Small Business Health Insurance Plans: What Employers Must Know About ICHRA & Choice
Here’s what employers should know about ICHRA administration, how the proposed CHOICE model could impact their teams, and how to prepare in case of transition.
As you likely know, a recent federal budget proposal included a bill to rebrand Individual Coverage HRAs (ICHRAs) as “Custom Health Option and Individual Care Expense (CHOICE) Arrangements” and introduce new tax credits for small employers (Source). The goal is to encourage a shift away from traditional group structures within small business health insurance plans toward a defined-contribution approach. This idea is appealing for businesses: it promises cost predictability (you set a fixed budget instead of weathering annual premium hikes) and flexibility to tailor health benefits by employee class (Source).
However, these changes come with real challenges. If employees move from a group plan to individual coverage, they could face higher deductibles and narrower provider networks on the open market (Source). And while an ICHRA gives employers control over costs, it also shifts more complexity and out-of-pocket risk to employees. Implementing such a plan isn’t “plug-and-play” either – there are new administrative processes (employee notices, substantiation of coverage, etc.) and compliance rules to manage. That’s why it’s critical to work with trusted ICHRA providers or a broker familiar with ICHRA administration, ensuring your setup and employee communications meet all regulatory requirements.
Status Check: It’s important to note that the CHOICE Arrangement provisions are still proposals – not law yet. The House passed them in 2025, but the final budget act did not include the CHOICE/ICHRA changes (Source). In other words, ICHRAs remain under the current rules for now. The tax credits and other enhancements won’t take effect unless future legislation revives them. That said, this concept has bipartisan interest, so it’s wise to stay prepared.
With that in mind, forward-thinking small employers (especially those with under 50 employees) are taking steps now to position themselves for this potential shift in small business health insurance plans - while protecting their workforce in the process.
Here are 3 moves you can make to transition wisely and keep your employees supported:
1. Crunch the Numbers:
Start modeling how a CHOICE arrangement would compare to your current small business health insurance plans. Look at your total costs for a group plan versus setting a defined allowance for each employee. Make sure to factor in the proposed two-year small-employer tax credit ($100 per employee per month in the first year, and $50 in the second (Source)) which could offset costs if it becomes law. Also consider tax advantages: ICHRA contributions are tax-free, and future rules might even allow employees to pay any extra premium via pre-tax payroll deductions on exchange plans (Source). By comparing scenarios, you can see if savings emerge – and importantly, plan to redirect some of those savings to support your team (for example, by raising the reimbursement amounts or funding other benefits).
2. Educate Yourself and Your Team:
Many employers still don’t fully understand ICHRAs – in one 2023 survey, 49% of small employers hadn’t heard of ICHRAs at all (Source). This is the moment to close that knowledge gap. Take time to learn the ins and outs of how an ICHRA/CHOICE model works (eligibility rules, how employees shop for plans, etc.), and sit down with your benefits broker to get guidance. (In fact, 86% of employers in a recent poll said they want their advisors to inform them about options like ICHRAs (Source) – so don’t be afraid to ask questions!). Then, make a plan to communicate with your employees. If you decide to move to a CHOICE arrangement, your staff will need help understanding the new process – from how they’ll choose a policy to what changes in coverage or doctors they might experience. Lack of familiarity is one of the biggest barriers to a smooth transition (Source). By proactively educating your workforce, you position yourself as a supportive guide through the change, rather than just dropping a new plan on them.
3. Fill the Gaps:
To protect employee retention, be ready to shore up any gaps that a switch from traditional small business health insurance plans to individual coverage might create. Remember, shifting to a fixed contribution model can leave some workers with higher out-of-pocket costs or skinnier networks than they’re used to (Source). The good news is you can plan ahead to offset these downsides. Consider offering supplemental benefits or tools that reduce employees’ financial burden. For example, some employers provide specialty gap insurance (like accident or hospital indemnity plans) or contribute to HSAs. Others are turning to innovative services like Octi – an AI-powered patient advocate that reviews medical bills, finds errors or discounts, and negotiates with providers to reduce what your employees owe (Source). Octi requires no changes to your core plan; it simply helps ensure that when a bill arrives, your people pay less out-of-pocket. These kinds of add-ons can make a huge difference. After all, 92% of employees value health insurance benefits as crucial to their job satisfaction (Source), and if their new coverage leaves them with unaffordable bills, you risk morale and productivity problems. See more ways to support your employees with medical costs in our related article.
Studies show that when workers can’t manage medical costs, it leads to stress, missed work, and frustration with their benefits (Source). By filling in the gaps – whether through additional benefits, financial education, or services like Octi – you keep your health benefits for employees holistic and supportive, not just a cost-cutting experiment.
Bottom Line
CHOICE Arrangements (if and when they come into effect) could offer a compelling new way for employer health insurance plans to work – especially for small businesses looking to control costs. But success with this model will come down to balance. Employers who plan for the financial upside and the human impact will lead the next wave. That means running the math carefully, communicating clearly, and bolstering your benefits package to guard against unintended consequences. If you can do that, you’ll be ready to take advantage of the new flexibility and savings while keeping your employees healthy, happy, and confident in their coverage. In a tight labor market, that’s the kind of win-win that can set your business apart (Source).
