individual coverage health reimbursement arrangement (ICHRA) – or CHOICE Arrangement

What is an individual coverage health reimbursement arrangement (ICHRA) – or CHOICE Arrangement?

An individual coverage health reimbursement arrangement (ICHRA) – also referred to as a CHOICE Arrangement – is a type of health reimbursement arrangement (HRA) in which employers of any size can reimburse employees for qualified medical expenses – including some or all of the premiums the employees pay for health insurance they purchase on their own.

ICHRAs offer employers a way to contribute a set amount of money toward employees’ health coverage instead of offering a traditional group health plan. Employees use that employer-funded allowance to help pay premiums for individual-market coverage they choose themselves.

Learn about the pros and cons of reimbursing employees for the cost of individual-market health coverage (ICHRAs)).

Is a CHOICE Arrangement the same thing as an ICHRA?

Yes, a CHOICE Arrangement is the same thing as an ICHRA, but it has an updated name. In September 2026, ICHRAs were rebranded as CHOICE Arrangements by the Centers for Medicare & Medicaid Services (CMS).¹

The previous name – individual coverage health reimbursement arrangement – perfectly described how these programs work, but “CHOICE Arrangement” is a more intuitive acronym than ICHRA, and it sums up the primary benefit: Employees get to choose their own coverage from among all of the options available in the individual market in their area.²

Will my benefit paperwork say ‘ICHRA’ or ‘CHOICE Arrangement?’

CMS and the U.S. Small Business Administration (SBA) announced the name change from ICHRA to CHOICE Arrangement in September 2026.³ So depending on when you’re getting the paperwork, it might still say ICHRA or your employer might have updated it to CHOICE Arrangement.

But nothing has changed about the underlying federal regulations. (Congress has considered legislation to encourage adoption of ICHRAs/CHOICE Arrangements by businesses, but those legislative efforts have failed thus far.)

How common are CHOICE Arrangements?

ICHRAs were created under regulations issued by the Trump administration in 2019, and first became available in 2020. Employer adoption and enrollment have grown substantially since then.

From 2025 to 2026, the number of employers offering ICHRAs/CHOICE Arrangements grew by 99%, according to the HRA Council’s annual report. Among large employers, adoption more than doubled, growing by 108%. But the HRA Council noted that these numbers might under-represent the true size of the ICHRA/CHOICE Arrangement market.⁴ A SureCo analysis put the number even higher, noting that an estimated 1 million people were covered by ICHRA benefits as of 2026.⁵

Monongalia County, West Virginia, which has 265 county employees, became the first local government to make the switch from group coverage to ICHRAs, starting in 2026. The employees now have ICHRAs/CHOICE Arrangements and access to more than three dozen individual-market plans, instead of the group plan that the county had been offering. County officials noted that the reimbursement they’re providing through ICHRA could cover about 98% of employees’ premiums, and that the switch would result in about a 3% savings in premium costs for the county.⁶

What are the rules for CHOICE Arrangements?

CHOICE Arrangements represent a departure from previous ACA implementation rules that forbid employers from reimbursing employees for individual-market premiums. QSEHRAs, which became available in 2017, allow small employers to reimburse employees for individual-market premiums. CHOICE Arrangements allow this for employers of any size, and they offer more flexibility in terms of how much an employer is allowed to reimburse an employee.

