Overview
A CHOICE Arrangement is an alternative to traditional employer-sponsored group health insurance. Instead of selecting and partially funding a group plan, the employer establishes a defined monthly allowance for each eligible employee. The employee uses that allowance to purchase an individual major medical plan on their own — either through the Marketplace or from an insurance company, broker, or agent — and is reimbursed by the employer up to the CHOICE Arrangement allowance amount. Some CHOICE Arrangements also allow reimbursement of other qualified medical expenses such as copays and prescriptions.
A CHOICE Arrangement does not change what the plan covers or how it works; it changes how the purchase is funded. Employer contributions to a CHOICE Arrangement are not taxed as income to the employee, making the arrangement tax-advantaged.
Plan Requirements
An employee using a CHOICE Arrangement must be enrolled in a major medical plan for every month they use the CHOICE Arrangement. "Excepted Benefits" (like standalone dental or vision) can be reimbursed by a CHOICE Arrangement in addition to the medical plan, but they do not satisfy the requirement to have a medical plan first. Excepted benefits are limited to specific categories such as dental, vision, hearing, and certain limited medical services.
CHOICE Arrangement funds cannot be used to purchase short-term limited-duration insurance, health care sharing ministry memberships, fixed indemnity plans, or any other product that is not ACA-compliant (all major medical plans are) or an “excepted benefit.”
Eligibility
Employees who are offered a CHOICE Arrangement may purchase a major medical plan through the Marketplace or an insurance company, broker, or agent. However, whether an employee can receive premium tax credits through the Marketplace depends on the affordability of the CHOICE Arrangement, as explained below.
CHOICE Arrangements or Premium Tax Credits
This is the most important consideration for anyone offered a CHOICE Arrangement. An employee cannot use the CHOICE Arrangement and Marketplace premium tax credits at the same time — they must choose one or the other.
If the CHOICE Arrangement is considered “affordable,” the employee is not eligible for premium tax credits. Affordability is determined by taking the cost of the lowest-cost Silver plan available in the employee’s area and subtracting the monthly CHOICE Arrangement allowance. If the remaining amount the employee would pay out of pocket is no more than the affordability threshold set by the IRS for the plan year, the CHOICE Arrangement is affordable and the employee cannot receive premium tax credits. For the 2027 plan year, the threshold is 10.22% of household income.
If the CHOICE Arrangement is not affordable by this standard, the employee may opt out of the CHOICE Arrangement entirely and claim premium tax credits through the Marketplace instead. Opting out means forgoing the employer’s CHOICE Arrangement allowance completely; you cannot use the CHOICE Arrangement and also receive partial premium tax credits. You can only opt out of a CHOICE Arrangement before the plan year starts.
The Marketplace application process includes a step to assess CHOICE Arrangement affordability. Employees will need to know their CHOICE Arrangement allowance amount, which their employer is required to provide in writing before the start of each plan year.
Enrollment
There is no separate CHOICE Arrangement enrollment. The employee shops for and enrolls in a plan during Open Enrollment or a Special Enrollment Period, then submits proof of coverage to the employer for reimbursement. The employer sets its own CHOICE Arrangement plan year, gives 90 day notice before the plan begins, and communicates the allowance amount and reimbursement procedures.
An employee who is newly offered or loses a CHOICE Arrangement — for example, because they were recently hired, because the employer is switching from a group plan to a CHOICE Arrangement, or they leave the job — may qualify for a Special Enrollment Period, since gaining or losing a CHOICE Arrangement offer is treated as a change in eligibility.
Key Considerations
Employees offered a CHOICE Arrangement should compare two scenarios. In the first, they accept the CHOICE Arrangement, use the employer’s allowance toward a plan of their choice, and pay any remaining premium and cost-sharing out of pocket. In the second, they decline the CHOICE Arrangement, enroll in a Marketplace plan, and claim premium tax credits if their income qualifies. The appropriate choice depends on individual circumstances, such as the size of the CHOICE Arrangement allowance, household income, any applicable subsidies, plan premiums, and expected healthcare utilization.
It is also worth noting that because the employee selects their own health plan under a CHOICE Arrangement, they are also choosing their provider network, formulary, and plan tier. This can be an advantage over a traditional employer plan where the employer makes those choices. However, it also means the employee bears the responsibility of comparing plans and understanding the trade-offs.
Unused CHOICE Arrangement funds typically do not roll over to the next year; consult your employer's plan documents or administrator for specifics.