Designing a CHOICE Arrangement, formerly known as the Individual Coverage Health Reimbursement Arrangement (ICHRA), starts with a fundamental decision: how much will the employer make available to employees?
Unlike a traditional group health plan, a CHOICE Arrangement allows employees to obtain qualifying individual health coverage while the employer provides a defined allowance for eligible expenses.
But setting that allowance involves more than choosing a monthly dollar amount. Employers should consider workforce structure, age, family coverage, geography, budget, and — for Applicable Large Employers (ALEs) — ACA affordability requirements.
Start With Your Benefits Budget
Allowance design should begin with the employer’s financial objectives.
Consider:
What is the target monthly benefits budget?
Should allowances differ among permitted employee classes?
Will the arrangement include spouses and dependents?
How do individual-market premiums differ across employee locations?
If the company is an ALE, how will the allowance affect ACA affordability?
There is no universal “right” allowance. The goal is to build a structure appropriate for the employer’s workforce and budget while complying with applicable rules.
Consider Employee Classes
Federal rules permit employers to structure CHOICE Arrangement eligibility around specified employee classes, including full-time, part-time, seasonal, salaried and non-salaried employees, as well as certain geographic and other permitted classifications.
This flexibility can help employers with more complex workforces.
However, class design is regulated. For example, when an employer offers a traditional group health plan to some employees and a CHOICE Arrangement to others, certain configurations can be subject to minimum class-size requirements.
That is why workforce design and allowance design should be considered together.
Allowances Can Account for Age and Family Size
Within an employee class, a CHOICE Arrangement generally must be offered on the same terms. Federal rules nevertheless allow employers to vary amounts based on age and the number of dependents covered.
Age-based allowances can help account for differences in individual-market premiums. However, the maximum amount available to the oldest participant generally cannot exceed three times the amount available to the youngest participant under the applicable class structure.
Employers can also increase allowances based on the number of covered dependents, allowing structures such as employee-only, employee-plus-spouse, employee-plus-children, and family coverage.
The chosen methodology should be applied consistently within the applicable employee class.
Account for Geography
Individual-market premiums can vary significantly by location.
For multi-state employers, an allowance that works well in one market may produce a very different employee experience somewhere else.
Employers should therefore evaluate the individual insurance markets relevant to their workforce rather than relying on a single national premium assumption.
Federal rules also permit certain geographic employee classes, subject to applicable requirements.
ALEs Should Model ACA Affordability
Applicable Large Employers have an additional consideration: the ACA employer shared responsibility provisions.
CHOICE Arrangement affordability can depend on the employee’s required contribution toward the applicable lowest-cost silver plan after accounting for the employer’s HRA amount.
For this reason, ALEs should model affordability before finalizing the allowance, rather than selecting an amount solely from a budget target.
Model Before You Launch
Allowance design works best when employers test multiple scenarios before enrollment begins.
A useful model should examine how different allowance structures affect:
Employer cost → Employee purchasing power → Geographic differences → Family participation → ACA affordability, when applicable
Employers should also consider what happens if participation or dependent enrollment is higher than expected.
The objective is not simply to choose a number. It is to understand how that number performs across the workforce.
From Design to Administration
Once the arrangement launches, the allowance structure needs to work operationally as employees become eligible, enroll, change status, add dependents, or move through the plan year.
Lirvion brings eligibility, allowance tracking, coverage verification, premium-payment visibility, reconciliation, reporting, and ongoing administration into a connected environment.
A strong CHOICE Arrangement starts with a deliberate structure:
Who is eligible.
How much is available.
How affordability is addressed.
And how the arrangement will operate after enrollment.