How much should your CHOICE Arrangement (formerly ICHRA) allowance be?
Set a CHOICE Arrangement allowance from your affordability floor, current benefit spend, and local silver-plan premiums.
Last updated Sep 8, 2026
Naming note: On September 3, 2026, CMS and the SBA renamed ICHRA to CHOICE Arrangement (Custom Health Option and Individual Care Expense).
CHOICE Arrangement rules set no minimum and no maximum allowance. That is the honest starting point, and it is why generic advice on this question is useless. The right number comes from three inputs you can calculate.
Input 1: The compliance floor
If you have 50 or more full-time equivalent employees, affordability sets a floor under every allowance. The short version: the lowest-cost silver plan premium at the employee’s worksite, minus your allowance, has to come in under an income cap. For calendar 2027 plans, the federal-poverty-line version of that cap is $135.92 a month in the lower 48.
Work with your CHOICE Arrangement platform or broker on the complete calculation, safe harbors, and 2027 changes. Our 2027 affordability guide explains the calculation in detail.
Under 50 employees, there is no employer-mandate floor. Affordability still decides whether employees retain premium-tax-credit eligibility, so run the same math before setting a number.
Input 2: What you spend today
Employers switching from a group plan already have a budget. It is on the renewal letter. Nationally, the 2025 average premium for employer coverage was $9,325 for single coverage, with workers contributing $1,440. The employer share works out to about $657 a month per single enrollee. For family coverage, the average employer share is about $1,679 a month.
Most employers set first-year allowances at or near their current contribution, so the switch lands budget neutral. The savings come later, from stepping off the group renewal trend rather than cutting the benefit on day one.
Input 3: What coverage costs where your people are
An allowance is only as good as what it buys. KFF puts the 2026 national average lowest-cost silver premium for a 40-year-old at $611 a month, with a wide spread by state. An allowance that covers most of the local silver premium is seen as a real benefit. One that falls short can feel like a pay cut with paperwork.
Check the residual: what does each employee pay out of pocket for the lowest-cost silver plan after your allowance, in each rating area and at each age? That number is the benefit as employees experience it.
Why flat allowances often fall short
Individual-market premiums follow the federal default age curve, which runs from 1.0 at age 21 to 3.0 at 64. Apply the curve to the $611 national average and the problem shows itself.
A table comparing illustrative lowest-cost silver plan premiums and 2027 federal-poverty-line affordability floors. At age 25, the premium is about $480 and the floor is $344. At age 40, they are $611 and $475. At age 60, they are $1,298 and $1,162.
| Age | Curve factor | Approx. lowest-cost silver plan | 2027 FPL-harbor floor |
|---|---|---|---|
| 25 | 1.004 | $480 | $344 |
| 40 | 1.278 | $611 | $475 |
| 60 | 2.714 | $1,298 | $1,162 |
A flat allowance sized to clear the 60-year-old’s floor pays every 25-year-old more than $800 a month above theirs. A flat allowance sized to the budget fails affordability on the older half of the roster.
Within a class, allowances may vary by exactly two things: age, up to a 3:1 ratio between the oldest and youngest participants, and family size. The premium curve itself is 3:1, so an age-tracked allowance can hold every employee’s out-of-pocket cost roughly level. That is the design most multistate, mixed-age employers should start from.
New York and Vermont use community rating, so one number per rating area covers all ages there. A handful of states modify the federal curve.
Family tiers are the other lever. In the group world, the average employer contribution for family coverage runs about 2.6 times the single contribution. A single tier and a plus-dependents tier reproduces that logic inside a CHOICE Arrangement.
A CHOICE Arrangement is not always the solution
A technically affordable but thin allowance can leave lower-wage employees worse off than no offer at all. An affordable CHOICE Arrangement offer ends premium-tax-credit eligibility whether or not the employee enrolls. With enhanced credits gone, subsidies reach households under 400% of the poverty line. For some employees, the credit you extinguish is worth more than the allowance you fund.
Before landing on a barely affordable design, price the credits your lowest-paid people would otherwise collect. For large employers, deliberately unaffordable classes are a legitimate strategy with penalty math attached.
Budget is not the same as the allowance
The allowance is a cap. You spend it only when employees enroll and submit premiums. Even group plans capture about 61% of eligible workers, so model uptake rather than assuming 100%. Unused amounts stay with you, subject to any carryover your plan design allows.
The method
- Pull look-back lowest-cost silver premiums by age and rating area for your whole footprint.
- Compute the affordability floor per employee if you are an ALE. If not, mark the affordability line anyway for the tax-credit effect.
- Anchor the budget to your current employer contribution, single and family.
- Choose structure before numbers: classes, then age variation up to 3:1 and family tiers within each class.
- Set amounts at or above every floor, inside budget, and check the residual cost for your oldest employees in your most expensive market.
- Run the calculation again every fall.
FAQ
Is there a legal minimum or maximum CHOICE Arrangement allowance?
No statutory minimum or maximum exists. QSEHRAs have annual caps; CHOICE Arrangements do not. Affordability creates a practical floor for employers with 50 or more full-time equivalents.
Can I give different employees different amounts?
Across classes, yes. Within a class, only by age, capped at 3:1 from oldest to youngest, and by family size. Everything else must be offered on the same terms.
Do unused allowance dollars roll over?
Your choice. Plan design can permit carryover or not. Amounts are notional, so unspent dollars stay with the employer either way.
Should the allowance equal the lowest-cost silver premium?
That is one coherent target: the employee pays $0 for the cheapest silver plan and buys up if they want more. Many employers instead fund the premium minus the safe-harbor cap, which is the affordability floor exactly. Both are defensible. Splitting the difference usually is, too.
Sources
- KFF, 2025 Employer Health Benefits Survey
- KFF, 2026 marketplace premium data
- HRA Council, Growth Trends: ICHRA and QSEHRA Data Report
- CMS federal default age curve
- IRS Revenue Procedure 2026-26
- HHS, Treasury, and DOL final rules on health reimbursement arrangements (June 2019), including class terms and allowance variation by age and family size
This article is for general information only. It is not tax, legal, or accounting advice, and Benepicks does not provide tax or legal advice. Rules change and individual facts matter. Confirm anything you rely on here with your CPA, attorney, or benefits counsel before acting on it.