What is the CHOICE Arrangement? ICHRA's New Name Explained

On September 3, 2026, CMS and the SBA announced that the individual coverage health reimbursement arrangement (ICHRA) is now officially called the CHOICE Arrangement. This is separate from the congressional effort that’s been trying to codify ICHRA as the CHOICE Arrangement.

The CHOICE Arrangement is an employer-funded health benefit. It allows organizations of all sizes to reimburse their employees tax-free for qualified individual health insurance premiums and, if the employer allows it, qualified out-of-pocket medical expenses. It gives employers a cost-effective alternative to traditional group health insurance while giving employees their choice of health plans that best fit their needs.

This article will explain how CHOICE Arrangements work, how they compare to ICHRA, and how you can start exploring your options.

In this blog post, you'll learn:

• How the CHOICE Arrangement works and who can offer one
• How it compares to the proposed bill that would codify CHOICE
• What's next for the benefit

This article was updated on September 4, 2026, to reflect the latest changes. We’ll continue to follow this closely and provide updates here.

ICHRA is now the CHOICE Arrangement

CHOICE Arrangement is the new name for ICHRA, announced by CMS and the SBA on September 3, 2026, in Indiana¹. Remodel Health, PeopleKeep’s parent company, was one of only two administrators present during the announcement. You can learn more about what transpired during the event in our blog post.

The important takeaway is this: ICHRA is now the CHOICE Arrangement, and the federal government is undergoing a national campaign to spread awareness of the benefit. While the name is the same, the federal government hasn’t yet rolled out any changes to how the benefit works. It has the same 2019 final rules behind it as the regulatory framework².

How do CHOICE Arrangements work?

CHOICE Arrangements are employer-sponsored health benefits. Instead of offering a traditional one-size-fits-all group health plan, organizations can give their employees a tax-free defined contribution. Employees then enroll in qualified individual health insurance plans on the public Affordable Care Act (ACA) Marketplaces or off-exchange through a broker or insurance company. Employers get a new choice in how to offer health benefits, and employees get to choose the plans that best fit their unique needs, doctors, and budgets.

There is currently no difference between how an ICHRA worked and how the CHOICE Arrangement works.

Here are the basic steps to a CHOICE Arrangement.

1. Employers design their CHOICE Arrangement benefit

First, the organization designs their benefit. You’ll need to decide who you want to offer the benefit to. You can offer the CHOICE Arrangement to your W-2 employees (and potentially retirees who were W-2 through a retiree HRA) but not independent contractors or non-W-2 business owners³.

You don’t have to offer the benefit to all of your employees. The CHOICE Arrangement has 11 employee classes that allow you to vary eligibility:

• Full-time employees
• Part-time employees
• Seasonal employees
• Salaried employees
• Non-salaried employees
• Temporary employees of staffing firms
• Employees covered by collective bargaining agreements
• Foreign employees who work abroad
• Employees who haven’t met the benefit’s waiting period
• Geographic location (such as rating areas or states)
• A combination of two or more classes

For example, you can offer a CHOICE Arrangement to part-time employees only, and offer a traditional group plan to full-time employees. However, you can’t offer any class of employees both a CHOICE Arrangement and a group plan or give them a choice between the two.

You must also decide whether you want to reimburse employees for premiums only or premiums and out-of-pocket medical expenses as defined in IRS Code Section 213(d).

PeopleKeep by Remodel Health makes setting up your CHOICE Arrangement benefit easy. Our team of HRA specialists can explain your options, and our intuitive platform walks you through the steps.

2. Choose an allowance to offer

Now, you’ll decide how much you want to contribute toward employee medical costs each month. The CHOICE Arrangement has no contribution limits, so you can choose as much of an allowance as you want.

You can vary allowances by employee class. Within each class, you can also vary allowances by employee age (up to a 3:1 ratio from the youngest to the oldest employee) and family status.

If you’re an applicable large employer (ALE) with 50 or more full-time equivalent employees (FTEs), you’re subject to the ACA’s employer mandate. This means you’ll need to offer an affordable CHOICE Arrangement allowance to at least 95% of full-time employees and their dependents.

For the 2027 plan year, a CHOICE Arrangement is affordable if the employee’s share of the premium is less than 10.22% of their household income for the lowest-cost silver plan available on their local Marketplace⁴. Affordability is calculated after subtracting the employee’s CHOICE Arrangement contribution from the premium cost.

Employers can use IRS safe harbors, such as the employee’s W-2 wages or rate of pay, to determine affordability.

3. Eligible employees shop for qualified individual health insurance

Employees who are eligible for the CHOICE Arrangement and want to opt into the benefit will then shop for qualifying coverage. They must enroll in a qualified individual plan to participate in the benefit.

