5 steps to a successful ICHRA launch

By Holly Bengfort on October 23, 2026 at 7:45 AM

An individual coverage health reimbursement arrangement (ICHRA), now known as a CHOICE Arrangement, is a flexible, innovative way for employers to offer employees health benefits. However, a successful ICHRA launch requires careful execution. You must understand the compliance rules, design a benefit that fits your budget and workforce, prepare legal documents, and establish a process for reviewing and reimbursing eligible expenses.

Whether you’re a small business setting up an ICHRA for the first time or a mid- to large-sized company switching from traditional group health insurance, a good implementation plan can help you avoid delays, reduce administrative work, and give employees the information they need to shop for individual coverage and use their new ICHRA benefit.

In this blog post, you'll learn:

How to set up an ICHRA, from reviewing compliance requirements to designing your benefit.

How to prepare employees, organize administration, and follow a practical ICHRA launch timeline.

How PeopleKeep can simplify ICHRA setup, employee health plan shopping, and ongoing reimbursement administration.

What is an ICHRA?

The ICHRA, now called the CHOICE Arrangement, is an alternative to a traditional group health plan. It allows employers of any size to reimburse eligible employees tax-free for qualified individual health insurance premiums and, if the employer chooses, more than 200 types of qualifying out-of-pocket medical expenses.

Unlike a traditional group plan, an ICHRA lets employees choose their own individual health insurance policy on a public or private exchange. At the same time, employers control their benefits budgets by setting contribution amounts. There are no minimum or maximum reimbursement limits with an ICHRA. This means you can contribute as much as you'd like.

Here's how the ICHRA works:

You set a monthly allowance amount for your employees.
Employees opt into or out of the ICHRA benefit.
Your employees purchase qualifying individual health insurance coverage and attest to having qualifying coverage.
If you allow reimbursement for out-of-pocket expenses, employees pay for other healthcare needs out of pocket.
Employees submit proof of their healthcare costs to you or your HRA administrator for reimbursement.
Once you approve an eligible expense, your employees receive tax-free reimbursements up to their employer-funded allowance.

CHOICE Arrangements are also a great solution for applicable large employers (ALEs) trying to meet the Affordable Care Act’s (ACA) employer mandate, as long as they design their benefit to meet affordability, minimum essential coverage (MEC), and minimum value standards. But in the long run, an ICHRA helps keep costs predictable, avoid annual premium hikes, and provide valuable health benefits to your employees.

5 steps to set up an ICHRA successfully

According to our 2024 Employee Benefits Survey, 92% of employees rated health benefits as important. This makes the ICHRA a potentially effective tool for recruitment and retention. To get the most out of your ICHRA, launch it correctly so you and your employees can use it to its fullest potential.

Below are five detailed steps you can follow to maximize your ICHRA benefit.

Step 1: Familiarize yourself with ICHRA rules and regulatory roadblocks

Before designing your benefit, you must understand the federal rules that apply to CHOICE Arrangements. Knowing these requirements early can help you avoid costly mistakes.

The IRS has clear guidelines regarding:

Eligible employees. ICHRA can cover only W-2 workers who enroll in qualifying individual health insurance that provides MEC. Coverage through a spouse’s or parent’s employer-sponsored group plan, COBRA, TRICARE, or Medicaid doesn’t satisfy the coverage requirement for an ICHRA. Short-term insurance, healthcare sharing ministries, and association health plans are also ineligible. You may be able to extend HRA benefits to retirees through a retiree HRA.
Eligible expenses. Eligible expenses include qualifying individual health insurance premiums and out-of-pocket expenses in IRS Publication 502¹ and the CARES Act², though employers can restrict items. For example, if you only want to reimburse premiums, you can provide a premium-only ICHRA. Otherwise, you can reimburse employees for several types of out-of-pocket medical costs, such as doctor visits, prescription drugs, and mental health services.
Reporting requirements and legal plan documents. An ICHRA is a formal employee health benefit subject to Employee Retirement Income Security Act (ERISA) regulations. You must draft legal documents — such as plan documents, employee notices, and summary plan descriptions — before you implement the benefit. Employers may have additional ACA reporting obligations, such as Forms 1094 and 1095.
Premium tax credit coordination. An employee’s eligibility for premium tax credits through a state-run portal or the federal Health Insurance Marketplace depends mainly on affordability. Employees can’t participate in the benefit and receive premium tax credits — they have to choose one or the other. In most cases, they should opt out of the ICHRA if it isn’t affordable. If it is affordable, they should opt in to the benefit and waive their premium tax credits.

PeopleKeep by Remodel Health can help you better understand and follow these rules. Our benefit administration software automatically generates legal plan documents to help employers meet applicable requirements, while its documentation review team checks reimbursement claim requests for compliance with eligible-expense rules.

