Texas with CMS and Take Command

ICHRA is now CHOICE Arrangement. New name, same benefits.

Many employers are heading into 2027 planning with tough questions about health benefits. Some face another steep group plan renewal. Others want to offer coverage for the first time but can’t take on a traditional group plan. Others manage teams spread across several states, where one plan rarely works well for everyone.

Federal agencies are now pointing these employers toward an option that has existed since 2020. CMS calls it a CHOICE Arrangement, the new name for the individual coverage health reimbursement arrangement (ICHRA). On September 30, 2026, CMS Administrator Dr. Mehmet Oz and SBA Administrator Kelly Loeffler joined Take Command in Austin for CHOICE in Action: Texas, where they met with employers that had made the switch.¹ For event highlights and what the increased federal attention means for employers, read Federal leaders bring the CHOICE Arrangements conversation to Texas.

This guide covers what a CHOICE Arrangement is, why CMS renamed ICHRA, and walks employers through the steps for deciding whether this is a good fit for your business.

Key takeaways for employers evaluating a CHOICE Arrangement

• The rules are the same as ICHRA. CMS now calls ICHRAs CHOICE Arrangements, and the 2019 ICHRA regulations still govern design and administration.² ³

• Cost comparison comes first. Start by comparing your group renewal with individual market premiums where your employees live.²

• Employers control plan design. You can set allowances by employee class, age, and family size, and you decide which expenses to reimburse.²

• Large employers need an affordability check. Applicable large employers (ALEs) should confirm that allowances meet ACA affordability standards before launch.² ³

• Administration needs a plan. Substantiating reimbursements, keeping documentation, and handling tax reporting are ongoing tasks. CMS lists third-party administrators that can help.²

What is a CMS CHOICE Arrangement?

CMS defines a CHOICE Arrangement as a type of health reimbursement arrangement (HRA). It lets employers give employees tax-free money to buy individual health insurance instead of offering a traditional group health plan.² The employer sets a fixed monthly allowance, and each employee chooses a plan that fits their needs.²

The employer still provides the benefit. What changes is who picks the plan. Employees can use their allowance toward:²

• Individual coverage purchased through the Marketplace, such as HealthCare.gov

• Individual ACA-compliant coverage purchased off-Exchange, directly from an insurer or through an agent or broker

• Medicare Part A and Part B

• Medicare Advantage (Part C)

Short-term, faith-based, indemnity, and supplemental plans do not qualify.² Employees own the policy they select. They can generally keep it after leaving the job if they continue paying the premiums themselves.²

Why CMS renamed ICHRA to CHOICE Arrangement

CMS and the SBA introduced the CHOICE name on September 3, 2026, at an event in Indiana.⁴ CHOICE stands for Custom Health Option and Individual Care Expense.⁴ CMS now describes CHOICE Arrangements as the arrangements previously known as ICHRAs.²

The new name is meant to make the benefit easier to understand. “Individual coverage health reimbursement arrangement” describes how the benefit is built under the regulations. It doesn’t tell a business owner what employees actually get. In Austin, Dr. Oz said the new name is easier to say and better reflects the arrangement’s purpose, which is giving employees choice in how they get their coverage.⁵ He also said a key goal of the federal outreach is reaching employers who do not yet know the option exists.⁵

ICHRA is still the term most brokers, benefits consultants, and employers recognize, so both names will likely stay in use for some time. Here is what the change means in practice:

• The arrangement is the same. A CHOICE Arrangement works exactly as an ICHRA always has.²

• The regulations are the same. The Departments of Labor, Treasury, and HHS finalized the ICHRA rule in June 2019. It applies to plan years beginning on or after January 1, 2020.³

• Existing ICHRAs need no changes. Employers already offering an ICHRA are offering what CMS now calls a CHOICE Arrangement.²

• The name is not in federal law. Provisions that would have written the CHOICE name into statute were removed from H.R. 1 before it was signed in July 2025.⁴

Signs a CHOICE Arrangement may fit your business

CMS points to several situations where employers tend to look at CHOICE Arrangements.² If one or more applies to your business, the evaluation steps below can help you test the fit:

• Group plan premiums that have risen significantly year over year

• Offering health benefits for the first time

• Employees spread across multiple states

• A need for a flexible benefit that helps with recruiting

At the Austin event, Administrator Loeffler said affordable health coverage is one of the top concerns she hears from small business owners, second only to finding qualified workers.⁵ She described two workforces where the model’s flexibility can help:⁵

• Small manufacturers: A machine shop may employ apprentices in their late teens alongside workers in their 60s. Each employee can choose coverage that fits their stage of life, and the employer can set different allowances for full-time and part-time staff.

• Restaurants: A restaurant may employ career staff alongside students working through school. The employer can tailor allowances to each group instead of buying one plan for everyone.

How to evaluate a CMS CHOICE Arrangement in six steps

Evaluating a CHOICE Arrangement comes down to a series of design decisions, and each one shapes the next. Your cost comparison guides your allowance levels. Your employee classes decide who receives which allowance. Your allowances then determine whether the arrangement meets affordability standards.

Working through the steps in order gives you a clear picture of costs, compliance, and administrative needs before you commit. Many employers do this work with a benefits consultant or an administrator who can model allowances across rating areas and run employee-level premium comparisons.

Step 1: Compare your group renewal with individual market costs

The first question is whether individual coverage makes financial sense for your workforce. Look at what employees in your area would pay for individual plans at different allowance levels, then compare the total with your group renewal. CMS offers a downloadable cost estimator that projects your monthly costs and what employees may pay.²

Federal officials shared savings figures in Austin, drawn from employer conversations and site visits:⁵

• Potential savings of 20% to 30%: Dr. Oz said employers that do not evaluate CHOICE Arrangements may be missing 20% to 30% in potential health care cost savings.

