2027 ICHRA Latest Update

ICHRA Is Now Known as CHOICE Arrangement

New Jersey small business owners may have recently noticed that the term ICHRA is increasingly being replaced by the name CHOICE Arrangement.

As of September 2026, CMS uses the term CHOICE Arrangement when discussing the Individual Coverage Health Reimbursement Arrangement.

CHOICE Arrangement allows an employer to provide employees with a defined amount of financial support that can be used toward individual health insurance coverage.

Unlike a traditional group health insurance plan, where the employer generally selects a group plan for employees, CHOICE Arrangement gives employees greater flexibility to choose an individual health plan that fits their needs.

For this reason, CHOICE Arrangement can be an alternative worth considering for some small businesses facing rising group health insurance costs.

Does the Government Directly Pay Employees’ Health Insurance Premiums?

Generally, no.

The basic funding for CHOICE Arrangement comes from the employer.

For example, an employer may decide to provide an employee with $500 per month. The employee can use that employer-funded benefit toward eligible individual health insurance expenses.

This does not mean that the government directly gives the employee $500 every month.

However, there are important tax considerations.

Federal legislation enacted in 2025 included provisions related to tax credits for certain eligible small employers that establish CHOICE Arrangements.

Therefore, it is more accurate to say that the government does not directly pay an employee’s insurance premium through CHOICE Arrangement, but eligible employers may receive certain federal tax benefits associated with establishing the arrangement, depending on the approval of this pending bill by Senates.

The specific tax credit provisions and their implementation should be reviewed carefully because related legislation and regulatory guidance continue to develop at this time.

Can an Employee Receive ACA Premium Tax Credits at the Same Time?

This is one of the most important issues for employees considering CHOICE Arrangement.

Receiving a CHOICE Arrangement does not automatically mean that an employee can never qualify for an ACA Premium Tax Credit.

However, if the employer’s CHOICE Arrangement is considered affordable under the applicable ACA rules, the employee generally cannot receive a Premium Tax Credit for Marketplace coverage.

If the CHOICE Arrangement is not affordable, an employee may have the option to decline the employer arrangement and apply for Marketplace coverage with a Premium Tax Credit, provided the employee meets all other eligibility requirements.

The key point is that employees should not assume they can receive both benefits at the same time.

The affordability determination is critical.

The 2026 Affordability Standard Is 9.96 Percent

For affordability purposes, the employee’s required contribution is generally determined by looking at the applicable lowest-cost self-only Silver plan in the employee’s area and subtracting the employer’s CHOICE Arrangement contribution.

The remaining amount represents the employee’s potential cost.

In simple terms, the calculation asks whether the employee’s required contribution is within the applicable percentage of household income.

For 2026, the applicable percentage is 9.96 percent.

This means that the employer contribution can have a significant effect on whether the arrangement is considered affordable and whether an employee may qualify for a Marketplace Premium Tax Credit.

Safe Harbors Used by Employers

Another important point is the difference between determining affordability for an employer and determining an employee’s actual Marketplace tax credit eligibility.

For 2026, the Federal Poverty Guideline for one person in the 48 contiguous states and Washington, D.C. is $15,960.

The IRS recognizes several affordability safe harbors for employers, including the W-2 method, Rate of Pay method, and Federal Poverty Line method.

The W-2 method generally looks at the employee’s W-2 wages.

The Rate of Pay method can be useful for employees paid hourly or based on a monthly salary.

The Federal Poverty Line method uses the applicable federal poverty guideline.

These safe harbors are important because an employer generally does not know an employee’s complete household income.

However, employers should not assume that simply multiplying the Federal Poverty Line by 9.96 percent automatically determines every employee’s Marketplace Premium Tax Credit eligibility.

The employer affordability rules and the employee’s actual Marketplace eligibility involve different considerations.

Does New Jersey Require Health Insurance for Businesses With 25 or More Employees?

This is one of the most common misunderstandings among New Jersey business owners.

New Jersey does not generally require an employer to provide health insurance simply because the business has 25 or more employees.

New Jersey does not have a general state law requiring every employer to provide health insurance to employees.

Instead, employers need to pay close attention to federal ACA requirements and other applicable state and federal employment laws.

When Does the ACA Employer Requirement Generally Apply?

The key federal ACA threshold is generally 50 or more full-time employees or full-time equivalents, not 25 employees.

A business may be considered an Applicable Large Employer, or ALE, when it averaged at least 50 full-time employees and full-time equivalents during the previous calendar year.

A full-time employee is generally an employee who works at least 30 hours per week or 130 hours per month.

Part-time employees can also affect the calculation because their hours may be combined to determine the employer’s full-time equivalent count.

For example, a company with 35 employees is not automatically required to provide health insurance simply because it has 35 employees.

On the other hand, a business with 40 full-time employees plus enough part-time employees to bring the full-time equivalent calculation to 50 or more may become subject to the ACA employer responsibility provisions.

What Changes When a Business Becomes an Applicable Large Employer?

Once a business becomes an Applicable Large Employer, additional ACA responsibilities may apply.

Generally, an ALE must offer its full-time employees and their dependents an opportunity to enroll in health coverage that meets applicable affordability and minimum value requirements, or the employer may face an Employer Shared Responsibility Payment under certain circumstances.

ALEs also have additional ACA reporting requirements.

Therefore, businesses approaching the 50-employee threshold should review not only the cost of health insurance but also their ACA compliance and reporting responsibilities.

Why Is the Number 20 Also Important in New Jersey?

