On September 3, the Centers for Medicare & Medicaid Services (CMS) and the U.S. Small Business Administration announced a joint nationwide campaign to inform businesses about “CHOICE Arrangements.” If the name is unfamiliar, the benefit behind it probably isn’t. CHOICE Arrangement, short for “Custom Health Option and Individual Care Expense,” is the federal government’s new term for the individual coverage health reimbursement arrangement (ICHRA).
The campaign marks the first coordinated federal effort to put this benefit option in front of employers at scale. While the name and federal attention behind it has changed, the structure, tax treatment, and compliance obligations employers know from ICHRA carry over intact.
The announcement arrives as CMS prepares a new round of ICHRA rulemaking, already listed on the administration's regulatory agenda. More on that below.
This guide covers what CHOICE Arrangements are, how they work, who they're for, and what the federal campaign and pending rules mean for employers.
CHOICE Arrangements, Explained
A CHOICE Arrangement is an employer-funded, tax-free health benefit. The company sets a monthly health budget for each employee, and employees use that budget to buy their own health insurance plan instead of the employer picking a group plan for everyone.
The employee’s coverage is individual. They own their plan, choose their doctors and aren’t locked into a one-size-fits-all group option.
If this sounds familiar, it's because this is exactly how ICHRAs have worked since the benefit became available in 2020. CHOICE Arrangement is the updated name. The regulatory framework, IRS guidance and employer obligations remain the same.
How CHOICE Arrangements Work — Step by Step
Step 1: The employer sets a budget
The company decides how much to contribute toward each employee’s monthly health budget. This can be a flat amount for everyone, or employers can contribute different amounts to different employee groups, called employee classes.
Eligible classes include:
Full-time workers
Part-time workers
Employees in the same area
Employees covered by a collective bargaining agreement (i.e., union workers)
To comply with nondiscrimination rules, contributions must be offered on the same terms to everyone within a class.
Step 2: Employees shop for individual health insurance
Employees select their own insurance plan and use their budget to pay the monthly premiums, plus other qualifying health expenses.
With a platform like Thatch, employees see plans available in their state, compare costs, check provider networks and enroll in one place.
Step 3: The employer reimburses or pays directly
Depending on the platform, the employer either reimburses employees for their premiums or pays carriers directly.
Thatch automates premium payments with two monthly debits, one for premiums and one for reimbursements, integrated with payroll and with Section 125 pre-tax treatment built in.
What Changed from ICHRA to CHOICE Arrangements
| Key Factors | Was There a Change? | Details |
|---|---|---|
Product Name | YES | ICHRA is now referred to as CHOICE Arrangement in federal materials; expect industry terminology to follow |
Benefit Structure | NO | Same employer contribution and employee choice model |
IRS Rules | NO | Same tax treatment and reporting requirements |
Employee Classes | NO | Same flexibility for employers |
Eligible Expenses | NO | Same eligible medical expenses apply |
Compliance Obligations | NO | Same affordability requirements and employee notices |
COBRA Applicability | NO | Still applies to employers with 20+ employees |
Bottom line: If you offer an ICHRA today, you offer a CHOICE Arrangement. Nothing about your obligations or your employees’ benefits changed. The name caught up to what the product does: give employees choice.
Why the Federal Campaign Matters
Awareness has been the persistent gap for this benefit. Adoption has grown steadily since 2020, but most small and mid-sized employers still haven't heard of it, and many that have assume it's more complicated than it is. A coordinated CMS and SBA campaign puts CHOICE on the radar of the businesses most likely to use it. For employers, the federal government’s active effort to promote CHOICE is a meaningful signal about the benefit’s durability.
What's Next: Pending Federal Rulemaking
Beyond the campaign, CMS has placed new ICHRA rulemaking on the administration’s Unified Regulatory Agenda (RIN 0938-AW00). This would be the first dedicated rulemaking on the benefit since the 2019 rule that created it. The proposal's contents won't be public until CMS releases it, but the issues employers, brokers, and carriers have raised in the interim, including the length of the advance notice period and greater flexibility for dependent allowances, are natural candidates. The proposed rule is also expected to formally change the name of ICHRA to CHOICE Arrangements, consistent with the September 3 announcement.
