Important 2026 Accuracy Update
There’s a major misconception behind this topic that small-business owners need to understand before making benefit decisions:
The final One Big Beautiful Bill Act did not rename ICHRAs as “CHOICE Arrangements.”
The House-passed version of H.R. 1 contained provisions that would have codified Individual Coverage Health Reimbursement Arrangements (ICHRAs) as Custom Health Option and Individual Care Expense—or “CHOICE”—Arrangements. It also proposed a new employer tax credit and changes involving cafeteria-plan treatment.
However, those provisions were not included in the Senate version and did not become part of the final law signed on July 4, 2025. The enacted Public Law 119-21 instead contains other health-related provisions, including expanded HSA eligibility for certain individual-market Bronze and Catastrophic plans.
So in 2026:
ICHRA is still ICHRA.
“CHOICE Arrangement” should not be presented to business owners as a new federal replacement for ICHRA created by the enacted OBBB.
That distinction is essential for an accurate insurance guide.
What Is an ICHRA?
ICHRA stands for:
Individual Coverage Health Reimbursement Arrangement
Instead of a company selecting one traditional group health insurance plan for employees, an employer can establish an ICHRA and provide employees with a defined amount of employer-funded money.
Employees then obtain qualifying individual health insurance coverage, subject to the ICHRA rules.
The employer reimburses eligible premiums and potentially other qualified medical expenses according to the arrangement.
CMS describes ICHRAs as an alternative to traditional group coverage that allows employers to reimburse employees for individual health-insurance premiums while retaining favorable tax treatment.
In simple terms:
Traditional Group Plan
Employer chooses insurance → employees enroll.
ICHRA
Employer establishes reimbursement benefit → employees choose qualifying individual coverage.
That distinction explains much of ICHRA’s appeal to small businesses.
Where Did “CHOICE Arrangement” Come From?
The term wasn’t invented by insurance marketers.
Congress considered legislation that would have formally established:
Custom Health Option and Individual Care Expense Arrangements
or:
CHOICE Arrangements.
The proposal largely sought to codify the existing regulatory framework that permits ICHRAs.
The House version of the 2025 reconciliation legislation included this proposal.
It would have treated references to CHOICE Arrangements as including ICHRAs for purposes of existing federal rules.
So articles written while the legislation was moving through Congress understandably discussed:
ICHRA → CHOICE Arrangement.
But legislation can change dramatically before becoming law.
That’s exactly what happened here.
House-Passed OBBB vs. Final OBBB
This distinction deserves a simple comparison.
| Proposal | House-Passed OBBB | Final Enacted Law |
|---|---|---|
| Codify ICHRA framework as CHOICE Arrangements | Yes | No |
| CHOICE employer tax credit | Yes | No |
| Special cafeteria-plan provision for CHOICE participants | Yes | No |
| Expand HSA treatment for certain Bronze/Catastrophic plans | Proposed separately in process | Yes |
| Became federal law July 4, 2025 | — | Yes — P.L. 119-21 |
The Congressional Research Service comparison specifically showed the House CHOICE provisions alongside “No provision” in the Senate draft.
The final statute’s enacted health-tax provisions don’t contain those House CHOICE sections.
What Was the Proposed CHOICE Employer Tax Credit?
This is another area where outdated articles can create confusion.
The House proposal would have created a temporary federal tax credit for qualifying employers establishing a CHOICE Arrangement.
The proposed credit was:
First year
$100 per employee per month
and:
Second year
50% of that amount, subject to the proposal’s rules.
The proposal targeted employers that weren’t applicable large employers under the relevant ACA definition.
For example, under the proposal, 10 qualifying enrolled employees could theoretically have generated:
10 × $100 × 12 = $12,000
during the first year.
That sounds attractive.
But small businesses must understand:
This proposed CHOICE credit did not become law through the final OBBB.
Don’t build your 2026 benefits budget assuming this federal credit exists.
What Actually Changed for ICHRAs in 2026?
Here’s where the story gets more interesting.
Although OBBB didn’t create CHOICE Arrangements, one enacted provision can interact favorably with ICHRA coverage.
The final law expanded HSA eligibility.
