What is a CHOICE Arrangement?
A CHOICE Arrangement, formerly known as an Individual Coverage Health Reimbursement Arrangement (ICHRA), allows an employer to contribute toward qualifying individual health insurance selected by employees. Employees choose coverage available to them in the individual market, and the arrangement reimburses eligible expenses tax-free, subject to applicable requirements.
Rising health plan costs, difficult renewals, or a workforce spread across different locations can make traditional group coverage harder to manage. A CHOICE Arrangement gives employers more control over what they contribute while giving employees more choice in their coverage.
But more choice does not automatically mean a better outcome. Costs, plan availability, provider networks, prescriptions, and other factors can vary from employee to employee. Before making a change, look at how a CHOICE Arrangement would affect both the business and individual employees.
Reasons to Consider a CHOICE Arrangement
Start with the problem you’re trying to solve. A CHOICE Arrangement may be worth comparing with your current benefits approach if:
Renewals Are Making It Difficult to Plan
If premium increases keep forcing changes to your budget or employee contributions, a defined contribution approach may give you more control over the employer portion of the cost. Individual insurance premiums can still change, so employee costs need to be reviewed each year.
Your Group Plan No Longer Fits Your Workforce
Employees in different locations may have different carrier options and provider needs. A CHOICE Arrangement lets employees select from individual plans available where they live. That can give employees more choices, but the number and quality of those options depend on the local market.
Offering a Group Plan Has Been Difficult
For a small business that has struggled to offer traditional coverage, a CHOICE Arrangement may provide another way to contribute toward employee health insurance. Before moving forward, compare what your proposed contribution would buy with the coverage and costs employees have today.
Four Questions to Ask Before Switching to a CHOICE Arrangement
What will the business and employees pay?
Compare your current group plan with several contribution scenarios. Include the employer’s contribution, administrative fees, employees’ remaining premiums, and their potential out-of-pocket costs. A lower employer expense does not necessarily mean a lower total cost for employees.
Review potential premium tax credit implications as part of that comparison. Employees offered a CHOICE Arrangement that meets federal affordability standards generally cannot receive Marketplace premium tax credits. If the offer is unaffordable, an otherwise eligible employee may decline the arrangement and qualify for a tax credit instead. Employees cannot use both the arrangement and a premium tax credit for the same coverage period.
Does available coverage meet employees’ needs?
Review individual plans in each location where employees live. Compare premiums, provider networks, prescription coverage, deductibles, and out-of-pocket limits. More plans to choose from does not necessarily mean better access to care.
Check whether employees can keep their preferred providers and medications. A plan with a lower premium may be less attractive if it requires changing doctors or paying more for ongoing care.
What support would employees need?
Employees who are used to a group plan may be choosing individual coverage for the first time. They need to understand how the employer’s contribution works, how to compare coverage, and what they must do to enroll.
Before announcing a change, plan how employees will learn about their options and where they can get enrollment assistance. Employees should know where to get help checking provider networks, reviewing prescriptions, and understanding their share of the cost. M3 resources and guidance can support those conversations throughout plan selection and enrollment.
Who will handle implementation and ongoing administration?
A CHOICE Arrangement changes benefits administration; it does not eliminate it. Compliance oversight, employee communication, enrollment support, and reimbursement administration still require attention.
Before committing, identify which responsibilities your team will retain and which your advisor or administrator will handle. Confirm the implementation timeline and how employees will receive help after enrollment, not just during the initial transition.
Group Coverage vs a CHOICE Arrangement: A Hypothetical Comparison
The following is a hypothetical example, not a client case study.
A small business with employees in several locations receives a renewal increase that would strain its benefits budget. The owner wants to compare keeping the group plan with offering a CHOICE Arrangement.
| What to Compare | Group Health Plan | CHOICE Arrangement (ICHRA) |
|---|---|---|
| Employer cost | Compare the contribution needed to maintain coverage at renewal. | Test defined employer contributions and include administrative fees. |
| Employee cost | Review employees’ premium contributions and potential out-of-pocket costs. | Review premiums remaining after reimbursement, potential out-of-pocket costs, and premium tax credit implications. |
| Coverage and provider access | Evaluate employer-selected coverage, provider networks, and prescription benefits. | Evaluate individual plans, provider networks, and prescription benefits in each employee’s location. |
| Employee experience | Employees choose among the options offered by the employer. | Employees select individual coverage and may need additional plan-selection and enrollment support. |
| Administration | Review the work and support needed to administer the group plan. | Review compliance oversight, communication, individual enrollment support, and reimbursement administration. |
The comparison could look very different across locations. Employees in one area may have several individual plans that include their preferred providers, while employees elsewhere may have fewer suitable options. The same employer contribution could leave some employees paying less and others paying more.
That review may support a change, point to a different contribution strategy, or show that the group plan remains a better fit. The decision should reflect differences across your workforce, not just an average premium or projected employer savings.
A CHOICE Arrangement can offer a different path when traditional group coverage is becoming difficult to sustain. Whether that path works for your business depends on the numbers, the coverage available to employees, and the support needed to make the change.
M3 Elevate can help you put the options side by side. Through its Managed CHOICE Solution, powered by zizzl, Premier+ modeling can compare potential costs and contribution strategies before you make a decision. If a CHOICE Arrangement moves forward, our M3 Elevate advisors can also assist with implementation and employee enrollment.
Could a CHOICE Arrangement fit your business and your employees? Connect with an M3 Elevate client executive to compare it with your current benefits approach.
Explore M3’s Employee Benefits Solutions.
M3 works with employers to control costs, understand their options and create benefits programs that meet the needs of their organization and employees.
