How a CHOICE Arrangement works

What is a CHOICE Arrangement?

CHOICE Arrangements are the current federal name for Individual Coverage Health Reimbursement Arrangements, or ICHRAs. They are employer-funded reimbursement arrangements, not insurance policies. Instead of buying one group plan, an employer reimburses employees for qualifying individual insurance premiums and, if the written arrangement allows, other qualified medical expenses.

HealthCare.gov and CMS now use CHOICE Arrangement terminology. The reimbursement structure originated under the 2019 federal HRA rules. Legislative proposals to codify or change these arrangements are separate from the rules employers can use today. A House vote alone does not make a bill law.

How it works, step by step

Our approach combines analysis and design, implementation, and ongoing support. Here is the actual process connecting the employer contribution to employee coverage.

1. Design the benefit. Review employee needs, available individual plans and the budget. Choose permitted employee classes, eligible expenses, contribution amounts and a start date. Model affordability before changing existing coverage.
2. Notify employees. Prepare written plan documents and give current employees notice generally at least 90 days before the plan year. Explain the allowance, coverage requirements, opt-out rights and Marketplace tax-credit effects.
3. Employees choose coverage. Help employees compare doctors, hospitals, prescriptions, deductibles and networks. They enroll in qualifying individual insurance on or off the Marketplace, or qualifying Medicare coverage.
4. Verify coverage and expenses. Confirm qualifying coverage annually and for the months being reimbursed. Review documentation for premiums and any other medical expenses allowed by the written arrangement.
5. Reimburse approved expenses. The employer pays tax-free reimbursements up to the allowance when requirements are met. Employees pay costs above it. Unused allowances are handled under plan terms, not automatically paid as cash.
6. Support and review. Provide enrollment and reimbursement support, monitor compliance, and review premiums, affordability and employee experience before renewal.

A practical example

For illustration only, an employer offers $400 per month, and an employee chooses a qualifying plan costing $550 per month. After verification, the employer reimburses $400 and the employee pays the remaining $150.

If the premium is $350 and no other eligible expenses are submitted, the employee is not automatically paid the extra $50 as wages. Unused amounts follow the written plan terms. These numbers are an example, not a quote or savings promise. Deductibles, copayments and prescriptions also affect total employee costs.

Employer eligibility and employee classes

Employers of any size can generally offer a CHOICE Arrangement to eligible employees. There is no federal annual minimum or maximum contribution. Permitted classes include specified job-based categories, such as full-time and part-time employees, subject to equal-treatment rules.

You may offer group coverage to one permitted class and a CHOICE Arrangement to another, subject to separation and class-size requirements. You cannot offer the same employee class a choice between the group plan and the arrangement. You cannot simply create arbitrary classes or negotiate individual allowances.

What coverage qualifies?

Employees must maintain qualifying individual health insurance or qualifying Medicare coverage. Short-term policies, limited-benefit coverage and health-sharing memberships are not substitutes. Coverage through a spouse’s group plan does not meet the individual-coverage requirement.

Employees select their policy and check its providers, prescriptions, deductible and family costs. Individual coverage can continue after a job change if premiums are paid, but the employer reimbursement benefit does not automatically continue.

Marketplace tax credits and affordability

An affordable CHOICE offer generally makes the employee and their household ineligible for Marketplace premium tax credits, even if they decline the offer. If an offer is unaffordable, an otherwise eligible employee can decline the arrangement and use a premium tax credit instead. They cannot receive both for the same coverage month.

Affordability depends on the contribution, applicable rules and the cost of available individual coverage. Larger employers must also review employer shared-responsibility requirements. Offering an arrangement by itself does not guarantee compliance or eliminate penalties.

Before you make a change

Review the workforce, local plans, provider networks, family coverage costs, enrollment timing and tax-credit effects. Compare employer allowances, administration and employee out-of-pocket costs with the existing plan.

A predictable contribution can help the employer budget, but it does not guarantee savings or prevent employee premiums from rising. We follow a discovery, design, implementation and optimization approach, with clear communication and ongoing support.