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Medicare & CHOICE Arrangement (Formerly ICHRA): A Guide to Your Reimbursement Benefits

A guide on Medicare and CHOICE (formerly ICHRA).

Last updated September 22, 2026

Naming note: On September 3, 2026, CMS and the SBA renamed ICHRA to CHOICE Arrangement (Custom Health Option and Individual Care Expense).

If your employer offers a CHOICE Arrangement (formerly ICHRA) through Benepicks, you have a powerful tool at your disposal. As a Medicare-eligible employee, you can use this employer-funded, tax-free allowance to reimburse your Medicare premiums.

However, because Medicare and CHOICE Arrangements are both regulated by federal guidelines, you must follow a few important rules to access your benefits smoothly. Here is a simple guide to how they work together.

1. The Golden Rule of Eligibility

To receive tax-free reimbursements for your Medicare premiums from your CHOICE Arrangement, you must meet the primary enrollment requirement. You cannot participate in the CHOICE Arrangement if you only have partial coverage.

To participate, you must be actively enrolled in:

  • Medicare Part A AND Part B together, OR

  • Medicare Part C (Medicare Advantage).

Why this matters: Many working seniors only enroll in Part A (which is usually premium-free and covers hospital stays) while they are still working, skipping Part B because they are on an employer’s group plan. Under the federal HRA rules (45 CFR 146.123), you must have both Part A and Part B active to participate. You can check the details on active enrollment requirements on the official Medicare.gov Working Past 65 page.

2. What Exactly Can Be Reimbursed?

Once you meet the eligibility requirement above, your Benepicks CHOICE Arrangement can reimburse a wide range of Medicare-related expenses.

Under federal HRA guidance from the Centers for Medicare & Medicaid Services (CMS) and the IRS, reimbursements from your CHOICE Arrangement can legally cover both premiums and cost-sharing for Medicare. Your employer’s CHOICE Arrangement allowance can generally be used to reimburse:

  • Medicare Part A Premiums: Only in the rare event that you must pay a premium for Part A.

  • Medicare Part B Premiums: Your outpatient medical insurance.

  • Medicare Part C Premiums: Medicare Advantage plan premiums.

  • Medicare Part D Premiums: Prescription drug coverage.

  • Medicare Supplement (Medigap) Premiums: Policies that cover out-of-pocket gaps in Original Medicare.

  • Qualified Out-of-Pocket Medical Expenses: Copays, deductibles, and other qualified costs (depending on your specific employer’s plan design).

3. Transitioning from a Group Plan? Watch Out for the “Part B Gap”

If your employer is transitioning from a traditional corporate group health insurance plan to a Benepicks CHOICE Arrangement, this is the most critical step for you: If you currently only have Medicare Part A active, you must enroll in Part B to participate in the CHOICE Arrangement.

The Good News: Losing your active employer group health plan coverage qualifies you for a Medicare Special Enrollment Period (SEP). This allows you to sign up for Medicare Part B immediately without having to wait for the standard enrollment window, and with zero late-enrollment penalties.

Action Item: You should initiate your Part B enrollment as soon as you know your company is transitioning to a CHOICE Arrangement to avoid any gaps in coverage or reimbursement. You can review the step-by-step rules for this transition on the Medicare.gov Special Enrollment Period page.

4. Keeping Your Benefits Active (Substantiation)

To keep your tax-free reimbursements flowing, you will need to verify your coverage.

  • Initial Verification: You must provide proof of enrollment in Medicare Part A and B (or Part C) to Benepicks when you first set up your account.

  • Monthly Verification: Each month when requesting reimbursement, you must confirm that your Medicare coverage remains active for the month the expense occurred. This is a standard IRS compliance rule for health reimbursement plans to verify that you continuously maintain qualifying health coverage, keeping your reimbursements completely tax-free.

How to Get Started with Medicare and Your CHOICE Arrangement

Setting up your Medicare to align with your employer’s CHOICE Arrangement allowance involves a few clear steps:

  1. Verify Your Current Medicare Status: Log into your official account at Medicare.gov or check your red, white, and blue Medicare card to confirm if you have both Part A and Part B active.