The number 20 can also be important for businesses that provide group health insurance.

Under federal COBRA rules, employers with generally 20 or more employees may be subject to federal COBRA continuation coverage requirements if they maintain a group health plan.

New Jersey also has state continuation coverage requirements that can apply to smaller employers, often referred to as Mini-COBRA.

This means that New Jersey business owners should not confuse the 20-employee COBRA threshold with the 50-employee ACA threshold.

Twenty employees is not the ACA employer mandate threshold, and 25 employees is not a general New Jersey health insurance mandate threshold.

New Jersey Small Employers Can Have Up to 50 Employees

New Jersey’s Small Employer Health Benefits Program generally covers businesses with 1 to 50 employees that meet the applicable requirements.

Therefore, having 25 employees does not automatically make a company a large employer, nor does it automatically create a legal obligation to provide health insurance.

For New Jersey businesses with 10, 20, 30, or 40 employees, it may be worthwhile to compare the cost and structure of traditional group health insurance with CHOICE Arrangement.

One of the Main Advantages of CHOICE Arrangement Is Employee Choice

Traditional group health insurance generally involves the employer selecting one or more group plans for its employees.

With CHOICE Arrangement, the employer can establish a defined contribution while employees can select individual coverage that better fits their personal needs.

Employees may have different doctors, hospitals, prescription medications, deductibles, and out-of-pocket preferences.

Giving employees more flexibility to select their own individual coverage can be an important advantage for some businesses.

CMS explains that employees can consider factors such as premiums, prescription drug coverage, deductibles, out-of-pocket costs, and provider networks when selecting individual coverage.

CHOICE Arrangement Does Not Mean Employees Can Buy Any Type of Insurance

Another important point is that CHOICE Arrangement is not a system that allows employees to use employer funds to purchase any type of health-related product.

The arrangement is designed around eligible individual health coverage.

Short-term health insurance, faith-based health sharing arrangements, indemnity products, and supplemental products should not simply be treated as equivalent alternatives to ACA-compliant individual health insurance.

Employers and employees should carefully review whether a particular coverage option qualifies under the applicable rules before using employer funds.

New Jersey Employers Should Also Watch ACA Subsidy Changes for 2027

Another important issue for New Jersey businesses is the expiration of the enhanced federal Premium Tax Credits.

The enhanced Premium Tax Credits that were expanded beginning in 2021 expired at the end of 2025, unless otherwise extended by Congress.

According to CMS, approximately 24.2 million people selected or were automatically re-enrolled in Marketplace coverage for 2025.

New Jersey was also affected by the expiration of the enhanced federal subsidies.

GetCoveredNJ continues to offer financial assistance programs, including the federal Premium Tax Credit and New Jersey Health Plan Savings, subject to the applicable eligibility requirements.

Because subsidy rules can change, New Jersey employers should not assume that an employee will receive the same financial assistance in 2027 that the employee received in previous years.

Immigration Status and Marketplace Financial Assistance

New Jersey employers should also pay attention to changes affecting certain noncitizens and Marketplace financial assistance.

Federal eligibility rules for Marketplace subsidies can depend on an individual’s immigration status and other requirements.

Some noncitizens may experience changes in their eligibility for federal financial assistance beginning in 2027.

At the same time, employers should never use citizenship or immigration status as a basis for discriminatory treatment of employees.

Instead, employees should be encouraged to review their own Marketplace eligibility and immigration-related requirements through official government resources such as GetCoveredNJ and HealthCare.gov.

What Should New Jersey Small Business Owners Do Now?

The first step is to determine the company’s employee count using the ACA rules.

Do not simply count the number of people receiving a paycheck.

The employer should determine the number of full-time employees and calculate full-time equivalents according to ACA rules.

Next, compare the current cost of the company’s traditional group health insurance with the potential cost of CHOICE Arrangement.

The employer should also determine the applicable individual Marketplace premiums in the employee’s area.

Then calculate how much the company would contribute toward employee coverage.

The employer should also evaluate whether the contribution could affect employees’ eligibility for Marketplace Premium Tax Credits.

Finally, businesses considering CHOICE Arrangement should review employee notice requirements, plan documents, tax rules, and other compliance requirements before implementation.

The Bottom Line

As of 2026, the term CHOICE Arrangement is increasingly being used for the individual coverage reimbursement model previously known as ICHRA.

But the name is not the most important issue.

For New Jersey small businesses, the real question is whether this type of arrangement can provide a more flexible and financially sustainable approach to employee health benefits compared with traditional group health insurance.

The employer generally provides the funding, while employees may have greater flexibility in selecting individual health coverage.

The relationship between employer contributions and ACA Premium Tax Credits is also extremely important.

Most importantly, New Jersey business owners should remember:

Having 25 employees does not generally mean that a business is legally required to provide health insurance.

For the federal ACA employer responsibility rules, the key threshold is generally 50 or more full-time employees and full-time equivalents, based on the applicable calculation.

Businesses with fewer than 50 employees should still review other requirements, including state continuation coverage rules, federal COBRA requirements when applicable, employee benefit regulations, and New Jersey employment laws.

As health insurance costs continue to change, the best strategy is not simply to ask which insurance plan is cheapest.

Business owners should compare how much the employer contributes, what employees receive, what coverage employees can choose, how Marketplace financial assistance may be affected, and what compliance requirements apply.

For New Jersey small businesses, understanding these factors can make CHOICE Arrangement an important option to evaluate when planning employee health benefits for 2027.