Beginning in 2026, qualifying individual-market:
Bronze plans
and:
Catastrophic plans
available through an ACA Exchange can receive favorable treatment as high-deductible health plans for HSA purposes under the new statutory rules.
And the IRS addressed the ICHRA interaction directly.
ICHRA + Bronze Plan + HSA: A Significant 2026 Development
IRS Notice 2026-5 answers an especially useful question.
Could an eligible individual-market Bronze or Catastrophic plan lose its new HSA-compatible treatment simply because an employer ICHRA is used to purchase it?
The IRS answer is:
No.
The IRS explains that an eligible Bronze or Catastrophic individual-market plan doesn’t fail to receive the new HDHP treatment merely because an employer-sponsored ICHRA—or QSEHRA—is used to purchase the coverage.
That could make ICHRAs more interesting for certain employers and employees in 2026.
But there’s an important caveat.
An ICHRA Can Still Affect HSA Eligibility
Don’t translate the new rule into:
“Every employee with an ICHRA can now contribute to an HSA.”
That’s too broad.
HSA eligibility has additional requirements.
The design of the HRA itself can matter because reimbursement of certain medical expenses before the applicable deductible may constitute disqualifying coverage.
Employers interested in combining:
ICHRA + HSA
should therefore structure the arrangement carefully and obtain benefits/tax guidance where appropriate.
The plan being HSA-compatible is only one piece of the eligibility analysis.
Why Small Businesses Use ICHRAs
Traditional group health insurance can be challenging for a small company.
The employer may face:
Premium increases
Participation concerns
Limited plan choices
Administrative complexity
and:
Employees wanting different provider networks.
An ICHRA changes the structure.
Instead of promising:
“We’ll buy everyone this insurance policy,”
the employer can essentially establish:
“We’ll provide a defined reimbursement amount, and employees obtain qualifying individual coverage.”
That gives employers greater control over their benefits budget.
Advantage #1: Predictable Employer Costs
Imagine a small company with 15 employees.
Rather than absorbing unpredictable percentage increases in a traditional group premium, the employer establishes an ICHRA allowance under the applicable rules.
Suppose the hypothetical employer allocates:
$500 per month per eligible employee.
For 15 employees:
15 × $500 = $7,500/month
Maximum annual employer allocation:
$90,000
subject to actual participation, reimbursement and arrangement design.
This defined-contribution approach can make budgeting easier.
Advantage #2: Employees Can Choose Individual Coverage
A traditional group plan often requires employees with very different needs to share the same limited set of choices.
One employee may want:
low premium.
Another wants:
a broad provider network.
Another prioritizes:
prescription coverage.
Another may prefer:
an HSA-compatible plan.
With an ICHRA, qualifying employees can choose individual-market coverage that better matches their circumstances, subject to the applicable ICHRA rules.
Advantage #3: The Employer Isn’t Picking Everyone’s Doctors
Consider two employees.
Employee A
Needs access to a specific cardiologist.
Employee B
Rarely uses healthcare and prioritizes low premiums.
A single group plan may not satisfy both preferences.
An ICHRA can shift more plan-selection control to employees.
But employees must actually compare:
Networks
Formularies
Deductibles
and:
Total costs.
More choice isn’t automatically better if employees don’t understand their options.
Advantage #4: Employer Contributions Can Receive Favorable Tax Treatment
Properly structured HRA reimbursements can receive favorable federal tax treatment.
That’s one reason ICHRAs can be more attractive than simply increasing an employee’s taxable salary and telling the employee to buy insurance independently.
But businesses need to follow the applicable:
HRA
ACA
ERISA
tax
and:
notice
requirements.
Don’t treat an ICHRA as an informal monthly health-insurance stipend.
The “Just Give Employees $500” Mistake
A business owner might think:
“Why create an ICHRA? I’ll simply give everyone $500 for health insurance.”
That isn’t necessarily equivalent.
An informal reimbursement arrangement can create tax and benefits-compliance problems.
ICHRA is a formally structured employer health benefit operating under specific federal rules.
Small employers should establish it correctly rather than improvising.
Which Businesses Can Offer an ICHRA?
Employers of different sizes can potentially offer ICHRAs.