Nothing in the pending rulemaking requires employer action today. Plans in place now continue to operate under existing rules, and any changes would come with notice and lead time. We'll cover the proposed rule when it's released.
Who Are CHOICE Arrangements For?
Any employer can offer a CHOICE Arrangement, regardless of size. QSEHRAs (qualified small employer health reimbursement arrangements) are a similar option, but they’re only available to companies with fewer than 50 employees.
Beyond company size, CHOICE Arrangements are especially well-suited for:
Distributed teams: Employees in different states get access to plans in their local market, not a group plan optimized for headquarters.
Companies tired of unpredictable renewals: The employer sets a fixed budget, which makes benefits costs predictable rather than dictated by the carrier’s annual increase.
Employers who want to offer benefits without picking the plan: Employees choose their own coverage, and the employer's administrative burden shrinks
Companies with diverse workforces: A 25-year-old single employee and a 55-year-old with a family of four have very different insurance needs. CHOICE Arrangements let each person choose what works best for them.
CHOICE Arrangements vs. Other Benefit Types
| CHOICE Arrangement (ICHRA) | QSEHRA | Group Health Insurance | Health Stipend | |
|---|---|---|---|---|
Employer Size | Any | Under 50 employees | Any | Any |
Selected by Employer | No, employee chooses | No, employee chooses | Yes, employer chooses | No, employee spends as wages |
Tax-Free | Yes | Yes | Yes | No |
Contribution Flexibility | By employee class | Employee only or employee + family | Limited | Fully flexible |
Employee Owned | Yes | Yes | No,tied to employer | Yes, part of wages |
Annual Contribution Cap | No cap | Yes ($6,450 individual / $13,100 family in 2026 ) | N/A | No cap |
How to Set Up a CHOICE Arrangement
Setting up a CHOICE Arrangement requires three important steps.
Step 1: Define your employee classes
Who gets what allowance? You can differentiate by full-time, part-time, salaried, hourly, geographic location, and a few other employee classes. Most importantly, you have to be consistent within each class.
Step 2: Set your monthly allowance
There is no cap on on contributions, but employee health budgets must meet affordability requirements for applicable large employers (ALEs).
Step 3: Choose a platform
You need a way to administer the CHOICE Arrangement, handle compliance, and give employees a place to shop for plans. Thatch handles all three in one platform, and most employers are up and running in days, instead of weeks.
Frequently Asked Questions
Are CHOICE Arrangements the same as ICHRA?
Yes. CHOICE Arrangement is the new name for ICHRA (individual coverage health reimbursement arrangement). The benefit structure, tax treatment, and compliance requirements are identical.
Why are CMS and the SBA running a campaign about CHOICE Arrangements?
Awareness. The benefit has been available to employers of all sizes since 2020, but many businesses, particularly small ones, still don't know it exists. The campaign is a coordinated federal effort to close that gap.
Do I need to change anything if I already have an ICHRA?
No. Your existing plan continues as is.
Do I need to notify my employees about the name change?
No. The rename itself creates no new notice obligation. Existing ICHRA notice requirements still apply. You may want to update employee-facing materials to use the new terminology over time.
Is there a contribution cap for CHOICE Arrangements?
No. Unlike QSEHRA, CHOICE Arrangements have no annual contribution limit. Employers set contributions based on budget and strategy.
Can employees use a CHOICE Arrangement with any health plan?
Employees must have qualifying individual health insurance coverage (not a group plan or a health care sharing ministry plan) to participate. Within that requirement, they can choose any qualifying individual plan, on- or off-exchange.
Do CHOICE Arrangements work for remote and distributed teams?
Yes. Each employee shops for plans in their own state and local market, which is one of the structural advantages over a single group plan
What's the difference between a CHOICE Arrangement and a health stipend?
A CHOICE Arrangement is a formal HRA with tax-free employer contributions that can only be used for qualifying health insurance and medical expenses. A health stipend is more flexible but taxed as income.
