What is the ACA affordability threshold for 2027?

The ACA affordability threshold for the 2027 plan year is 10.22% of an employee’s household income, up from 9.96% in 2026. Employer-sponsored coverage must meet affordability, coverage, and minimum value requirements to satisfy the ACA’s employer mandate. If you’re a small business, you’re not subject to the employer mandate or any related tax penalties.

How do you calculate ICHRA affordability?

Subtract the monthly ICHRA contribution from the premium for the lowest-cost silver plan available to the employee. The remaining monthly premium must not exceed 10.22% of the employee’s monthly household income for the CHOICE Arrangement to be considered affordable in 2027.

What is the federal poverty level safe harbor for 2027?

For 2027, the federal poverty level (FPL) safe harbor limits an employee’s monthly contribution for self-only coverage to $135.93 for the 48 contiguous states and D.C. Employers can use this safe harbor instead of household income to determine affordability under the ACA’s employer mandate.

Can employers use a safe harbor to determine health insurance affordability?

Yes. Applicable large employers can use the Form W-2 wages, rate of pay, or federal poverty level safe harbor to determine whether their employees’ coverage meets the ACA affordability requirement for employer mandate purposes.

What happens if an employer’s health insurance plan is unaffordable?

An applicable large employer may face an employer shared responsibility payment if a full-time employee receives a premium tax credit for ACA coverage and enrolls in the plan. Employers can avoid this penalty by carefully calculating affordability for applicable employee benefits and using safe harbors.

How do you set up an ICHRA?

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.

How long does it take to set up an ICHRA?

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.

Do employers need a third-party administrator for an ICHRA?

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.

Can an ICHRA reimburse employees for health insurance premiums and medical expenses?

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.

What is the difference between an ICHRA and a CHOICE Arrangement?

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.

Is a CHOICE Arrangement better than a group health plan?

It depends on your organization's budget, workforce, and employees' needs. CHOICE Arrangements, formerly known as ICHRAs, can provide more flexibility and cost control, while group plans may be a better fit for employers who prefer traditional, employer-sponsored coverage.

Can an employer offer both a CHOICE Arrangement and a group health plan?

Yes. Employers can use employee classes to offer a group health plan to one class of employees and a CHOICE Arrangement to another, as long as they meet applicable eligibility and class requirements.

Can employees use premium tax credits with a CHOICE Arrangement?

Generally, no. Employees who participate in a CHOICE Arrangement can't receive premium tax credits for the same months. Depending on whether the CHOICE Arrangement is considered affordable, employees may have different options if they decline the arrangement.

What is an ICHRA provider?

An ICHRA provider helps employers set up and manage a CHOICE Arrangement, previously called an individual coverage health reimbursement arrangement. Depending on the provider, services may include plan design, compliance support, employee enrollment, reimbursement administration, and ongoing benefits support.

What’s the difference between Remodel Health and PeopleKeep?

Remodel Health is the largest ICHRA/CHOICE Arrangement partner by revenue and team size. It offers end-to-end ICHRA administration. Remodel Health is a great option for employers seeking a full-service ICHRA partner for hands-on benefits strategy, implementation, employee support, and ongoing administration. PeopleKeep is a product line of Remodel Health primarily for small businesses looking for straightforward, software-driven HRA administration.

How much does an ICHRA administrator cost?

ICHRA administration costs vary by provider and typically depend on factors such as the number of employees, services included, and level of support. When comparing providers, look beyond the upfront price and consider what’s included in the overall cost.

Why did CMS and the SBA rename ICHRA to the CHOICE Arrangement?

CMS and the SBA didn’t provide an official reason for the change during the announcement. However, many in the industry have long asked for a change due to how the ICHRA acronym is pronounced (it sounds like “ick”). The long, jargon-filled name didn’t clearly explain the value the benefit brings to employers and employees. CHOICE Arrangement does.

Does this change anything about my current ICHRA plan, budget, or strategy?

