CHOICE (ICHRA) Explained: A Broker's Guide to Selling Individual Coverage Plans

Table of Contents

• What is a CHOICE Arrangement?
• Is CHOICE right for your clients?
• How does CHOICE compare to QSEHRA and level-funded plans?
• How do you stay compliant with CHOICE Arrangements?
• How can technology help you manage CHOICE Arrangements?
• Frequently asked questions about CHOICE

What Is a CHOICE Arrangement?

A CHOICE Arrangement, formerly known as an Individual Coverage Health Reimbursement Arrangement (ICHRA), is an alternative to a traditional group health plan. The employer sets a monthly allowance, employees use it to buy their own qualifying individual health coverage, and the employer reimburses them tax-free.

Employers get a fixed, predictable cost, and their employees get to select a plan that fits their family, budget, and healthcare needs.

There are a few reasons CHOICE Arrangements are being considered by agencies:

• They give employers more control over their benefits budget.
• They give employees more flexibility to choose coverage that works for their needs.
• They can be a good fit for employers with employees in different locations or workforce types.
• They can give employers an alternative to traditional group health plans.
• They can help employers offer health benefits without choosing one group plan for everyone.

Is a CHOICE Arrangement Right for Your Clients?

CHOICE Arrangements can be a flexible option for employers with different workforce and benefit needs. They may be especially useful for:

• Small businesses who want to offer coverage to their employees without the cost and complexity of a traditional group plan.
• Applicable Large Employers (ALEs) who want to offer individual coverage while managing their benefit costs.
• Remote and multi-state teams who want a solution that works for employees in different locations.

While CHOICE Arrangements can be a good fit for many employers, they aren’t the only alternative to traditional group coverage. QSEHRAs and level-funded plans offer different approaches that may also be a good fit, depending on the employer’s needs.

How Do CHOICE Arrangements Compare to QSEHRA & Level-Funded Plans?

Here’s a look at how CHOICE Arrangements, QSEHRAs, and level-funded plans compare. Each approach has its own advantages, requirements, and considerations. Understanding how they compare can help you determine which solution may be the best fit for your clients.

Option 1: QSEHRA, Qualified Small Employer Health Reimbursement Arrangement

QSEHRAs are only available to employers with fewer than 50 full-time employees who aren't offering a group plan. They allow tax-free reimbursements for individual premiums and qualified medical expenses up to an IRS-set annual cap.

They're a great fit for small, local teams who want a simple, budget-friendly benefit.

Limitations of QSEHRA Plans:

• Contribution caps may be too restrictive for employees with higher coverage needs.
• One-size-fits-all design — no differentiation between employee roles or family needs.
• Must not offer any group health plan.

Advantages of QSEHRA Plans:

• Simple to set up and administer: QSEHRAs are a straightforward option for employers who don't have HR staff or a dedicated benefits consultant.
• Tax-free reimbursements: Reimbursements are generally tax-free for employees and tax-deductible for employers when applicable requirements are met.
• Budget-friendly: IRS-set contribution caps make it easy to predict and control costs from year to year.
• Flexible for employees: Each person can choose the individual health plan that works best for their needs and budget.
• Great for small, local teams: When everyone lives and works in the same area, QSEHRA is a natural fit for keeping things simple.

If a client has fewer than 50 employees, has never offered benefits, and wants to keep things simple, QSEHRA is often the easiest place to start.

Option 2: Level-Funded Plans, a Hybrid Between Fully Insured & Self-Funded Group Insurance

Level-funded plans are self-funded arrangements with fixed monthly contributions. Level-funded plans use a fixed monthly payment to cover administrative costs, stop-loss coverage, and employee claims funding. If claims are lower than expected, employers may receive a refund at the end of their fiscal year. If claims are high, stop-loss insurance kicks in to reimburse the employer.

Limitations of Level-Funded Plans:

• Renewal volatility can strain budgets after high claims years.
• Administrative overhead still resembles a traditional group plan.
• There’s sometimes limited choice for employees tied to a specific carrier or network.

Advantages of Level-Funded Plans:

• Potential for premium refunds: Employers may get money back at the end of the year if claims come in lower than expected.
• Lower premiums than fully insured plans: Groups with generally healthy employees often see lower monthly costs compared to traditional coverage.
• Familiar experience: Employees get the feel of a traditional group plan, with networks, deductibles, and other attributes they’re used to.
• Access to provider networks: Depending on the plan, employees can still see their preferred doctors and hospitals.
• Predictable monthly costs: Stop-loss insurance caps the employer's financial exposure, so there are no surprise bills from a high-claims month.

Option 3: CHOICE Arrangements (Formerly ICHRAs)

With a CHOICE Arrangement, employers set a monthly allowance for employees to use toward qualifying individual health coverage. Unlike QSEHRA plans, CHOICE Arrangements are available to employers of different sizes and do not have the same IRS-set contribution limits as QSEHRAs.