Eligible coverage for CHOICE Arrangement participation includes:

• ACA-compliant individual health insurance for the public exchanges, like HealthCare.gov
• Off-exchange ACA-compliant individual health insurance
• Medicare Parts A and B together
• Medicare Advantage, also known as Medicare Part C

Traditional group health plans, association health plans, and short-term limited duration insurance are examples of coverage ineligible for CHOICE Arrangement participation.

Once they choose a plan, employees must attest that they have qualifying coverage. Employees can either submit proof of coverage, like an insurance card, or submit an attestation of coverage. Employees must attest that they have coverage at least once per year and every time they submit a reimbursement request.

PeopleKeep by Remodel Health makes shopping for coverage simple. Your employees can shop for coverage right from their PeopleKeep accounts, and they can work with a licensed Benefit Advisor to explore their options. Our platform also handles attestation on your behalf.

4. The employer reimburses employees for qualifying expenses

Once employees have qualified coverage, they can request reimbursement for eligible medical expenses up to their available allowance.

With PeopleKeep, employees submit expenses for reimbursement through the platform. Our team of documentation review specialists ensure all expenses meet IRS guidelines before notifying you of any pending reimbursements. This keeps your CHOICE Arrangement compliant with IRS regulations and HIPAA.

The CHOICE Arrangement also allows for automated premium payments. Our parent company, Remodel Health, has payroll system integrations and AutoPay capabilities with industry-leading 99%+ accuracy. If you want this feature, contact our team.

Why offer a CHOICE Arrangement?

A CHOICE Arrangement is a good fit for employers of all sizes that are facing challenges with offering traditional health benefits.

For small businesses, group health plans often come with steep costs and minimum participation requirements. For these organizations, the CHOICE Arrangement provides a way to start offering benefits for the first time, reduce your current benefits costs, or increase employee satisfaction.

For larger organizations, group health renewals can be unsustainable. If you’re seeing annual double-digit rate increases, the CHOICE Arrangement can offer an escape from the hamster wheel. Remodel Health has seen a 65% growth in financial win pipeline in 2026, meaning more employers are finding that comparable individual health plans plus CHOICE Arrangement administration costs are cheaper than their existing group plans.

PeopleKeep by Remodel Health can help you evaluate whether a switch to the CHOICE Arrangement is a good fit for your organization.

Is the CHOICE Arrangement different from ICHRA?

No, the CHOICE Arrangement is the same as an ICHRA. CMS and the SBA have not announced any regulatory changes to the benefit. It’s just a new name for the same benefit.

CMS and the Department of Health & Human Services have issued a new rulemaking advisory, RIN 0938-AW00, which would “expand access to individual coverage health reimbursement arrangements).” The RIN summary says the rule would clarify and streamline administrative requirements.⁵ It remains to be seen which regulatory changes will be proposed, but the HRA Council has long advocated for certain changes to the benefit, such as allowing for pre-tax Section 125 premium-only plan deductions for on-exchange premiums with ICHRA.

How was the CHOICE Arrangement created?

HRAs aren't a new concept. Adoption of health reimbursement arrangements (HRAs) grew following the IRS's formal recognition of the benefits in 2002. However, the Affordable Care Act (ACA) limited their growth for a number of years. Then, in 2016, Congress created the CHOICE Arrangement’s small business counterpart, the qualified small employer HRA (QSEHRA).

Following on the promise of QSEHRA, the Departments of the Treasury, Labor, and Health and Human Services created the ICHRA in 2019. It became available to employers of all sizes in 2020. PeopleKeep was the first vendor to bring an ICHRA administration platform to the market.

Following years of growth, including a pro forma growth rate of around 50% between 2025 and 2026, according to the HRA Council, CMS and the SBA announced that ICHRA is now the CHOICE Arrangement on September 3, 2026.

This followed multiple attempts by Congress to rename and codify ICHRA as the CHOICE Arrangement in 2025.

Will Congress still attempt to codify ICHRA as the CHOICE Arrangement?

Congress has considered legislation that includes an overhaul and rebranding of the individual coverage health reimbursement arrangement (ICHRA) as the CHOICE Arrangement. The latest attempt was the House-passed Lower Health Care Premiums for All Americans Act, which included provisions that would rename ICHRA as the Custom Health Option and Individual Care Expense (CHOICE) Arrangement and bring about several changes to the benefit⁶.

However, this effort stalled in Congress in December 2025.

This followed earlier attempts in 2025 to codify ICHRA through H.R. 1, also known as the “One Big Beautiful Bill Act” (OBBBA)⁷. That bill initially passed the House, but the Senate version removed the CHOICE provisions. It remains to be seen if Congress will codify the CHOICE Arrangement in 2026 or beyond.

The One Big Beautiful Bill Act included language that looked to codify ICHRA as the CHOICE Arrangement. This would have provided long-term stability for the tax-free health benefit. However, the provisions were cut from the final bill that became law in July 2025.