No. The renaming of ICHRA to the CHOICE Arrangement doesn’t impact current ICHRA benefits or the underlying regulatory framework. We’ll be communicating with customers and their employees about the name change for the sake of clarity, but there are no changes needed at this time.

As an employer offering an ICHRA, do I need to do anything right now?

No, there’s nothing that you need to do right now. PeopleKeep by Remodel Health will be sending out communications to customers about the name change, but CMS and the SBA haven’t made any changes to how the benefit functions.

Does this affect QSEHRA?

No, the rebrand of ICHRA to the CHOICE Arrangement doesn’t impact the qualified small employer HRA (QSEHRA). Congress created the QSEHRA, whereas federal regulations created ICHRA. The CMS and SBA announcement only impacts ICHRA.

Should a small business choose the CHOICE Arrangement or QSEHRA?

Both the CHOICE Arrangement and the QSEHRA are excellent fits for small businesses. The best option for your organization comes down to your business needs and employee demographics. A QSEHRA is a simple way to offer health benefits for those with fewer than 50 FTEs, but it lacks the customization options the CHOICE Arrangements provides, such as employee classes. You can learn more about the difference in our ICHRA vs. QSEHRA page.

Can an employee use a Section 125 plan and an ICHRA together?

Yes, but only if the employee purchases an individual health insurance policy on an off-exchange marketplace.

Can a Section 125 plan pay for individual health insurance premiums?

Yes. A Section 125 premium-only plan can pay for individual premiums under specific conditions. When paired with an ICHRA, only pre-tax payroll deductions can go toward premiums for eligible off-exchange individual health insurance plans. Employees who enroll in an on-exchange plan through a public exchange, like the federal Health Insurance Marketplace or a state exchange, can't use a Section 125 cafeteria plan to pay for the portion of their premium that their ICHRA allowance doesn't cover.

Why don’t on-exchange health plans work with a Section 125 plan?

Because public exchanges already offer premium tax credits and other cost-sharing subsidies, federal law prohibits employees from using pre-tax salary reductions under a Section 125 cafeteria plan to pay on-exchange health insurance premiums. This prevents "double-dipping" tax advantages.

Can an ICHRA reimburse an employee’s entire health insurance premium payment?

This depends on the cost of the plan and the employer’s ICHRA allowance. Employers choose a set monthly allowance amount. If an employee's premium exceeds that allowance, they must pay the remaining balance unless they have access to another eligible payment method. If the plan’s cost is less than their allowance, then the ICHRA is essentially reimbursing the employee’s entire premium cost.

Can employers offer different ICHRA allowance amounts to different employees?

Yes. Employers can vary reimbursement amounts using eligible employee classes — such as full-time vs. part-time workers and salaried vs. hourly employees — as long as they adhere to federal ICHRA regulations and nondiscrimination rules. Within each class, they can also vary contributions by employee age and family size.

Does PeopleKeep administer Section 125 plans with an ICHRA?

No. PeopleKeep uses a reimbursement-based ICHRA model and therefore doesn't offer Section 125 premium-only payroll deductions. However, organizations that need this capability can do so with our parent company, Remodel Health. Contact Remodel Health or us to learn more about how our ICHRA administration solutions compare.

Can you use a Section 125 premium-only plan (POP) with individual health insurance?

Generally, no. POPs are designed for employer-sponsored group health insurance premiums. However, employers can offer a POP alongside an ICHRA for employees who enroll in off-exchange individual health insurance plans.

What's the difference between a Section 125 plan and an HRA?

A Section 125 plan lets employees pay for qualified benefits with pre-tax salary reductions. An HRA is funded by the employer and provides tax-free employer contributions for eligible medical expenses and, in some cases, health insurance premiums.

Who should consider a Section 125 premium-only plan?

A POP is a good fit for employers that already offer group insurance and want employees to pay their share of premiums with pre-tax dollars. It’s also a great option for employers offering an ICHRA as long as employees enroll in off-exchange plans.