CMS and the Small Business Administration renamed the individual coverage health reimbursement arrangement on September 3, presenting the CHOICE Arrangement at the Hancock Wellness Center in New Palestine, Indiana. The 2019 regulation behind it is untouched. What the two agencies are now promoting is a benefit that has already placed more than 500,000 employees into the ACA individual risk pool, a pool whose PY2026 filings carry an enrollment-weighted morbidity load of 8.5%.
CMS Administrator Mehmet Oz and SBA Administrator Kelly Loeffler introduced the name, short for Custom Health Option and Individual Care Expense Arrangement, alongside an employer cost estimator and a published list of third-party administrators. The agency's Employer Initiatives page now opens by telling employers that CHOICE Arrangements were previously known as ICHRAs.
Key Takeaways
- September 3, 2026 is a naming change and a marketing push, with no amendment to the 2019 HRA rule. Congress has considered bills that would codify the arrangement in statute, and none has been enacted.
- More than 20,000 US businesses offered an ICHRA or QSEHRA in 2026 covering at least 500,000 employees, per the HRA Council's fifth annual report, published August 12, 2026. Applicable large employer adoption more than doubled year over year.
- 8.5% is the enrollment-weighted morbidity adjustment filed across 373 individual-market PY2026 filings, against -0.1% for PY2025 and -0.6% for PY2024. The median filer loaded 5.2%.
- 7.64 million people sat in the small group filings for PY2026, down from 9.00 million two cycles earlier, while individual-market enrollment climbed from 15.66 million to 20.57 million.
- Two-thirds of small businesses newly offering an ICHRA had previously offered no health coverage at all, so the inflow into the individual pool is only partly a transfer of insured group lives.
The Rename, and the Adoption Curve Underneath It
The substance of the September 3 event was promotional. Employers of any size with at least one W-2 employee could already establish an ICHRA under the 2019 departmental rule, reimbursing employees tax-free for individual-market premiums in place of a group plan. CMS added educational material on contribution structures, costs and third-party administration, and the SBA attached its distribution network to it. Compliance obligations, the class-size rules, the affordability test and the opt-out notice all carry forward unchanged under the new label.
The adoption data released three weeks earlier is the part with pricing consequences. The HRA Council's fifth volume of "Growth Trends for ICHRA & QSEHRA" counts more than 20,000 US businesses offering one of the two arrangements in 2026, covering at least 500,000 employees, with ICHRA-covered lives alone above 500,000 at the start of the year. Adoption among applicable large employers, the 50-plus full-time-equivalent group subject to the employer mandate, more than doubled year over year.
Two composition findings shape everything downstream. More than half of enrollments, on and off exchange, came from employees under 45, a younger skew than the existing individual market carries. And two-thirds of the small businesses newly offering an ICHRA, along with 93% of those newly offering a QSEHRA, had offered no health coverage before. Employees favored Silver and Gold plans, which places them in the metal tiers where the risk adjustment transfer formula has the most leverage.
One Morbidity Field, Two Population Shifts
The Unified Rate Review Template gives an issuer a single morbidity adjustment to carry the whole projected change in who is in its single risk pool, plus a separate demographic shift factor for age and gender mix. Across the PY2026 individual filings, that morbidity factor swung from -0.1% to 8.5% in one cycle, and the average filed rate change went from 6.46% to 26.15%. The load was written for subsidy expiry, on the expectation that the healthiest enrollees exit first when premium net of credit rises.
An employer-funded population entering the same pool pushes that factor the other way, and shares the field with it. An issuer projecting 12 points of deterioration from subsidy loss and 3 points of improvement from CHOICE enrollees files 8.5% and shows a reviewer one number; the two assumptions are only visible in the actuarial memorandum, and only where the issuer chose to separate them. The demographic shift factor is the second place an under-45 inflow can land, and it moved from -1.7% for PY2025 to 0.1% for PY2026.
| Plan year | Market | Filings | Filed morbidity | Demographic shift | Avg rate change | Enrollment |
|---|---|---|---|---|---|---|
| 2024 | Individual | 379 | -0.6% | -0.1% | 5.99% | 15.66M |
| 2025 | Individual | 379 | -0.1% | -1.7% | 6.46% | 19.52M |
| 2026 | Individual | 373 | 8.5% | 0.1% | 26.15% | 20.57M |
| 2024 | Small group | 425 | 0.5% | 0.1% | 7.07% | 9.00M |
| 2025 | Small group | 360 | 0.4% | -0.1% | 8.26% | 8.47M |
| 2026 | Small group | 335 | 1.5% | 0.0% | 11.65% | 7.64M |
Enrollment-weighted URRT factors from the CMS Rate Review public use files, as rendered on the site's ACA filing assumptions benchmark.
The scale keeps the effect modest and concentrated. Half a million lives against a 20.57 million individual pool is 2.4% of enrollment, so a segment running 10 points better than the pool average moves the aggregate morbidity factor about a quarter of a point. Adoption is geographically clustered, though, and rates are built by rating area within a state, so a market where CHOICE penetration is several times the national share carries an assumption error several times larger. The small group side of the table shows where some of these lives came from: 335 filings for PY2026 against 425 two years earlier, enrollment down 15.1%, and a morbidity load that rose to 1.5% as the pool shrank.
A second loop runs back the other way. Affordability for a CHOICE Arrangement is tested against the lowest-cost Silver plan in the employee's own rating area, reduced by the employer contribution, so the individual market's filed rates decide whether a given contribution clears the threshold and whether the employee can claim a premium tax credit at all. A 26.15% average increase lifts that benchmark everywhere at once, which pushes employers toward larger contributions in the rating areas where issuers loaded morbidity hardest. Pricing for a deteriorating pool is one of the inputs that determines how much employer-funded enrollment the pool receives.
Risk Adjustment Settles the Age Advantage Statewide
An issuer that wins CHOICE business does not keep the morbidity it priced. HHS risk adjustment is budget-neutral within each state market, so a book that skews under 45 produces below-average risk scores and turns the issuer into a net payer, transferring the advantage to whichever competitor holds the older residual. The morbidity assumption in the URRT is gross; the settlement arrives the following summer, net.
The model doing that settling was calibrated before the population existed. The 2027 recalibration is fitted on 2021 through 2023 EDGE data, three years in which employer-funded enrollees were a rounding error in the individual market, and the enrollment duration factors are the coefficients most exposed to that gap. CHOICE enrollment also follows employer plan years, so a share of it arrives outside the November-to-January open enrollment window, in partial-year segments the duration factors were never fitted against at volume.
Sitting behind all of it is the composition finding from the HRA Council report. Two-thirds of newly offering small employers previously offered nothing, so a meaningful share of this inflow arrives with deferred care behind it, priced as though it were a healthy group employee moving sideways. A first plan year of pent-up utilization behaves nothing like the assumption the 2.4% is carrying, and an issuer will not see it in its own experience until the PY2028 filings, built on 2026 claims, come due in the spring of 2027.
Further Reading
- The Two Camps Inside the PY2026 Morbidity Assumption – the filing-level split behind the 8.5% enrollment-weighted load.
- The Subsidy-Loss Morbidity Load in 2027 Filings – how issuers separate medical trend from population deterioration.
- The 2027 Risk Adjustment Recalibration – the EDGE base years and enrollment duration factors referenced above.
- The Individual Market Enrollment Cliff – Wakely's projection for the population leaving as CHOICE lives arrive.
- Individual Market Loss Ratios in 2025 – the margin position the pool is absorbing all of this from.