Formerly known as an Individual Coverage HRA, or an ICHRA (pronounced “ick-ruh”), the Custom Health Option and Individual Care Expense (CHOICE) Arrangement is an employer-funded Health Reimbursement Arrangement (HRA) that increases flexibility for both employers and employees to utilize the Individual Marketplace better. This HRA allows employers of any size or industry to reimburse employees tax-free for qualified medical expenses.

Basically, CHOICE Arrangements are the next best thing—and they’ve actually been around since 2020! But there was also a lot going on that year, so if you’re just now hearing about CHOICE Arrangements, that’s okay.

Here’s a breakdown of the simple steps:

1. Employers put money into employees’ CHOICE Arrangement accounts, like a bonus for your health.
2. Employees choose an insurance plan that suits them, and employers pay the monthly bill up to a certain amount.
3. Employees can use funds for eligible healthcare costs and should keep receipts handy!

Any employer with at least one W-2 employee can offer a CHOICE Arrangement. This includes businesses, non-profits, government entities, and religious organizations.

To be eligible for a Custom Health Option and Individual Care Expense (CHOICE) Arrangement, an individual must have individual health insurance, be an employee of the offering employer, and meet the requirements of the specific CHOICE Arrangement class offered.

Yes, you can offer a CHOICE Arrangement alongside a traditional group health plan, but with certain restrictions. The CHOICE Arrangement and group health plan cannot be offered to the same class of employees; they must be offered to separate classes. So, you could offer a group health plan to full-time employees and a CHOICE Arrangement to part-time employees, for example, but full-time employees cannot be given a choice between the two.

No, CHOICE Arrangement allowances are not considered taxable income. The reimbursements are tax-free for both the employer and the employee, which is a significant advantage of this type of benefit. This means employers don’t have to report CHOICE Arrangement reimbursements as income on employees’ W-2s, and employees don’t have to pay income taxes on the money they receive.