Step 2: Design your ICHRA benefit that fits your needs and budget

Once you understand the requirements, tailor your ICHRA to your workforce's specific needs. Your benefit design should balance your organization's budget and your employee demographics. From there, you can decide on things like contribution amounts and eligibility requirements.

The CHOICE Arrangement is flexible. Here are some elements you can customize to make it a perfect fit for your organization:

Classes. With the CHOICE Arrangement, you can vary allowances and benefit eligibility across 11 employee classes, such as full-time employees, part-time employees, salaried employees, hourly employees, and employees in different geographic locations. This allows you to customize allowances for employees in different states, for example.
Allowances. Instead of paying a percentage of premiums, as you do with a group health plan, the ICHRA lets you specify dollar amounts you can reimburse employees for eligible expenses. You can customize these amounts for each employee class, such as full-time or salaried. Or you can standardize allowances to keep things simple. In either case, ICHRAs don't have federal minimum or maximum contribution limits.
Eligible expenses. Decide whether your ICHRA will cover individual health insurance premiums only or premiums plus other eligible medical expenses.
Waiting periods. Determine your benefit effective date and whether you’ll use a waiting period. For example, you can decide whether new hires become eligible immediately or must wait up to 90 days. According to Remodel Health’s 2026 National ICHRA Report, which includes PeopleKeep customer data, only 31% of employers use a waiting period.
Workforce demographics. When deciding monthly contribution amounts and classes, consider employee ages, family sizes, geographic locations, and access to local insurance plans.

Step 3: Prepare employees and communicate the benefit

Once you set your objectives and design the benefit, communicate the CHOICE Arrangement's benefits and details to your employees. This matters because most employees are accustomed to a traditional group health plan.

According to KFF, more than 60% of Americans younger than 65 had employment-sponsored health insurance in 2025.³ This means your employees may be in unfamiliar territory with your new health benefit. They may not know what an ICHRA is, how employer contributions work, what an ICHRA special enrollment period means, which expenses qualify, or how to shop for an individual health plan.

Here are some items you should include in your communication strategy:

Explain the employer contribution, eligible expenses, and reimbursement claim process in plain language. Also offer educational materials, host informational sessions, and answer common questions.
Help employees understand individual health insurance options. This includes plan costs, provider networks, prescription coverage, and how to choose the right coverage for them and their families.
Share the benefit effective date, enrollment deadlines, and any required actions employees must complete before participating, such as coverage substantiation.
Provide a contact for benefit administration questions and direct employees to appropriate resources for selecting an individual health plan.

You’ll also need to notify employees about the benefit before it begins. The federal government recommends providing 90 days' notice. This is another situation where PeopleKeep by Remodel Health can help you out.

With our ICHRA administration software, your employees can shop for individual health plans directly from their PeopleKeep account. Our seamless shopping experience helps them find the ideal health coverage that's tailored to their specific needs. Licensed advisors are also available to help your team understand their options. We also send email notifications to employees 30 or 90 days before your benefit starts, depending on the notification period you select.

Step 4: Set up administration, documentation, and reimbursements

Your CHOICE Arrangement launch plan should account for what happens after employees enroll. Keeping precise, comprehensive records is critical to managing an ICHRA successfully.

To guarantee compliance with IRS regulations, make sure you have the following processes ready in advance:

Employee onboarding. Add eligible employees to your administration platform and confirm their eligibility and effective dates.
Documentation and recordkeeping. Maintain records of your benefit design, contributions, reimbursement requests, approvals, and payments. Keep supporting records according to your plan documents.
Expense review. Establish a process for verifying that submitted expenses are eligible for reimbursement and properly stored. For example, you’ll need to keep records showing that participating employees are meeting the applicable qualifying coverage requirements.
Reimbursement payments. Determine how you’ll pay approved expenses, such as through payroll or another permitted payment method, and follow applicable tax rules.
Ongoing compliance. Assign tasks to your HR or benefits team for employee notices, reporting, plan updates, and other recurring administrative work relating to maintaining your ICHRA.

Detailed records streamline the reporting process and simplify any required adjustments. To make it even easier, PeopleKeep can take several of these administrative tasks off your plate. This means you can spend less time worrying about compliance and more time helping employees use their benefits.

Step 5: Monitor and adjust as necessary

The setup process shouldn’t be the only occasion where you take a deep dive into your new health benefit. After launching your CHOICE Arrangement, you should monitor participation rates, employee feedback, and cost-effectiveness. This review will keep you updated on how well your benefit is meeting your organization’s goals and employees’ needs.

For example, review employee benefit utilization data, compare your set budget with actual benefit spend, and gather employee feedback. This will help you identify potential areas for improvement, rewrite future benefit communications, adjust administrative workflows, and inform what to do for the next plan year.

