In 2027, an ICHRA lets an employer of any size give workers a monthly allowance toward an individual health plan instead of a group plan. The big question for employees is the premium tax credit: for plan years starting in 2027, an offer that costs you under 10.22% of household income after the allowance blocks the credit, and one that costs more lets you choose. This guide covers how it works, the 2026 and 2027 affordability numbers, and what to do next.
CMS and the Small Business Administration announced in September 2026 that the ICHRA is now branded a CHOICE Arrangement; the federal rules are the same. For the step-by-step version of an offer you just received, see what to do when your employer offers an HRA, QSEHRA or ICHRA, and for the credit rules see can I get an ACA subsidy with an employer offer.
Coverage Breakdown
Direct answer: what an ICHRA is
It depends. An ICHRA (individual coverage HRA, now also branded a CHOICE Arrangement) is a tax-free employer allowance you use to buy your own individual health plan. For 2027, if the offer is affordable (under 10.22% of household income after the allowance), you cannot get the premium tax credit. If it is not affordable, you pick the ICHRA or the credit, never both.
A 2027 ICHRA works like this: your employer sets a monthly allowance, you shop for an ACA-compliant individual plan on HealthCare.gov or directly from an insurer, you pay the premium, and the employer reimburses you up to the allowance. Federal rules put no minimum or maximum on that allowance, according to HealthCare.gov, so an employer can set any amount for each 12-month plan year.
What an ICHRA reimburses under federal rules (2027)
Individual coverage HRA rules require every person using the allowance to be enrolled in individual health insurance, or in Medicare Parts A and B or Medicare Advantage (Part C), for each month of reimbursement. A Marketplace plan, an off-exchange ACA-compliant plan sold by an insurer, and Medicare all count. Short-term plans and stand-alone dental or vision plans do not count as the required coverage, per HealthCare.gov.
ACA-compliant individual plans are the usual target because they cover essential health benefits and cannot turn you away or charge more for a preexisting condition. The reimbursement is generally not taxable income to the employee, and the employer generally deducts it and owes no payroll tax on it, according to the Small Business Administration.
How an ICHRA affects your premium tax credit (2026 and 2027)
An ICHRA offer is tested for affordability, and the result decides whether you can get the premium tax credit. An ICHRA is affordable when the monthly cost of the lowest-cost Silver self-only plan in your area, minus the employer allowance, is under the affordability percentage of one twelfth of your household income. That percentage is 9.96% for plan years starting in 2026 and 10.22% for plan years starting in 2027, per Rev. Proc. 2026-26 and HealthCare.gov.
An illustrative 2027 example: a worker with a $48,000 household income has an affordability ceiling of 10.22% of $48,000, or $4,906 a year ($408.80 a month). If the lowest-cost Silver plan costs $620 a month and the employer allowance is $250, the net cost is $370, which is under $408.80, so the offer is affordable and the worker cannot get the 2027 premium tax credit, even by declining. With a $150 allowance the net cost is $470, so the offer is not affordable. These dollar figures are hypothetical.
If the ICHRA is not affordable, you choose between the ICHRA and the premium tax credit, and you must decline the ICHRA to get the credit. Households also repay in full any excess advance credit from tax year 2026 onward, at any income, under P.L. 119-21 section 71305, so report an ICHRA offer when you update a Marketplace application. The 400% of poverty limit on the credit stays for 2027 coverage.
What employers can set and what they must follow (2027)
Employers of any size with at least one W-2 employee can offer an ICHRA, per the Small Business Administration, and they can set it up at any time. An employer can offer it to all employees or to defined classes: full-time, part-time, seasonal, salaried, non-salaried, union, employees in a waiting period, non-resident aliens with no U.S. income, and employees in a given work location. Employers cannot invent their own classes.
Within a class, every employee gets the same terms, except that the allowance can rise with age (at most a 3 to 1 ratio between oldest and youngest) and with the number of covered dependents. An employer cannot let one class choose between a group plan and an ICHRA. If an employer offers a group plan to one class and an ICHRA to another, minimum class sizes apply: 10 employees for employers under 100, 10% of employees for 100 to 200, and 20 employees above 200, per HealthCare.gov.
Notice and opt-out rules protect employees. Current employees must get written notice 90 days before each plan year starts (about October 3, 2026 for a January 1, 2027 plan year), and new eligible employees must get it as soon as they qualify. Employees must also be able to decline the ICHRA each year, which is what preserves access to the premium tax credit when an offer is unaffordable.
Employers with 50 or more full-time equivalent employees are applicable large employers under the ACA employer mandate, and an affordable ICHRA offer counts toward it. Employers under 50 face no federal mandate to offer coverage. The Section 45R Small Business Health Care Tax Credit is generally available only through SHOP coverage, so an employer choosing an ICHRA generally gives up that credit, per HealthCare.gov.
ICHRA with Original Medicare and Medicare Advantage
An ICHRA can follow an employee onto Medicare. Workers under 65 on Medicare because of a disability, and older workers still on the job, can use the allowance once they hold Original Medicare (Part A and Part B) or Medicare Advantage, per HealthCare.gov. Reimbursable costs then include Medicare Part B and Part D premiums and Medigap premiums, because the allowance covers qualified medical expenses.
