Two consecutive years of significant individual health insurance rate increases point to something bigger than a one-year pricing challenge. For employers evaluating how they fund employee health benefits, the 2027 market is another signal that long-term strategy matters.
Preliminary 2027 individual-market rate filings show continued pressure in several markets. For employers using or considering a defined contribution health strategy, premium changes can affect contribution adequacy, employee costs and the overall benefits experience.
Employer interest in CHOICE Arrangements continues to grow as organizations look for ways to manage health benefit costs, support employee choice and serve increasingly distributed workforces.
ICHRA is now being called CHOICE
CHOICE Arrangement
Custom Health Option and Individual Care Expense Arrangement
Formerly known as an Individual Coverage Health Reimbursement Arrangement, or ICHRA
The terminology is changing, but the general strategy remains the same. A CHOICE Arrangement allows an employer to establish a defined, tax-advantaged contribution that eligible employees can use toward individual health insurance coverage rather than the employer selecting a traditional group health plan for those employees.
Employers may see both CHOICE and ICHRA used during this terminology transition.
Why individual-market rates matter to employers
Individual-market pricing is relevant to employers because CHOICE Arrangements connect employer contribution strategy directly to the individual insurance market.
When individual premiums change substantially, employers using a CHOICE Arrangement should evaluate:
- the adequacy of employer contributions;
- employees’ out-of-pocket premium responsibility;
- geographic differences in purchasing power;
- employee communication and decision support; and
- the competitiveness of the overall benefits program.
For employers considering an alternative to a traditional group health plan, individual-market conditions are an important part of determining whether a CHOICE strategy makes financial and practical sense.
Why CHOICE is getting employers’ attention
Defined contribution strategies provide a different framework for managing employer contributions, employee plan selection and geographic variation.
Employer contribution strategy
Employers determine a defined contribution and decide how it may evolve over time.
Employee plan selection
Eligible employees evaluate qualifying individual coverage based on their needs and available options.
Geographic flexibility
Employers can evaluate how their contribution strategy performs across different markets.
More predictable employer spending
With a CHOICE Arrangement, an employer establishes its contribution rather than having its entire benefits budget determined by a group plan renewal.
This does not eliminate health care inflation. It gives the employer another way to determine how much of the cost it will fund and how its contribution may evolve over time.
More employee choice
Eligible employees select individual coverage based on factors such as monthly premium, provider network, prescription coverage, deductible, out-of-pocket costs and individual or family needs.
More choice also means more decisions. Education and enrollment support should be considered part of the strategy.
Greater flexibility across a distributed workforce
For organizations operating across multiple geographies, CHOICE may create opportunities to design contributions around permitted employee classes and applicable rating factors while recognizing that individual insurance markets differ by location.
CHOICE does not eliminate health care inflation
Defined contribution does not mean set it and forget it.
If individual-market premiums rise while the employer contribution remains flat, more of the premium cost may shift to employees.
The contribution stays level, but its purchasing power changes
While the employer contribution remains unchanged, its purchasing power may erode as premiums increase, shifting more cost responsibility to employees.
The question is not simply, “What can we afford to contribute?” It is also, “What does that contribution buy our employees today?”
When could a CHOICE Arrangement make sense?
A CHOICE Arrangement may warrant closer evaluation in several circumstances.
Distributed workforce
Employees across states or rating areas may face different individual insurance markets.
Difficult renewals
Employers facing repeated group plan increases may want to compare their current strategy with individual-market alternatives.
Complex populations
Permitted employee classes may create potential design opportunities for organizations with different workforce segments.
Organizational change
Growth, acquisitions, new locations or workforce restructuring may warrant evaluating a more adaptable benefits model.
Budget predictability
An employer-defined contribution can change how health benefit costs are planned and budgeted.
These situations may indicate that modeling is worthwhile. They do not mean a CHOICE Arrangement is automatically the right solution.
Individual-market rates vary significantly by location
Employers in every region should evaluate conditions in the markets where their employees live. Preliminary Midwest rate filings provide one example of how substantially individual-market conditions can vary across nearby states.
Proposed individual-market increases in Wisconsin, Michigan, Illinois and Minnesota range from 11.6% to 20.9%.
For multi-state employers, those differences can affect contribution purchasing power and the employee experience. Organizations evaluating CHOICE should assess premiums, carrier participation, provider networks and available plans where employees live rather than relying on a national average.
Proposed 2027 Individual-Market Rate Increases
Proposed, not finalAdditional considerations
Expand the sections below for additional decision guidance and answers to common CHOICE and ICHRA questions.
When might CHOICE not be the best fit?
CHOICE is not automatically better than a traditional group health plan.
Individual-market availability varies by geography. Employees in some markets may have fewer carrier, network or plan choices than employees elsewhere.
Employee experience also matters. Individual selection gives employees more choice, but it creates more decisions. Communication, education and enrollment support become critical.
Employers with favorable existing group plan economics may find that their current strategy continues to perform well.
The decision should begin with: “What do the alternatives look like for our organization and our employees?”
Four questions employers should ask before 2027 open enrollment
1. What does the individual market look like where our employees live?
Evaluate premiums, carriers, networks and plan availability in the geographic markets that affect your workforce rather than relying on national averages.
2. If we already offer CHOICE or ICHRA, is our contribution still adequate?
Compare current employer contributions with current individual-market premiums to determine whether employees have retained the purchasing power the contribution strategy was designed to provide.
3. How would CHOICE compare with our current group strategy?
Model both approaches. Compare employer cost, employee cost, available plans, provider networks, geographic variation, administrative requirements and the employee experience.
4. How will employees experience the change?
If CHOICE is part of the strategy, communication, education and decision support should be developed alongside the financial model, not after it.
Frequently asked questions about CHOICE and ICHRA
Is a CHOICE Arrangement the same thing as an ICHRA?
CHOICE Arrangement is the new public-facing terminology for the benefit previously known as an Individual Coverage Health Reimbursement Arrangement, or ICHRA. Employers may encounter both terms during the terminology transition.
What does CHOICE stand for?
CHOICE stands for Custom Health Option and Individual Care Expense Arrangement.
How does a CHOICE Arrangement work?
An employer establishes a defined contribution for eligible employees. Employees select qualifying individual health insurance coverage, and employer funds are used to reimburse eligible premiums and, depending on the plan design, certain qualified medical expenses.
Can an employer offer a group health plan and CHOICE at the same time?
Potentially, but employers generally cannot give individual employees an unrestricted choice between the two. Applicable employee-class and plan-design rules affect how traditional group coverage and a CHOICE Arrangement may be offered to different employee populations. Employers should work with their benefits and compliance advisors when evaluating the structure.
Start evaluating your 2027 options now
Preliminary 2027 individual-market filings reinforce the importance of evaluating health benefits strategy through the lens of geography, workforce composition and funding approach.
Whether an organization remains with a traditional group plan or explores CHOICE, the objective is the same: understand the options, model their impact and make informed decisions before open enrollment.
What could CHOICE look like for your workforce?
M3 can help your organization compare traditional group and CHOICE Arrangement scenarios using your workforce, geography and contribution strategy.