Example ICHRA launch timeline

Given the steps above, let’s say you want to launch your new CHOICE Arrangement in 16 weeks. If so, your timeline may look similar to the following:

Timing	What to do
16 weeks before launch	Estimate your budget, confirm employee demographics, and review federal rules and regulations.
15 weeks before launch	Define eligible employee classes, set allowance amounts, choose eligible expenses, and pick your effective date.
13 weeks before launch	Finalize your plan design, prepare legal plan documents, and confirm reporting requirements.
12 weeks before launch	Send the ICHRA notice to your eligible employees, per federal guidelines.
10 to eight weeks before launch	Prepare employee communications and organize onboarding and coverage-verification procedures.
Six to five weeks before launch	Share enrollment guidance, explain individual health insurance shopping, and provide employees with support channels.
Two to three weeks before launch	Confirm employee eligibility and effective dates, answer questions, review outstanding onboarding tasks, and test your reimbursement system.
Launch week	Activate the benefit according to your plan documents, and communicate any remaining next steps.
Ongoing after launch	Monitor utilization, reimbursement requests, employee questions, spending, and administrative issues. Also, ensure you’re fulfilling all compliance and reporting requirements promptly.

ICHRA vs. group health insurance

Offering an ICHRA offers several advantages over a traditional group plan.

Here are just a few to consider:

Cost. Employers set allowance amounts, and their contributions are tax-deductible. Plus, you won’t have to worry about yearly premium increases or unexpected costs tied to high claim volume.
Plan selection. Employees choose qualifying individual health insurance coverage instead of a one-size-fits-all group plan selected by the employer.
Customization. You can set your own monthly allowance and customize eligibility and employer contributions using employee classes.
Employee empowerment. Unlike group health plans, an ICHRA gives employees greater control over their healthcare. With an ICHRA, employees can choose individual plans and medical services that match their needs.
Healthcare savings. ICHRA allowances don't count as taxable income on your employees' W-2s. Eligible employees receive tax-free reimbursements for eligible out-of-pocket healthcare expenses.

Is the QSEHRA a better option than the ICHRA?

A qualified small employer HRA (QSEHRA) is another way to reimburse employees for individual health insurance premiums and qualifying medical expenses. The main difference between the CHOICE Arrangement and the QSEHRA is eligibility.

The ICHRA works for employers of all sizes. However, the QSEHRA applies only to employers with fewer than 50 full-time equivalent employees (FTEs).

The QSEHRA can also extend eligibility to employees without an individual health insurance plan. Employees only need health plans that provide minimum essential coverage (MEC). So, if you have several employees covered by a spouse's or parent's plan, they can still participate in the QSEHRA.

Like the ICHRA, the QSEHRA lets you reimburse eligible employees tax-free for individual insurance premiums and other qualifying healthcare expenses. So, you can still reimburse your employees for the health insurance coverage they choose instead of buying it for them.

Lastly, the IRS sets annual maximum contribution limits with a QSEHRA. And while there are no employee classes, you can customize monthly allowances based on employee age and family status.

Conclusion

The ICHRA is a game-changing option for many business owners who want to save money while still doing right by their employees. But with any health benefit, launching an ICHRA requires a clear plan for benefit design, compliance, employee communication, administration, and ongoing evaluation. By following our step-by-step guide, you can create a more organized launch process so you and your employees can navigate your new benefit with ease.

PeopleKeep by Remodel Health can help simplify setup and ongoing administration of your CHOICE Arrangement. Schedule a call with us to learn more about how you can offer compliant and flexible health benefits that work for your organization.

This blog article was originally published on September 21, 2020. It was last updated on October 23, 2026.

References

Frequently asked questions

To set up a CHOICE Arrangement, formerly known as ICHRA, review the applicable rules, design your benefit and contribution amounts, prepare plan documents, notify eligible employees, and launch the benefit. After launch, continue monitoring participation, expenses, and compliance requirements.

The timeline depends on your organization's size, benefit design, administrative procedures, and employee communication and education. Planning 90 days or more in advance helps you account for the employee notice requirement and prepare for launch.

Employers aren't required to hire a third-party administrator, but they must still meet applicable plan administration, documentation, reimbursement, and compliance requirements. An ICHRA administrator, like PeopleKeep by Remodel Health, can help automate documents, store records, review reimbursement requests, and provide compliance guidance so you don’t have to handle it alone.

Yes. An ICHRA can reimburse eligible employees for qualifying individual health insurance premiums and other eligible medical expenses outlined in IRS Publication 502 and the CARES Act. However, employers can limit eligible healthcare costs in their plan design or choose to reimburse employees for health insurance premiums only.

On September 3, 2026, CMS and the SBA announced that the ICHRA is now officially called the CHOICE Arrangement. Because only the name changed, not the benefit itself, employers researching how to set up and implement an ICHRA may encounter both terms.