An ICHRA (individual coverage health reimbursement arrangement) is an employer-funded, tax-free account that reimburses employees for individual health insurance premiums and qualified medical expenses, up to an amount the employer sets, instead of offering a traditional group plan. To use it, employees must enroll in individual coverage or Medicare. Since September 2026, CMS also calls it a CHOICE Arrangement.
Updated October 2026 for the 2027 plan year
Key facts (2027 plan year)
- Employers of any size can offer one if they have at least one employee who isn’t a self-employed owner or an owner’s spouse, and there is no minimum or maximum contribution (HealthCare.gov).
- In September 2026, CMS and the U.S. Small Business Administration began calling ICHRAs “CHOICE Arrangements”; the press release describes a rebrand, not a change in the rules (CMS).
- For 2027, an ICHRA is affordable if the employee’s cost for the lowest-cost self-only Silver plan, after the allowance, is under 10.22% of monthly household income (IRS Rev. Proc. 2026-26; 9.96% for 2026 per HealthCare.gov).
- An affordable offer blocks the premium tax credit for the employee and family, even if they decline it; an unaffordable one lets them opt out and claim the credit instead (CMS training).
- A new offer opens a Special Enrollment Period, and you can pick a plan up to 60 days before it can start (45 CFR 155.420).
- Employers must give current employees written notice 90 days before each plan year, and new hires notice when they become eligible (HealthCare.gov).
- What is an ICHRA?
- Why is ICHRA now called a CHOICE Arrangement?
- How does it work for employers?
- How does it work for employees?
- When is an ICHRA considered affordable?
- Can you get a premium tax credit with an ICHRA?
- When can you enroll in a plan for your HRA?
- ICHRA vs QSEHRA vs group health plan
- Is an individual coverage HRA right for a small business?
- Frequently asked questions
What is an ICHRA?
An ICHRA is a type of health reimbursement arrangement (HRA) that pays employees back, tax-free, for individual health insurance they choose themselves. The employer sets a monthly or yearly allowance; the employee picks a plan, pays for it and gets reimbursed up to that amount.
The Departments of the Treasury, Labor and Health and Human Services created this arrangement in a June 2019 final rule, and employers could offer one starting January 1, 2020 (Federal Register). Before that rule, an HRA generally had to be paired with a group health plan.
It can reimburse premiums and cost sharing for individual health insurance and for Medicare. The employer funds it entirely, and reimbursements are generally excluded from the employee’s income and payroll taxes (CMS). The Centers for Medicare & Medicaid Services (CMS) keeps the rules, model notice and affordability tables on its HRA resource page.
Why is ICHRA now called a CHOICE Arrangement?
It’s a new name for the same arrangement. In September 2026, CMS and the U.S. Small Business Administration (SBA) announced the new name, CHOICE Arrangements, along with new employer resources. HealthCare.gov now describes CHOICE Arrangements as “formerly known as” ICHRAs (HealthCare.gov).
The CMS press release frames this as a rebrand and does not describe any change to eligibility, affordability or tax rules (CMS). The SBA has a CHOICE Arrangements page for employers. Federal regulations still use the term individual coverage HRA, so you’ll see both names in plan documents and on HealthCare.gov.
How does it work for employers?
The employer decides who gets one and how much. Any size employer can offer one, there’s no minimum or maximum contribution, and the arrangement can start at any time of year. A January 1 start lines up with individual-market Open Enrollment and deductible resets.
The main rules, all from HealthCare.gov’s employer page:
- Classes of employees. An employer can offer it to everyone or only to set classes, such as full-time, part-time, seasonal, salaried, hourly, union, waiting-period or work-location classes. The classes are defined in the rules; employers can’t invent their own.
- No choice within a class. One class can get a group plan and another the HRA, but the same class can’t choose between the two.
- Same terms within a class. The allowance can vary only by age (up to a 3-to-1 ratio) and number of dependents.
- Minimum class sizes. If the employer also offers a group plan to other classes, some HRA classes must have at least 10 employees (under 100 employees), 10% of employees (100 to 200) or 20 employees (over 200).
- Written notice. Current employees get notice 90 days before each plan year; new hires get it when they become eligible.
For large employers, the IRS lets this offer count toward the employer mandate. Its rules let an employer test affordability using the employee’s primary worksite instead of home address, and a January lowest-cost Silver plan instead of each month’s (IRS).
How does it work for employees?
You choose and buy your own individual health plan, then the employer reimburses you up to your allowance. To get reimbursed, you and any covered family members must be enrolled in individual health insurance or in Medicare Parts A and B or Part C (CMS).