• Large employers can use an ICHRA/CHOICE Arrangement to satisfy the employer mandate as long as the reimbursement amount is substantial enough to make an individual health insurance plan affordable.
• There are no limits on how much an employer can reimburse under an ICHRA/CHOICE Arrangement (unlike a QSEHRA, which does have limits), nor are there minimum contribution requirements.
• An employer cannot offer an employee a choice between a group health plan and a CHOICE Arrangement; it has to be one or the other. An employer can offer both a group health plan and a CHOICE Arrangement, but the options must be offered to different classes of employees so that no employee has the option to choose between the group plan and the ICHRA.
• Employees who become eligible for reimbursement of premiums under a CHOICE Arrangement (or QSEHRA) are eligible for a special enrollment period during which they can enroll in an individual-market health plan.
• Employees must be enrolled in an individual-market health plan (or Medicare) to receive the CHOICE Arrangement benefit. In most cases, this will mean fully ACA-compliant coverage, but the rules do allow people with grandmothered and grandfathered plans to utilize a CHOICE Arrangement benefit if it’s available to them.⁷
• For a Medicare beneficiary to use a CHOICE Arrangement, the individual must be enrolled in Medicare Parts A and B, or in Medicare Part C. The ICHRA benefit can be used to reimburse premiums for Medicare Parts A, B, C, D, and Medigap (Medicare Supplement).⁸
• CHOICE Arrangements can be used to reimburse qualified medical expenses in addition to individual-market health insurance premiums if the employer opts to allow this.
• Employees can select any individual-market plan available in their ZIP code. In some areas, this means employees can choose from among dozens of plans. If the CHOICE Arrangement benefit doesn’t cover the full price of the plan, the employee must pay the remaining premium.
• If the CHOICE Arrangement reimbursement covers some – but not all – of the employee’s premium in the individual market, the employer can allow the employee to use a pre-tax salary reduction (via a cafeteria plan) to pay the employee’s share of the premium, but only if the plan is purchased outside the exchange.⁹
• If, after applying the ICHRA benefit, the employee would have to pay more than 9.96%¹⁰ of their 2026 household income¹¹ for self-only coverage under the lowest-cost Silver plan in the exchange, the CHOICE Arrangement does not constitute affordable employer-sponsored insurance. In that case, the employee can choose to reject the CHOICE Arrangement and claim a premium subsidy in the exchange instead, assuming they’re eligible for one. But if the employee accepts the CHOICE Arrangement benefits and/or if the CHOICE Arrangement benefit results in the lowest-cost self-only plan in the exchange having an after-ICHRA premium that doesn’t exceed 9.96% of the employee’s 2026 household income (10.22% in 2027), the employee is not eligible for premium subsidies in the exchange.⁹ In this regard, a CHOICE Arrangement is treated in the same manner as employer-sponsored health insurance.
• But it’s important to note that while the rules for determining the affordability of employer-sponsored health coverage changed as of 2023 to eliminate the “family glitch,” “the rule change does not apply to how ICHRA/CHOICE Arrangement affordability is determined. In other words, there continues to be a “family glitch,” so to speak, for CHOICE Arrangement coverage.¹²
• CHOICE Arrangements can be used to provide health benefits to household employees, such as nannies. All of the above rules must be followed, meaning that the person’s coverage must be obtained in the individual market and Marketplace subsidies are not available if the CHOICE Arrangement is used. The household employer will need to draft the correct plan documents to offer the reimbursement benefit, so it’s advised that they seek expert assistance with that process to make sure that all of the paperwork is in order.

What states offer a tax credit to employers that offer ICHRA benefits?

Two states – Indiana and Mississippi – are encouraging the adoption of CHOICE Arrangements by offering small businesses a tax credit of $400 per employee in the first year the employer offers the reimbursement arrangement, and $200 per employee in the second year, if the business sets up an ICHRA/CHOICE Arrangement and contributes at least as much as they were paying for employees’ health care or coverage the year before.

Indiana’s ICHRA tax credit became available in 2024,¹³ while Mississippi’s became available in 2026, under the terms of legislation that Mississippi enacted in April 2026. Mississippi’s legislation has a $1 million annual funding cap, with the money distributed to participating employers on a first-come, first-served basis.¹⁴

In addition, at least three other states were considering similar legislation as of September 2026:

• Ohio (passed unanimously by the Ohio House in June 2025)¹⁵
• Pennsylvania¹⁶¹⁷
• New Jersey¹⁸

Lawmakers in seven states also considered ICHRA tax credit legislation in 2025 or 2026, but the measures did not pass. The states are:

• Arizona¹⁹
• Georgia²⁰
• Connecticut²¹
• Illinois²²
• New Hampshire²³
• Texas²⁴

Florida lawmakers considered a bill in 2026 that called for the creation of a state-run platform to serve as an ICHRA marketplace for employees whose employers offer an ICHRA benefit. Those employees would have been able to use the state-run portal to select an individual-market health plan and obtain their employer’s ICHRA contribution directly through the shopping portal. But the legislation, which did not advance out of committee, did not include any state tax credits.²⁵