This distinguishes ICHRAs from Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), which have specific small-employer eligibility requirements.
CMS describes ICHRAs as an employer option for reimbursing employees who obtain individual coverage.
However, applicable large employers must also consider their responsibilities under the ACA’s employer shared-responsibility provisions.
ICHRA vs. QSEHRA
Small businesses frequently confuse these arrangements.
ICHRA
Can generally be used by employers regardless of size, subject to applicable rules.
There isn’t the same statutory annual contribution cap structure applicable to QSEHRAs.
QSEHRA
Designed specifically for qualifying small employers.
It has statutory contribution limits and eligibility requirements.
A company shouldn’t simply choose whichever acronym sounds easier.
Compare both structures.
Can You Offer an ICHRA and a Traditional Group Plan?
Potentially—but classification rules matter.
Employers can offer different coverage structures to permissible classes of employees.
For example, existing ICHRA rules may permit an employer to offer:
Traditional group coverage to one permissible employee class
and:
ICHRA to another permissible class.
But an employer generally can’t simply offer each individual employee in the same class:
“Choose either our group plan or the ICHRA.”
CRS explains that existing ICHRA rules prevent employers from offering the same employee a choice between an ICHRA and a traditional employer-sponsored group plan in this manner.
This is one reason professional benefits administration can be valuable.
Employee Classes Matter
ICHRA regulations permit certain employee classifications.
Depending on the circumstances, distinctions may involve categories such as:
Full-time employees
Part-time employees
Seasonal employees
Employees in particular geographic areas
and other permitted classes.
The employer must follow the applicable classification and minimum-class-size rules where they apply.
You can’t simply create arbitrary classes designed around individual employees’ health conditions.
ICHRA and ACA Premium Tax Credits
This is one of the most important employee issues.
An employee offered an ICHRA may have their eligibility for the ACA Marketplace Premium Tax Credit affected.
For 2026, CMS states that an ICHRA is considered affordable when the employee’s cost for the applicable lowest-cost Silver self-only Marketplace plan, after the employer’s ICHRA contribution, is no more than 9.96% of the employee’s applicable household-income measure under the affordability rules.
If an affordable ICHRA is offered, the employee generally can’t simply decline it and receive a Marketplace Premium Tax Credit.
What If the ICHRA Is Unaffordable?
The situation changes.
CMS explains that an employee may potentially qualify for Marketplace Premium Tax Credit assistance if:
the employee opts out of the ICHRA
and:
the ICHRA is considered unaffordable, assuming the employee otherwise satisfies the tax-credit eligibility rules.
This is why employees shouldn’t simply compare:
Employer contribution vs. Marketplace premium.
The formal affordability calculation matters.
Example: $500 Monthly ICHRA
Suppose an employee’s applicable lowest-cost Silver self-only premium is:
$700/month.
The employer offers:
$500/month
through the ICHRA.
Employee’s remaining premium:
$200/month.
That figure is then considered under the applicable affordability framework.
The answer isn’t simply:
“$500 is generous, therefore the ICHRA is affordable.”
Affordability depends on the applicable federal calculation.
The 2026 Affordability Percentage
For 2026, the relevant ACA affordability percentage is:
9.96%.
CMS specifically uses that percentage in its 2026 ICHRA employee guidance.
Employers subject to ACA employer-mandate considerations should pay particular attention to affordability calculations.
CMS also publishes a 2026 ICHRA Employer Lowest Cost Silver Plan Premium Look-Up Table to assist employers with these calculations.
ICHRA Doesn’t Mean Employees Can Buy Anything
An employee generally needs qualifying individual health-insurance coverage—or Medicare where permitted under the applicable ICHRA framework—to participate.
An ICHRA isn’t simply:
$500 of unrestricted healthcare cash.
Employers need procedures for substantiating that participating employees have appropriate coverage.
Employees Need Clear Notice
ICHRA rules include employee-notice requirements.
This is important because accepting an ICHRA can affect:
Marketplace subsidy eligibility
and:
How an employee obtains coverage.
Employees need enough information to understand the consequences before making enrollment decisions.
Businesses shouldn’t introduce an ICHRA by sending:
“We’re changing health insurance next month. Good luck.”