• Premium savings in Indiana: He said Indiana employers have seen premium savings of about 20%.

• Lower out-of-pocket costs: He described one Indiana company where employees’ out-of-pocket expenses dropped by 60%.

• Less exposure to large claims: He explained that one employee’s serious illness can destabilize a small group plan. CHOICE Arrangements spread that risk across the individual market.

Results vary by location, workforce, and plan design, so model your own numbers before deciding.

Step 2: Define your CHOICE Arrangement employee classes

Employee classes let you offer different allowances to different groups of workers while staying within the rules. CMS allows 10 employee classes, and employers can combine two or more of them.² The classes include:²

• Full-time, part-time, and seasonal employees

• Salaried and hourly employees

• Employees covered by a collective bargaining agreement

• Employees in a waiting period

• Employees in the same rating area

• Temporary employees of staffing firms

• Nonresident aliens working abroad

Classes also let you run a CHOICE Arrangement alongside a group plan. You can offer a CHOICE Arrangement to one class and a traditional group plan to another. Current rules prohibit offering the same class a choice between the two.³

Step 3: Set your allowance structure

Once your classes are set, decide how much each group receives and what the money can cover. Employers have several options:

• Age-based allowances: Contributions can rise with age, but the oldest employee’s amount cannot exceed three times the youngest employee’s amount. For example, if the youngest employee receives $200 per month, the oldest can receive up to $600.²

• Family-based allowances: Employers can vary contributions by the number of covered dependents. Options include flat add-ons, increases by family size, or self-only, self-plus-one, and family tiers.²

• Reimbursable expenses: Employers decide whether to reimburse premiums only, or premiums plus other qualified medical expenses.²

• Funding: Employer contributions fully fund the arrangement. Employees who buy off-Exchange coverage can pay any remaining premium pre-tax through a Section 125 cafeteria plan. This option is generally not available for Marketplace coverage.²

Step 4: Confirm CHOICE Arrangement affordability if you are an ALE

Affordability affects both your ACA compliance and your employees’ access to premium tax credits. Employers with 50 or more full-time employees, including full-time equivalents, should test affordability before setting final allowances.² ³ Under the 2019 rule, the calculation works like this:³

• Start with the monthly premium for the lowest cost silver plan for self-only coverage in the employee’s rating area.

• Subtract the employer’s monthly self-only allowance.

• Compare what remains with the IRS affordability percentage of the employee’s household income.

The result matters for both sides:

Step 5: Decide how employees will pay premiums

How premiums get paid shapes both the employee experience and your administrative workload. At the Austin event, CMS Deputy Administrator Peter Nelson explained how the benefit works for employees:⁵

• The allowance must go toward qualifying coverage. Employees cannot use it as general cash.

• Payment can work in more than one way. Employees can buy a plan and submit for reimbursement, or the arrangement can be set up to pay premiums more directly.

• The employer remains the source of the benefit. Employees know their employer funds their coverage, even though they choose the plan.

Step 6: Plan for CHOICE Arrangement administration

A CHOICE Arrangement needs ongoing management after launch. Employers must substantiate reimbursements, maintain documentation, and handle tax reporting.² Employees may also need help choosing individual coverage, especially if they have only had group plans before.

CMS notes that a third-party administrator can help with:²

• Onboarding and employee communications

• Enrollment verification

• Reimbursement processing and documentation

• Tax reporting

• Ongoing employee support 

CMS publishes a list of administrators that support CHOICE Arrangements on its employer page.²

What’s next for CMS CHOICE Arrangement rules

The renaming and the Austin event are part of a broader federal push, and more changes may follow. Here is where things stand:

• New regulations are in development. Nelson said CMS is working on updated regulations to make CHOICE Arrangements easier for businesses to use.⁵ CMS has not yet published proposed changes.

• Some changes need Congress. Dr. Oz noted that certain improvements would require legislation and could not come from CMS alone.⁵

• Agencies want employer input. Administrator Loeffler said the rollout is in its early stages and that CMS and SBA are seeking employer feedback.⁵

• Adoption keeps growing. More than 500,000 people were covered through ICHRAs at the start of 2026, according to HRA Council data reported by Becker’s Payer Issues.⁴

Get help evaluating a CHOICE Arrangement for 2027

Take Command was the first ICHRA provider in the country.¹ It is now one of the administrators CMS lists as supporting CHOICE Arrangements.² Our team can help you compare costs, design employee classes, and manage compliance from day one.

Talk to a Take Command expert today.

References

1. Centers for Medicare & Medicaid Services. “CHOICE in Action: Texas Employers Take Advantage of New Approach to Health Benefits.” September 30, 2026. https://www.cms.gov/newsroom/press-releases/choice-action-texas-employers-take-advantage-new-approach-health-benefits

2. Centers for Medicare & Medicaid Services. “CHOICE Arrangements: A Guide for Employers.” Last modified September 10, 2026. https://www.cms.gov/marketplace/employer-initiatives

3. U.S. Departments of the Treasury, Labor, and Health and Human Services. “Health Reimbursement Arrangements and Other Account-Based Group Health Plans.” Final rule, 84 Fed. Reg. 28888, June 20, 2019. https://www.federalregister.gov/documents/2019/06/20/2019-12571/health-reimbursement-arrangements-and-other-account-based-group-health-plans

4. Emerson, Jakob. “CMS rebrands ICHRA.” Becker’s Payer Issues, September 3, 2026. https://www.beckerspayer.com/payer/choice/cms-rebrands-ichra/

5. Take Command. CHOICE in Action: Texas press conference recording. September 30, 2026. https://www.takecommandhealth.com/share/video/223269024920