A person with Medicare generally cannot get premium tax credits for a Marketplace plan, so the affordability test above matters only for people buying individual coverage. Medicare enrollment rules, such as the Part B late enrollment penalty, are set by Medicare.gov and do not change because an employer offers an ICHRA.
How to use an ICHRA: dates, enrollment and Special Enrollment Period (2027)
Open enrollment for 2027 Marketplace coverage runs November 1, 2026 to January 15, 2027, per HealthCare.gov. Check HealthCare.gov for the current sign-up date for a January 1, 2027 start, because the December 15 deadline is under court review. An ICHRA offer also opens a 60-day Special Enrollment Period that runs on both sides of the date the ICHRA starts, so an offer effective January 1, 2027 lets you pick a plan from about November 2, 2026. See the CoveredUSA page on an employer HRA offer for the full walkthrough.
Employers must be able to verify that you hold individual coverage each month before they reimburse you, so keep your insurer's coverage confirmation and premium receipts. Reimbursement timing is set by the employer's plan document, not by federal law.
Alternatives if your employer does not offer an ICHRA (2027)
Workers whose employers offer no ICHRA still have several routes to coverage in 2027, and the right one depends on income and the employer's offer. The list below names the main options for adults under 65, with the official place to start each one.
- Marketplace plan with the premium tax credit: with no affordable employer offer, 2027 coverage is subsidized from 100% to 400% of poverty ($15,960 to $63,840 for one person using the 2026 guidelines); start at HealthCare.gov.
- Group health plan from the employer: if the employer offers one that is affordable and meets minimum value, you generally cannot get the credit for the same months.
- QSEHRA: a smaller employer allowance for employers under 50 full-time equivalent employees, capped at $6,450 for self-only and $13,100 for family coverage in 2026; the 2027 caps are set by the IRS.
- Medicaid or CHIP: year-round enrollment if household income is low enough, through your state agency or HealthCare.gov/medicaid-chip; many expansion adults face a work requirement starting as early as January 2027, depending on the state.
- COBRA or a spouse's plan: if you lose group coverage, you generally have 60 days to elect COBRA or join a spouse's plan through a Special Enrollment Period.
Frequently Asked Questions
What is an ICHRA?
An ICHRA (individual coverage health reimbursement arrangement) is an employer-funded account that repays employees tax-free for individual health insurance premiums and other qualified medical costs, up to an amount the employer sets for the 2027 plan year. HealthCare.gov says employees must have their own individual coverage, or Medicare Parts A and B or Part C, to use it.
Is an ICHRA the same as a CHOICE Arrangement?
Yes, as a practical matter. CMS and the Small Business Administration announced in September 2026 that ICHRAs are now branded CHOICE Arrangements. Their press materials describe a new name and new resources, not a new law or a change to the 2027 affordability and class rules. Federal regulations and IRS forms may still say ICHRA.
Can I keep my premium tax credit if my employer offers an ICHRA?
Only if the ICHRA is not affordable and you decline it. For 2027, an offer is affordable when the lowest-cost Silver self-only plan, minus the employer allowance, costs under 10.22% of one twelfth of your household income. An affordable offer blocks the 2027 credit even if you never use the ICHRA, per HealthCare.gov.
How is ICHRA affordability measured for 2027?
Take the 2027 monthly premium of the lowest-cost Silver self-only plan in your rating area, subtract the monthly ICHRA allowance, and compare the result with 10.22% of your household income divided by 12. If the net cost is lower, the offer is affordable. The 2026 percentage was 9.96%. Source: IRS Rev. Proc. 2026-26 section 3.02.
Is there a limit on how much an employer can put into an ICHRA?
No. HealthCare.gov says an ICHRA has no annual minimum or maximum, and the employer sets the amount for each 12-month plan year. Within a class of employees the allowance must be the same, except it can vary by age (up to a 3 to 1 ratio) and by the number of dependents covered.
Can I use an ICHRA to buy a plan outside HealthCare.gov or to pay Medicare premiums?
Yes to both. Any individual health insurance counts, whether you buy it on a Marketplace or directly from an insurer, as long as it is not a short-term or stand-alone dental or vision plan. People enrolled in Original Medicare (Parts A and B) or Medicare Advantage can use the allowance for qualified costs such as Part B premiums.
What is the difference between an ICHRA and a QSEHRA?
A QSEHRA is limited to employers under 50 full-time equivalent employees and is capped at $6,450 for self-only coverage and $13,100 for family coverage in 2026. An ICHRA has no federal dollar cap and any employer with a W-2 employee can offer it. Both can affect the premium tax credit, and both follow IRS affordability tests.
Do I get a Special Enrollment Period when my employer offers an ICHRA?
Yes. An ICHRA offer opens a 60-day Special Enrollment Period on HealthCare.gov that runs on both sides of the date the ICHRA starts. Pick your plan in time for coverage to begin on the ICHRA start date, and do not wait for open enrollment (November 1, 2026 to January 15, 2027 for 2027 coverage).