Implementation and communication matter.
Why 2026 Makes ICHRA Education More Important
The individual health-insurance market is becoming increasingly intertwined with:
Employer reimbursement arrangements
Marketplace coverage
HSA eligibility
and:
ACA affordability rules.
The final OBBB’s expansion of HSA eligibility for certain Bronze and Catastrophic individual-market plans adds another variable.
That means an employee may potentially need to compare:
ICHRA allowance + individual premium + deductible + HSA eligibility + network + prescriptions.
This is more flexible than a one-size-fits-all group plan.
But it can also be more complicated.
Example: 12-Person Digital Agency
Consider a hypothetical small digital agency with 12 employees.
Employees live across:
Texas
Florida
Georgia
and:
North Carolina.
A traditional group plan may not provide equally attractive local networks for everyone.
The employer considers an ICHRA.
It establishes a defined monthly contribution.
Employees then shop for qualifying individual coverage available where they live.
One employee chooses a plan emphasizing:
low premium.
Another chooses:
better specialist access.
Another chooses an eligible Bronze plan and investigates whether an HSA strategy works with the employer’s ICHRA design.
This is the type of workforce where the flexibility of an ICHRA can become particularly attractive.
But ICHRA Isn’t Automatically Cheaper
Businesses shouldn’t adopt an ICHRA because someone claims:
“It always saves 30%.”
There is no universal savings percentage.
The result depends on:
Employee locations
Ages
Individual-market premiums
Employer contribution
Current group-plan costs
Administrative fees
and:
Employee healthcare needs.
Model the actual numbers.
Employee Experience Matters
A traditional group plan may be easier for employees:
Here is your plan. Enroll here.
ICHRA asks employees to make more decisions.
That can be positive for financially engaged workers.
It can be overwhelming for others.
Employers considering an ICHRA should think about providing:
Enrollment support
Plan-comparison tools
Clear explanations
and:
Access to knowledgeable assistance.
What the OBBB Actually Did for Health Accounts
Although the final OBBB didn’t enact the House CHOICE Arrangement provisions, it did make meaningful changes involving HSAs.
Among the enacted provisions were:
Expanded HSA treatment for qualifying Bronze and Catastrophic Exchange plans
and:
Changes involving direct primary care arrangements.
For small businesses using ICHRAs, the Bronze/Catastrophic provision may be especially relevant because individual-market coverage is central to the ICHRA model.
Don’t Use “CHOICE Arrangement” on Employee Documents Yet
Unless and until applicable law changes, employers should be cautious about rebranding their ICHRA as a federally established:
CHOICE Arrangement.
The enacted OBBB didn’t make that change.
Use the legally recognized terminology applicable to your arrangement:
Individual Coverage Health Reimbursement Arrangement (ICHRA)
This avoids confusing:
employees
brokers
payroll providers
tax professionals
and:
Marketplace enrollment systems.
A Better Title for the 2026 Conversation
Instead of saying:
“OBBB replaced ICHRAs with CHOICE Arrangements,”
the accurate story is:
“Congress considered turning ICHRAs into statutory CHOICE Arrangements—but the proposal was removed before final enactment.”
Meanwhile:
“ICHRA remains available in 2026, and separate OBBB HSA changes may make certain individual-market strategies more attractive.”
That is the distinction small businesses need.
Should Your Small Business Consider an ICHRA in 2026?
ICHRA may deserve consideration if your business:
- Wants more predictable healthcare-benefit spending.
- Has employees in multiple states or regions.
- Finds traditional group premiums difficult to manage.
- Wants employees to choose their own individual health plans.
- Has employees with substantially different insurance needs.
- Wants a defined-contribution benefits strategy.
- Can provide appropriate enrollment assistance.
- Is prepared to administer the arrangement correctly.
A traditional group plan may remain preferable when employees highly value:
One simple plan
A strong group network
Predictable enrollment
or:
Employer-managed plan selection.
Questions to Ask an ICHRA Administrator
Before implementing an arrangement, ask:
How will employee eligibility be handled?
How are reimbursements substantiated?
How will affordability be calculated?
How will employee classes be structured?