Marketplace plans and off-exchange individual plans both count. Short-term plans and limited-benefit plans, such as dental or vision only, don’t (HealthCare.gov). See our guides to individual health insurance and short-term health insurance for the difference.
Where you buy matters for taxes. If your employer lets you pay the rest of the premium with pre-tax payroll deductions, that only works for a plan bought outside the Marketplace, not through HealthCare.gov. You can also opt out, generally once a year before the plan year starts, which matters when the offer is unaffordable.
- Read the employer notice. It lists your allowance, start date and whether family members are included.
- Check affordability. Use the notice and your household income to see whether the offer is affordable.
- Decide: accept or opt out. Accept the offer, or opt out if it’s unaffordable and a premium tax credit would help more.
- Compare individual plans. Compare premium, deductible, out-of-pocket maximum, doctors and drugs for your ZIP code.
- Enroll before the ICHRA starts. Pick a plan so coverage begins the same day as your allowance.
- Submit proof for reimbursement. Send proof of coverage and payments the way your employer’s plan requires.
Honesty.AI compares individual plans for your ZIP code and helps you check whether opting out makes sense.
When is an ICHRA considered affordable?
An ICHRA is affordable when the monthly premium for the lowest-cost self-only Silver plan where you live, minus your monthly allowance, is less than a set percentage of one-twelfth of your household income. For 2027 coverage that percentage is 10.22%, up from 9.96% for 2026 (IRS Rev. Proc. 2026-26).
Three details trip people up:
- It uses the lowest-cost Silver plan, not the second-lowest-cost benchmark used for premium tax credits (IRS).
- It uses self-only coverage, even if your allowance covers your family. If the offer is affordable for you, your family can’t get the credit either.
- It depends on your age and ZIP code, because individual premiums vary by both. Two coworkers with the same allowance can get different answers.
When you apply on HealthCare.gov, you enter the HRA’s start date and amount and the Marketplace decides affordability. CMS also publishes yearly lowest-cost Silver plan tables, and HealthCare.gov has an affordability tool you can use before you apply.
Can you get a premium tax credit with an ICHRA?
Only if the ICHRA is unaffordable and you opt out of it. You can never use both. If the offer is affordable, you and your family can’t get a premium tax credit even if you turn it down (CMS; 26 CFR 1.36B-2).
| Your situation | Premium tax credit? | What it means |
|---|---|---|
| Affordable offer, you accept | No | Use the allowance to pay for your individual plan |
| Affordable offer, you decline | No | You pay full price; declining doesn’t unlock the credit |
| Unaffordable offer, you accept | No | Accepting it rules out the credit |
| Unaffordable offer, you opt out | Yes, if otherwise eligible | Compare the credit with the allowance first |
Getting this wrong is expensive. If you receive advance credits while covered by the HRA, HealthCare.gov warns you may owe money at tax time, and starting with tax year 2026 there’s no cap on repaying excess advance credits (IRS). For 2027, premium tax credits also stop above 400% of the poverty level; see our 2027 subsidy guide.
Which is better when the offer is unaffordable? Compare your expected premium tax credit with your allowance. A lower-income employee often gets more from the credit, and a Silver plan with cost-sharing reductions is only available with the credit.
When can you enroll in a plan for your HRA?
Gaining access to a new individual coverage HRA is a qualifying event for a Special Enrollment Period. The trigger is the first day your HRA coverage can take effect, and you can pick a plan up to 60 days before that date, so your plan and allowance can start together (45 CFR 155.420).
If you choose a plan before the trigger date, coverage starts the first of the month after the trigger, or on the trigger date if it falls on the first. If you choose on or after the trigger date, coverage starts the first of the month after you pick a plan. If it starts January 1, simply enroll during Open Enrollment; for 2027 coverage, choose a plan by December 15, 2026. Read more in our Special Enrollment Period guide and Open Enrollment 2027 guide.