The Lower Health Care Premiums For All Americans Act proposed bill retained much of the 2019 ICHRA final rules and the cut provisions from the OBBBA. However, some changes would greatly alter the way the CHOICE Arrangement works if passed.

The bill would codify ICHRA in statute

Currently, the CHOICE Arrangement is governed by federal regulations that established ICHRA through an executive order. This bill would codify the CHOICE Arrangement in federal statute by amending the Internal Revenue Code §9815(b), thereby providing it with long-term support.

Pre-tax Section 125 salary deductions for on-exchange insurance premiums

Currently, the ICHRA final rules allow employers to pay health insurance premiums pre-tax rather than reimburse employees. If an employee’s premium is more than their ICHRA allowance, employees can pay the rest on a pre-tax basis through payroll deduction. However, this only applies to individual health plans purchased off-exchange and Medicare premiums. Employees with Marketplace coverage must first pay their premiums and then request reimbursement.

The Lower Health Care Premiums for All Americans Act would allow for pre-tax deductions for on-exchange premiums through a Section 125 plan. The bill would amend Section 125 to create an exception to the no exchange coverage rule for CHOICE Arrangements.

New W-2 reporting requirements

Unlike a QSEHRA, the ICHRA doesn’t require W-2 reporting. This bill would add similar W-2 reporting requirements for CHOICE Arrangements to those of the QSEHRA.

Offering CHOICE Arrangements and small group health insurance

The ICHRA has always allowed employers to offer both the ICHRA and a group health plan. But this only applies to separate employee classes. The ICHRA has 11 employee classes that employers can use to differ benefit eligibility and allowances. This means employers can offer an ICHRA to some classes, like hourly or part-time workers, while offering a group plan to another class.

With an ICHRA, you can't offer a group plan and the HRA to the same class of employees. Employees also can't choose between the two benefits.

The proposed rules for the CHOICE Arrangement would allow small employers to offer both a small group plan and the arrangement to the same class of employees. This would potentially allow employees to select the option that best fits their needs.

A shortened notification period

The ICHRA final rules recommend that employers give their employees at least 90 days' notice before the benefit starts. This gives employees enough time to enroll in individual health insurance coverage and determine whether to opt in or out of the benefit.

However, the congressional bill would only require employers to provide a 60-day statutory notice. It also has special timing rules for newly eligible employees.

Cut enhancements to the CHOICE Arrangement

Previous versions of the CHOICE Arrangement provisions included language around a new tax credit for small businesses.

The CHOICE Arrangement is an excellent option for organizations with 50 or fewer full-time equivalent employees (FTEs). While Congress created the QSEHRA for these small businesses, CHOICE Arrangements provide additional flexibility that many organizations require, such as employee classes.

Deciding whether to offer a QSEHRA or CHOICE Arrangement comes down to plan features and the needs of the employer. For example, an employee only needs minimum essential coverage (MEC) to participate in a QSEHRA, not an individual health plan.

Previous versions of the bill would have created a new two-year tax credit for these small businesses that aren't applicable large employers (ALEs).

Here's how the tax credit would have worked:

• Employers could get $100 per employee per month for the first year
• The tax credit would drop to $50 per employee per month in the second year
• Employees would have needed to have MEC and participate in the CHOICE Arrangement to qualify

This tax credit would have created a strong incentive for small businesses to choose the CHOICE Arrangement over the QSEHRA or expensive group health plans. However, the Lower Health Care Premiums for All Americans bill removed this language.

Conclusion

The CHOICE Arrangement is an excellent way for businesses of all sizes to offer flexible, personalized health benefits. Despite the new name, this isn’t a new, untested alternative to group health insurance. According to the HRA Council, more than 260,000 employees and 402,000 lives nationwide are already enrolled in a CHOICE Arrangement, formerly known as ICHRA.

If you’re ready to make the switch, PeopleKeep by Remodel Health can help. Our CHOICE Arrangement administration platform makes it easy to set up and manage your health benefit in minutes each month.

If you want to learn more about the CHOICE Arrangement and evaluate this option for your business, contact an HRA specialist.

This blog post was originally published on May 22, 2025. It was last updated on September 4, 2026.

References

1. Remodel Health representatives were at the CHOICE Arrangement announcement. This article incorporates firsthand knowledge.
2. CMS - Employer Initiatives - CHOICE Arrangements: A Guide for Employers
3. Health Reimbursement Arrangements and Other Account-Based Group Health Plans
4. 26 CFR 601.105 - Rev. Proc. 2026-26
5. Expanding Access to ICHRAs
6. H.R. 6703 - Lower Health Care Premiums for All Americans Act
7. One Big Beautiful Bill Act original text as passed by the House