How are new hires handled?
How will employees shop for coverage?
How are Marketplace subsidies explained?
Can the arrangement be structured appropriately for employees interested in HSAs?
How are notices delivered?
What happens when an employee loses individual coverage?
What administrative fees apply?
What reporting responsibilities remain with the employer?
2026 Small-Business ICHRA Checklist
Before replacing traditional group insurance:
- Compare current annual group-plan costs.
- Model individual-market premiums where employees live.
- Determine proposed employer ICHRA contributions.
- Review permissible employee classes.
- Analyze ACA affordability.
- Use current 2026 lowest-cost Silver premium information.
- Review employer shared-responsibility requirements if applicable.
- Compare ICHRA with QSEHRA.
- Examine HSA-compatible plan opportunities.
- Verify HSA compatibility of the HRA design.
- Establish coverage-substantiation procedures.
- Prepare required employee notices.
- Provide plan-shopping assistance.
- Explain Premium Tax Credit interactions.
- Coordinate payroll and benefits administration.
- Review ERISA and other compliance responsibilities.
- Consult qualified benefits/tax professionals when necessary.
- Don’t assume the proposed federal CHOICE tax credit became law.
Frequently Asked Questions
Did the OBBB rename ICHRAs as CHOICE Arrangements?
No. The House-passed version proposed codifying ICHRAs as CHOICE Arrangements, but those provisions were omitted from the Senate version and didn’t appear in the final enacted Public Law 119-21.
What does CHOICE stand for?
Custom Health Option and Individual Care Expense.
It was the name proposed for the statutory arrangement in the House legislation.
Do ICHRAs still exist in 2026?
Yes. CMS continues to provide ICHRA guidance and publishes a 2026 ICHRA Employer Lowest Cost Silver Plan Premium Look-Up Table.
Did the OBBB create a $100-per-month ICHRA employer tax credit?
No. The House proposal included a CHOICE Arrangement employer credit of $100 per qualifying employee per month during the first year and half that amount during the second year, subject to its conditions. It was not included in the final enacted law.
Can small businesses still offer ICHRAs?
Yes, subject to the applicable federal rules.
Can an ICHRA affect an employee’s ACA subsidy?
Yes. An affordable ICHRA offer can affect Premium Tax Credit eligibility. CMS states that for 2026 the affordability calculation uses a 9.96% threshold.
Can an employee decline an unaffordable ICHRA and get a Marketplace subsidy?
Potentially. CMS explains that when an ICHRA is unaffordable, an employee who opts out may qualify for a Premium Tax Credit if the employee satisfies the other eligibility requirements.
Did OBBB change HSA rules?
Yes. Among other changes, the enacted law expanded HSA treatment for qualifying Bronze and Catastrophic individual-market Exchange plans beginning in 2026.
Can an employee use an ICHRA to purchase one of those plans?
Yes. IRS Notice 2026-5 specifically says an eligible Bronze or Catastrophic individual-market plan doesn’t lose that HDHP treatment merely because an ICHRA or QSEHRA is used to purchase it. Other HSA eligibility rules still apply.
Final Thoughts
The 2026 ICHRA story is a good example of why business owners should distinguish between:
Proposed legislation
and:
Enacted law.
The House version of the One Big Beautiful Bill contained a significant ICHRA package.
It would have:
Codified ICHRAs as CHOICE Arrangements
Created a temporary employer tax credit
and:
Changed cafeteria-plan rules.
Those provisions didn’t survive into the final law.
So your small business shouldn’t plan its 2026 health benefits around a nonexistent federal CHOICE Arrangement credit.
But that doesn’t make ICHRAs irrelevant.
Quite the opposite.
ICHRA remains an important alternative to traditional group insurance, particularly for small and geographically distributed businesses seeking:
Predictable employer costs + employee plan choice.
And the OBBB changes that actually became law—particularly expanded HSA treatment for certain individual-market Bronze and Catastrophic plans—add another reason for businesses to reassess how an ICHRA could fit into their 2026 benefits strategy.
The key is to evaluate the arrangement using:
actual 2026 law, actual employee locations and actual insurance costs—not headlines written while the bill was still changing.