The financial implications of implementing custom health options and individual care expense (CHOICE) arrangements for small businesses vary significantly by state, according to a recent actuarial study by Wakely Consulting Group, affiliated with HMA. This analysis focuses specifically on South Carolina, Iowa, and Tennessee, diverging in their potential premium savings and overall effectiveness of CHOICE.

Understanding CHOICE Arrangements

Formerly recognized as the individual coverage health reimbursement arrangement (ICHRA), CHOICE allows employers to allocate funds for individual reimbursement accounts. Employees can then utilize these accounts to purchase health insurance through the Affordable Care Act (ACA) marketplace instead of enrolling in conventional group plans.

State-Specific Findings on Enrollment Impact

The October 2026 white paper produced by Wakely actuaries outlines varying outcomes for CHOICE adoption across the selected states, influenced largely by the pricing dynamics between individual and small group ACA coverage:

• South Carolina: Where individual ACA premiums are projected to exceed small group offerings by at least 50%, the study suggests a potential enrollment increase of 2.4% to 7.6% if employers switch to CHOICE.
• Iowa: In contrast, with closer pricing between the two markets, the estimated enrollment change is minimal, ranging from 0.0% to 0.3%.
• Tennessee: Here, significant adoption of CHOICE seems unlikely, as individual ACA premiums may be similarly high compared to small group plans.

The Influence of Vendor Fees

A critical factor complicating the economic advantages of CHOICE in Iowa is the introduction of a $50-per-employee-per-month vendor fee. This analysis indicates that including such a fee essentially neutralizes the premium savings benefit, as the cost renders CHOICE less competitive in markets where individual and group plan premiums are nearly equivalent. The fee aligns with estimates from various CHOICE platform administrators, underscoring a potential barrier to adoption.

Health Risk Implications

The risk profile of employer-sponsored groups transitioning from small group ACA plans to individual ACA coverage further complicates the scenario. In South Carolina, the health profile of individuals enrolled in the ACA could improve by 0.5% to 1.5% due to the migration of healthier individuals from small group plans. Conversely, if healthier groups choose alternative funding methods instead, it risks worsening the individual ACA market, leading to elevated premiums for all enrollees.

Brokers and Adoption Challenges

The successful implementation of CHOICE is also limited by the familiarity of brokers with the arrangement. Wakely highlights that a significant portion of benefits brokers have yet to sell CHOICE products, indicating a knowledge gap that hinders wider adoption among employers. Current data show that over half of benefits brokers have not engaged with CHOICE, even as adoption reaches more than 20,000 businesses this year.

Paul Fronstin from the Employee Benefit Research Institute emphasizes the importance of understanding that CHOICE transfers more health coverage risk to employees than traditional group plans, a shift that is particularly concerning amidst rising individual ACA premiums.

Looking Ahead

The Centers for Medicare & Medicaid Services (CMS) is anticipated to publish new CHOICE guidance at the end of 2026 or early 2027. Wakely has committed to conducting further analysis following the release of these new rules, which could further influence employer decisions regarding CHOICE arrangements.