ICHRA vs QSEHRA vs group health plan
A QSEHRA (qualified small employer HRA) is the older, small-business version of the same idea. Only employers with fewer than 50 full-time employees that offer no group health plan can use one, and the IRS caps the yearly amount (HealthCare.gov). For 2026, the cap is $6,450 for self-only and $13,100 for family coverage (IRS Rev. Proc. 2025-32); the IRS had not published 2027 limits as of mid-October 2026.
| Feature | ICHRA (CHOICE Arrangement) | QSEHRA | Group health plan |
|---|---|---|---|
| Employer size | Any size | Fewer than 50 full-time employees | Any size |
| Contribution limit | None | IRS yearly cap | Employer sets its share |
| Can vary by employee class | Yes, by set classes | No; same terms for all full-time employees | Yes, within plan rules |
| Can also offer a group plan | Yes, to other classes | No | Not applicable |
| Coverage employee needs | Individual health insurance or Medicare | Minimum essential coverage | Enroll in the employer’s plan |
| Affordability benchmark | Lowest-cost Silver plan | Second-lowest-cost Silver plan | Employee share of self-only premium |
| If unaffordable | Opt out to claim the premium tax credit | Credit is reduced by the QSEHRA amount | Decline to claim the premium tax credit |
| Notice to employees | 90 days before plan year | 90 days before plan year | Plan enrollment materials |
Sources: CMS training, IRS Notice 2017-67 and HealthCare.gov. Only coverage bought through the Small Business Health Options Program (SHOP) can qualify for the Small Business Health Care Tax Credit; neither HRA does.
Is an individual coverage HRA right for a small business?
It can be, especially when a group plan is hard to run or employees live in different areas. It gives the employer a fixed, predictable budget, and each employee picks the network and plan that fits their family. Employees with complex needs can keep doctors a single group plan might not include.
The trade-offs are real too. Employees shop on their own, individual premiums rise with age, and some workers may be better off with a premium tax credit than with the allowance. Owners can’t use it for themselves: the arrangement is only for employees, not self-employed owners or their spouses.
If you work for yourself with no employees, this option isn’t available. Our health insurance for self-employed guide covers Marketplace plans and the self-employed health insurance deduction instead. A licensed tax professional or benefits adviser can help an employer weigh it against a group plan.
How Honesty helps employees with an ICHRA
Once your employer sets one up, the hard part is picking the individual plan. Honesty®, a licensed AI insurance agent from Honesty® Insurance Services, LLC (NPN 21094885, licensed in 49 states and DC), compares ACA, alternative and ancillary plans by your family’s needs. It checks your doctors and prescriptions and helps you weigh the allowance against a premium tax credit.
Honesty is unbiased and never steers you to a carrier, never sells or shares your data, makes no spam calls and enrolls you in minutes, 24/7. Learn how Honesty.AI works, or read how to shop for health insurance and how to compare health insurance plans.
Shop the right plan for your HRA
Honesty®, a licensed AI insurance agent from Honesty® Insurance Services, LLC (NPN 21094885), compares ACA, alternative and ancillary plans by your family’s needs and enrolls you in minutes. Chat, voice or text, 24/7.
Weighing an ICHRA against a group plan or QSEHRA? Our guide to health insurance for small business compares every option, including the SHOP Marketplace and the small business tax credit.
Frequently asked questions
What is an ICHRA in simple terms?
An ICHRA is money your employer sets aside, tax-free, to pay you back for an individual health plan and medical costs you choose yourself, instead of offering a group plan. You must enroll in individual coverage or Medicare to use it.
Is a CHOICE Arrangement the same as an ICHRA?
Yes. In September 2026, CMS and the Small Business Administration began calling ICHRAs CHOICE Arrangements. The announcement describes a new name and new employer resources, not new rules.
Can I get a premium tax credit if my employer offers an ICHRA?
Only if the ICHRA is unaffordable and you opt out of it. If the offer is affordable, you and your family can’t get a premium tax credit even if you decline it, and you can never use both at once.
How is ICHRA affordability calculated for 2027?
Take the monthly premium for the lowest-cost self-only Silver plan where you live and subtract your monthly ICHRA allowance. If the result is less than 10.22% of one-twelfth of your household income, the ICHRA is affordable for 2027.
Can I use an ICHRA for a plan outside the Marketplace?
Yes. Both Marketplace and off-exchange individual plans count, and paying the rest of the premium with pre-tax payroll deductions only works off the Marketplace. Short-term and dental-only or vision-only plans don’t qualify.
What is the difference between an ICHRA and a QSEHRA?
A QSEHRA is only for employers with fewer than 50 full-time employees that offer no group plan, and the IRS caps the amount. An ICHRA works for any size employer, has no cap, can vary by employee class and can sit alongside a group plan offered to other classes.
Do I get a Special Enrollment Period for a new ICHRA?
Yes. Newly gaining an ICHRA opens a Special Enrollment Period. You can pick a plan up to 60 days before your ICHRA can start, so both begin on the same day.
Keep learning: individual health insurance, health insurance for young adults, COBRA vs Marketplace and what is a premium.
