How does ICHRA work?

By Holly Bengfort on Oct 27, 2026, 2:15:00 PM

Are you tired of the one-size-fits-all approach to employee health benefits? Have you wondered whether a more flexible, individualized coverage option could meet your employees' needs while staying within your organization's budget?

The individual coverage health reimbursement arrangement (ICHRA), now known as the CHOICE Arrangement, is an alternative to traditional group health insurance. Introduced in 2020, this modern approach to health benefits gives employers an affordable way to provide comprehensive coverage. According to the HRA Council, ICHRA adoption among U.S. applicable large employers (ALEs) grew by 39% from 2025 to 2026, and 108% among aggregated ALEs, including new members, continuing to prove its rising popularity nationwide¹.

In this blog post, you’ll learn:

Why the CHOICE Arrangement, formerly ICHRA, is more cost-effective compared to a traditional group health plan.
How employers can help employees with the cost of individual plans.
How employers can vary ICHRA allowances using different employee classes.

What is ICHRA?

The ICHRA, now the CHOICE Arrangement, is an employer-funded health benefit. With an ICHRA, employers offer their employees a monthly allowance for their qualified individual health insurance premiums. This lets employers help with employees' healthcare costs without investing in an expensive and rigid traditional group health plan.

Here's how it works:

Employers set a contribution amount. Budget control is one of the most powerful features of the ICHRA. There's no annual limit on employer contributions with an ICHRA, so they can offer as much as they would like to their employees. According to our 2026 ICHRA Report, the average monthly ICHRA contribution amount was $591, up from $524 in 2024. Employers can also vary allowance amounts using employee classes, such as part-time and full-time employees.

For example, they can offer their full-time employees $400 per month, while legally offering part-time employees $200. Employers can also offer different allowances based on their employees’ age and family size.

Employees purchase their own individual health plans. Eligible employees need qualified individual health insurance coverage to participate in the CHOICE Arrangement. Having coverage through a spouse's or parent's group medical plan doesn't count. Employees can shop for individual health insurance plans that provide minimum essential coverage (MEC) on the federal Health Insurance Marketplace. They can also work directly with a licensed agent or health insurance company to get coverage through a private exchange. Remodel Health streamlines the employee shopping experience by allowing members to shop for plans right from our platform.
Employees use their tax-free contributions on premiums. Suppose an employee has a monthly premium of $425, and their employer offers a $400 ICHRA allowance. In that case, they would pay only $25 out of pocket for their individual health insurance coverage. With some ICHRA vendors, employees front the cost of their health insurance, and their employer reimburses them up to their contribution amount.
Remodel Health manages premium payments. With Remodel Health’s Autopay feature, employers can simplify premium payments without relying on employees to pay premiums out of pocket and wait for tax-free reimbursement. Employers transfer funds into a bank account, where funds are allocated to virtual accounts for each plan. Once we verify payment amounts, we’ll automate payments directly to insurance carriers and help resolve issues, ensuring payments are more than 99% accurate and employees’ coverage stays active. Our team is standing by to catch any errors.

How the ICHRA benefits employers

Traditional group health insurance is expensive. According to KFF, the average annual health insurance premiums in 2026 were $9,840 for single coverage and $28,303 for family coverage². These costs increase every year, especially when benefits are heavily used. If you or your clients are experiencing double-digit rate increases, it’s worth having a conversation about CHOICE Arrangements.

With the CHOICE Arrangement, employers can avoid the stress of unpredictable annual rate hikes since they set their own benefits budgets. Rate increases are also often smaller with individual plans because the ACA individual market doesn't require medical underwriting. The ICHRA also comes with tax benefits. The money employers set aside for their eligible employees' individual health coverage is tax-free.

Beyond cost, fully insured traditional group health insurance policies often have steep participation requirements. Usually, between 70% and 75% of your workers need to participate. This can make offering coverage challenging for small and midsize employers. Employers don't have to worry about participation requirements with ICHRA.

Employers with self-funded plans can benefit significantly by switching to a CHOICE Arrangement. If the self-funded plan is seeing large ongoing claims, employers can eliminate their risk with ICHRA.

Plus, health benefits can significantly improve an organization's recruitment and retention efforts since they're the most important perk employers can offer. PeopleKeep by Remodel Health's 2024 Employee Benefits Survey found that 81% of employees said an employer’s benefits package is an important factor in whether they accept a job.

