax credits, even if they decline it. If the offer is not affordable, the employee can decline it and may qualify for premium tax credits instead.
What paperwork does a CHOICE Arrangement need?
A written plan document that sets out eligibility, classes, allowances, and covered expenses
A notice to eligible employees, generally at least 90 days before the plan year starts, explaining the allowance and how it affects premium tax credits
Proof that each participant is enrolled in qualifying coverage, and substantiation for each reimbursement
ACA reporting on Forms 1094-C and 1095-C for Applicable Large Employers
Many employers use a third-party administrator for onboarding, coverage verification, reimbursements, record-keeping, and reporting.
CHOICE Arrangement vs. QSEHRA
A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is only for employers with fewer than 50 full-time equivalent employees, has annual contribution limits set by the IRS, and generally requires the same terms for all eligible employees. A CHOICE Arrangement has no size limit and no federal contribution cap, and it lets employers set different allowances by employee class.
Frequently Asked Questions About CHOICE Arrangements
Do I need to change my existing ICHRA because of the new name?
The name change alone does not change how an existing ICHRA works. If you update plan documents or employee notices, keep the ICHRA name alongside CHOICE so they still match federal regulations and IRS forms.
Can a small business with one employee offer a CHOICE Arrangement?
Yes. There is no minimum employer size and no minimum participation rate, which makes it an option for businesses offering health benefits for the first time.
Can a CHOICE Arrangement cover family members?
Yes, if the employer chooses to extend it to spouses and dependents. Family members also need qualifying individual coverage for their premiums to be reimbursed.
Can an employer offer a CHOICE Arrangement and a group health plan at the same time?
Yes, but not to the same class of employees. For example, full-time employees could be offered a group plan while part-time employees are offered a CHOICE Arrangement. Minimum class size rules can apply when both are offered.
Simplify your CHOICE (ICHRA) with SimplyHRA
SimplyHRA sets up and runs CHOICE Arrangements for employers of every size, from plan design and employee notices to coverage verification, reimbursements, and reporting. Book a demo to see how it works for your team, or read our full guide to the Individual Coverage Health Reimbursement Arrangement (ICHRA).
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CHOICE Arrangement (formerly ICHRA)