Limitations of CHOICE Arrangements:

• Employees must purchase their own individual insurance, and some may find this unfamiliar or intimidating without guidance.
• Not compatible with traditional group plans (though group benefits like dental and vision are allowed).
• Requires employees to enroll in qualifying individual coverage to receive reimbursements. Without qualifying coverage, employees receive no reimbursement.
• Requires some initial planning around employee classes and contribution amounts.

Advantages of CHOICE Arrangements:

• Flexible employer contributions: Employers can set their own reimbursement budget while following applicable rules.
• Flexible benefit design: Allowance amounts can be tailored by permitted employee classes, location, and other factors.
• Supports remote & part-time employees: CHOICE Arrangements are built for today's workforce, making it easy to extend benefits across diverse employment types and locations.
• Employee choice: Employees choose the plan that fits their family, preferred doctors, and budget.
• Tax-advantaged for all: Reimbursements are generally tax-free for employees and tax-deductible for employers when applicable requirements are met.
• Scalable as your group grows: CHOICE Arrangements can be structured for employers of different sizes.
• Compatible with other benefits: Other benefits may be offered alongside a CHOICE Arrangement, depending on the benefit and plan design.

How Do You Stay Compliant with CHOICE Arrangements?

CHOICE Arrangements give employers flexibility in how they structure their health benefits, but that flexibility comes with important compliance requirements. Understanding these requirements can help your team guide clients through the process.

Key compliance areas to understand include:

• Employee class definitions: Employers can offer CHOICE Arrangements to different permitted employee classes, such as full-time, part-time, seasonal, or geographically defined groups. Once employee classes are established, the arrangement generally must be offered on the same terms to employees within each class.
• ACA affordability: Applicable Large Employers (ALEs) need to make sure their CHOICE Arrangement meets ACA affordability requirements to help satisfy their employer shared responsibility requirements.
• Employee notices: Employers generally must provide eligible employees with the required CHOICE Arrangement notice at least 90 days before the beginning of the plan year. Employees who become eligible later must receive the notice by the date their CHOICE Arrangement coverage can begin.
• Enrollment verification: Employees must be enrolled in qualifying individual coverage to receive CHOICE reimbursements. Without qualifying coverage, they cannot receive reimbursements.

Understanding these requirements can help your agency advise on CHOICE Arrangements successfully for your clients while keeping them compliant.

How Can Technology Help You Manage CHOICE Arrangements?

For agents who are already selling or looking to sell CHOICE Arrangements, a strong client and policy management system isn't optional. 

An industry-specific agency management system (AMS), like AMS+ is built specifically for health insurance agencies and supports compliance, communication, and workflow management.

AMS+, can help your team by:

• Maintaining a clear, organized view of client and policy information across your entire book of business.
• Automating key touchpoints throughout the policy lifecycle, including renewals and onboarding.
• Accessing built-in compliance documents like ACA Consent to Contact and ACA Attestations.
• Keeping your whole team working from a single, reliable source of data.

When your technology is built for your agency, managing CHOICE Arrangements (and all of the other lines of business you sell) becomes a lot more straightforward and a lot less stressful.

FAQ

Is CHOICE the same as a group health plan?

No. A CHOICE Arrangement is a type of health reimbursement arrangement, not a traditional group health insurance plan. Instead of enrolling employees in a group plan selected by the employer, employees select their own qualifying individual coverage and can receive reimbursements based on the employer's arrangement.

Who can offer a CHOICE Arrangement?

CHOICE Arrangements can be offered by employers with eligible employees. Employers determine which permitted employee classes will be eligible, and they must follow applicable rules when designing the arrangement.

Are CHOICE reimbursements tax-free?

Generally, yes. When the applicable requirements are met and the employee has qualifying coverage, CHOICE Arrangement reimbursements can be tax-free for both the employer and employee.

What coverage can employees use with a CHOICE Arrangement?

Depending on the arrangement and applicable requirements, qualifying coverage can include individual health insurance purchased through the Marketplace, qualifying individual coverage purchased off-Exchange, Medicare Part A and Part B, and Medicare Advantage.

What's the difference between a CHOICE Arrangement and a QSEHRA?

The main differences are employer eligibility, contribution rules, and plan requirements. QSEHRAs are designed for eligible small employers and have IRS-set contribution limits. CHOICE Arrangements are available to a broader range of employers and offer more flexibility in how employers structure contributions and employee classes.

What happens if an employee doesn't enroll in qualifying coverage?

If an employee does not maintain qualifying individual coverage, they generally cannot receive reimbursements under the CHOICE Arrangement. The employee must have eligible coverage to receive the benefit.

Posted by Shannon Beck on Friday, August 28, 2026 in Health Insurance