ICHRA Is Now the CHOICE Arrangement: What Changed and What Didn’t

On September 3, 2026, the Centers for Medicare & Medicaid Services (CMS) and the Small Business Administration (SBA) gave the Individual Coverage Health Reimbursement Arrangement (ICHRA) a new name: the CHOICE Arrangement. The name is new. The rules are not. Here is what employers and brokers are asking, answered.

Key takeaways

• A CHOICE Arrangement is the same benefit as an ICHRA. Only the name changed.
• Employers of any size can offer one, not only small businesses.
• The 2019 regulations, employee classes, notice deadlines and ACA affordability rules all still apply.
• The IRS and the Department of Labor still use “individual coverage HRA” in their guidance, forms and model notice.
• CHOICE is not written into federal law. The bills that would do it have not passed the Senate.
• Employers with a January 1, 2027 plan year must send participant notices by October 3, 2026.

What is a CHOICE Arrangement?

A CHOICE Arrangement, also known as ICHRA, lets an employer give employees a fixed, tax-free amount to buy their own individual health insurance instead of offering a group plan.

The employer sets the contribution, which can vary by class of employee. Employees choose a plan on or off the marketplace, or use the allowance for Medicare. According to the SBA, qualifying reimbursements are generally deductible for the employer and not taxable income for the employee, and any employer with at least one W-2 employee can offer one.

The arrangement has been available since 2020, and adoption is now growing fastest at the top of the market. The HRA Council’s fifth annual growth report, published in August 2026, found adoption up 178 percent year over year among organizations with 1,000 or more employees in its aggregated member data.

Who renamed ICHRA, and when?

CMS and the SBA announced the new name on September 3, 2026, at an event in Indiana.

The CMS page now reads: “CHOICE Arrangements were previously known as Individual Coverage Health Reimbursement Arrangements (ICHRAs).” On September 14, 2026, CMS Administrator Dr. Mehmet Oz promoted the arrangement again in Atlanta, alongside Georgia Insurance and Safety Fire Commissioner John F. King, at the launch of Georgia Access For Business, a program that lets employers offer health benefits to their employees. “CHOICE Arrangements let workers choose coverage that meets their unique healthcare needs, which can often offer better options than traditional employer plans,” Oz said.

What does CHOICE stand for?

CHOICE stands for Custom Health Option and Individual Care Expense, a name that comes from legislation rather than from the agencies.

CMS and the SBA use “CHOICE Arrangement” without spelling out the acronym. The full name comes from the CHOICE Arrangement Act, first introduced in the House in 2023, and from later bills that would write the arrangement into law.

What changed on September 3?

The name changed, and federal agencies put new employer resources behind it.

CMS published an employer resource page with an overview, a cost estimator and a list of third-party administrators. CMS notes that inclusion on the list is not an endorsement, so employers still need to evaluate administrators on their own. The SBA added its own guide for small businesses.

What didn’t change?

The rules did not change: an arrangement that was compliant on September 2 was compliant on September 4.

• The regulations. The 2019 final rule, issued jointly by the Treasury, the Department of Labor and HHS, still governs the arrangement.
• Employee classes. Employers can still vary contributions by class, such as full-time, part-time, salaried, hourly or geographic rating area. They still cannot offer a group plan and a CHOICE Arrangement to the same class.
• The participant notice. It is still due at least 90 days before the plan year starts, under 29 CFR 2590.702-2. For a January 1, 2027 plan year, that means October 3, 2026.
• ACA affordability. Applicable large employers still have to test whether their contribution makes coverage affordable, employee by employee, based on age and rating area.
• The regulatory name. The IRS and the Department of Labor still use “individual coverage HRA,” including in the model participant notice and in Form 1095-C reporting.

Is CHOICE a new kind of HRA?

No. A CHOICE Arrangement is one type of health reimbursement arrangement, and the one designed to take the place of a group plan for employers of any size. Here is how it compares with two other HRA types.

CHOICE Arrangement (ICHRA)

• Works with a group plan: No. It replaces the group plan for the classes it covers.
• Pays for: Individual health insurance premiums and qualified medical expenses.
• Employee needs: Individual health coverage or Medicare.

Group coverage HRA

• Works with a group plan: Yes. Employees must be enrolled in the group plan.
• Pays for: Out-of-pocket costs such as deductibles.
• Employee needs: Enrollment in the employer’s group plan.

Excepted benefit HRA

• Works with a group plan: Yes, it is offered alongside one.
• Pays for: A limited annual amount for expenses such as dental and vision.
• Employee needs: No enrollment in the group plan required.

Is a CHOICE Arrangement only for small businesses?

No. Employers of any size with at least one W-2 employee can offer a CHOICE Arrangement.

The federal launch focused on small businesses: the SBA guide is written for them, and CMS presented the arrangement as a “major win for small businesses.” The rules do not depend on company size, and large employers are the fastest-growing group of adopters. Applicable large employers also have to meet the ACA affordability test described above.

Do employees need to do anything because of the name change?

No. The name change does not affect employees’ allowance, plan choices or reimbursements.

Employees may start to see “CHOICE” in federal materials and in employer communications, alongside the familiar ICHRA name. The usual steps for each plan year still apply: choosing individual coverage and confirming enrollment so that reimbursements can continue.

Is the CHOICE Arrangement law?

No. The arrangement exists by regulation, and no bill that would write it into federal law has passed both chambers.

• The House version of the 2025 budget reconciliation bill, H.R. 1, would have codified the arrangement. Senate Republicans did not include it in the version signed on July 4, 2025.
• The Lower Health Care Premiums for All Americans Act (H.R. 6703) passed the House 216 to 211 on December 17, 2025. It would codify the arrangement under the CHOICE name, let employees pay for marketplace plans pre-tax through a cafeteria plan, and shorten the notice period to 60 days. The Senate received it on December 18, 2025, and has not acted on it.
• The CHOICE Act (S. 2875) and a House companion (H.R. 5463) were introduced on September 18, 2025, and remain in committee.

Until one of these becomes law, employees can pay for individual coverage pre-tax through payroll only when the plan is bought off the marketplace.

What should employers and brokers watch next?

Three developments will matter more than the name.

1. A new CMS rule. CMS listed a proposed rule, Expanding Access to Individual Coverage Health Reimbursement Arrangements, on its regulatory agenda, with a July 2026 target. As of early October 2026, it has not been published in the Federal Register. Once it is, the public can comment before it becomes final.
2. The Senate. Pre-tax payment for marketplace plans and a statutory CHOICE name depend on the bills above.
3. State incentives. Indiana offers a tax credit of up to $400 per covered employee in the first year and $200 in the second to employers with fewer than 50 employees that adopt the arrangement. Other states may follow.