Organizations of all sizes can offer CHOICE Arrangements, but they're especially beneficial for larger employers. An ICHRA satisfies the Affordable Care Act's (ACA) employer mandate for ALEs. You can satisfy the mandate with an affordable CHOICE Arrangement contribution for at least 95% of full-time employees and their dependents.

How the ICHRA benefits employees

The ICHRA also has several benefits for employees. A diverse workforce deserves a personalized employer-sponsored health benefit, not a one-size-fits-all plan. A 25-year-old employee in good health might not require the same level of coverage as a 45-year-old employee with a chronic condition. So why should an employer offer them the same coverage?

The CHOICE Arrangement offers employees flexibility. They can choose the individual health insurance plans that work best for them. Whether it's the lowest-cost silver plan or the highest-cost gold plan on the market, they get to choose.

Plus, the money they receive from their employer is tax-free. It won't count as taxable income.

How the ICHRA benefits brokers and consultants

A benefits consultant can easily grow their book of business with an ICHRA. By adding ICHRAs to their offerings, brokers can diversify revenue streams beyond traditional group health insurance plans while increasing client engagement.

The CHOICE Arrangement offers several benefits to consultants:

Expanded client base. ICHRAs let employers of all sizes offer employee allowances toward individual health insurance premiums. This flexibility for employers opens new markets for brokers. They can now target employers who prefer defined contributions they can customize using employee classes over a traditional group plan. You can earn revenue from partnerships with ICHRA vendors like Remodel Health for groups that aren’t a good fit for a group health plan.
Regulatory compliance. As healthcare regulations grow more complex, maintaining compliance becomes a challenging but crucial task for employers. Brokers can provide valuable expertise in compliance requirements related to ICHRA, simplifying the process for employers and increasing the broker’s value to their clients.
Educational role. With many employers and employees unfamiliar with ICHRA, brokers can educate clients about its benefits and implementation. This positions brokers as experts, strengthens their reputation, and builds stronger client relationships.
Support for employee choice. Because ICHRA is linked to individual plans, employees can choose coverage that better fits their needs. Brokers can help them select the right individual plans and ancillary benefits, expanding their service scope and increasing client satisfaction.

By collaborating with Remodel Health to offer CHOICE Arrangements, you can give your clients access to our cutting-edge ClearChoice benefits model and experienced professionals who genuinely care. Our dedicated team of experts ensures your clients receive the comprehensive support they deserve.

Conclusion

Understanding how ICHRAs work can transform how you view employee benefits. By leveraging this model, organizations can provide tailored health coverage solutions that meet employees' varied needs while managing healthcare costs effectively.

No matter a company's size or budget, Remodel Health’s ClearChoice solution makes it easy for every employer and broker to design a CHOICE Arrangement. We offer customized benefits that save you and your clients money and provide flexibility.

Looking to attract more clients with a personalized benefit design? Contact us to learn more about CHOICE Arrangements!

This blog article was originally published on August 6, 2020. It was last updated on October 27, 2026.

References

Frequently asked questions

An individual coverage health reimbursement arrangement (ICHRA), now known as the CHOICE Arrangement, is an employer-funded benefit that lets employers provide tax-free contributions toward employees’ individual health plan premiums. Employers set contribution amounts based on their healthcare budget, eligible employees select qualifying individual coverage, and use their employer-provided contributions to cover the cost.

Employers of any size can offer an ICHRA to eligible employees. Employees must have qualifying individual health insurance coverage to participate. For greater flexibility, employers can vary contribution amounts by job-based employee classes, age, or family status.

Yes. Employees choose individual health insurance plans that fit their healthcare needs, preferred provider networks, and budget. To use the benefit, they must enroll in qualifying coverage, such as ACA Marketplace health plans, certain student coverage, and eligible Medicare policies, like Medicare Parts A and B together or Part C.

Premium payment arrangements depend on the employer’s benefit administration process. Some organizations provide their employees with tax-free reimbursements, up to their contribution limit, after they pay for their monthly premiums. With Remodel Health, Autopay coordinates funding and automates premium payments directly to insurance carriers on time.

An employer can satisfy the Affordable Care Act’s employer mandate for applicable large employers (ALEs) if their group coverage provides MEC, meets minimum value standards, and is affordable. With an ICHRA (now a CHOICE Arrangement), employers only need to offer an affordable contribution to at least 95% of their full-time employees and dependents. Employers should review their ICHRA benefits annually to ensure their contributions meet ACA regulatory requirements.