  2. Enroll in Part B (If Transitioning from Group Coverage): If you only have Part A because you were on an employer group plan, obtain Form CMS-L564 (Employer Information) and Form CMS-40B (Application for Enrollment in Medicare Part B). Submit these to Social Security to initiate your Special Enrollment Period and avoid late enrollment penalties.

  3. Choose Your Coverage Path: Decide whether you want to use your allowance toward:

    • Original Medicare (Parts A & B) + a Medigap (Supplemental) policy + a Part D (Prescription) plan, or

    • Medicare Part C (Medicare Advantage), which packages hospital, medical, and often prescription drugs into one plan.

  4. Submit Proof to Benepicks: Once your plans are active, upload your Medicare enrollment card or premium billing statement to the Benepicks platform to verify your coverage and set up your automatic or monthly reimbursement schedule.

Frequently Asked Questions (FAQs)

  1. What happens if I have a dependent? Can I have a blended health plan with family members?

Yes. Your employer can structure your CHOICE Arrangement allowance to cover you and your dependents. You can have a “blended” household where you are on Medicare and your spouse or children are on individual Marketplace plans. The main rule is that every person receiving reimbursements must have qualifying primary coverage (Medicare Parts A & B or Part C for you, and an individual health plan for them).

  1. Can I switch plans and when?

It depends on the plan type. Gaining access to a new CHOICE Arrangement triggers a 60-day Special Enrollment Period (SEP) for the Individual Health Insurance Marketplace (ACA plans), allowing you to enroll in or switch private individual plans mid-year. However, gaining a CHOICE Arrangement does not trigger a Medicare SEP to switch your Medicare tracks or Advantage plans mid-year. For most people in this situation, the Medicare SEP that matters is the one triggered when your employer group health plan coverage ends, such as when your employer replaces a traditional group plan with the CHOICE Arrangement. That SEP allows you to sign up for Medicare Part B without a late penalty.

Source: See the Medicare.gov Special Enrollment Periods page.

  1. Will my CHOICE Arrangement allowance cover my entire Medicare premium?

It depends entirely on the monthly dollar amount your employer chooses to contribute and the specific plan you choose. If your total premium is less than your allowance, your cost is $0. If your premium is higher than your allowance, you simply pay the remaining difference out-of-pocket.

  1. Can I use my CHOICE Arrangement funds to pay for out-of-pocket costs, or just my monthly premiums?

Yes, you can use them for both, if your employer’s plan allows it. Federal guidelines permit CHOICE Arrangements to reimburse both premium costs and eligible out-of-pocket medical care expenses (like deductibles, copayments, and coinsurance). However, employers have the right to restrict their specific company plan to “premiums only”. You must check your specific employer’s benefit notice to verify your plan design.

  1. How is my HSA impacted with a CHOICE Arrangement?

To contribute to a Health Savings Account (HSA), you must be enrolled in a High Deductible Health Plan (HDHP) and have no “disqualifying” coverage. Because Medicare itself is considered disqualifying coverage for HSA contributions under Section 223 of the Internal Revenue Code, once you enroll in any part of Medicare, you can no longer contribute to an HSA, regardless of your CHOICE Arrangement status. (Recent updates like IRS Notice 2026-5 make it easier for certain non-Medicare individual plans to pair with HSAs, but the Medicare restriction remains.) However, you can always continue to safely spend any pre-existing funds remaining in your HSA.

  1. What happens if I leave my employer while already on a CHOICE Arrangement?

Your CHOICE Arrangement is an employer-owned benefit, not a portable account. If you separate from your company, your CHOICE Arrangement allowance ends on your termination date. What happens next depends on your age and coverage path:

  • If you are NOT on Medicare: Losing your workplace benefit triggers a 60-day Special Enrollment Period (SEP) for the Individual Marketplace. This allows you to change plans or apply for government premium tax credits (subsidies) now that your employer is no longer funding your coverage.

  • If you ARE on Medicare Part A and Part B: Leaving your job does not trigger any Special Enrollment Period. Your Medicare parts, Advantage plan, or Medigap policies will remain completely active and unchanged because they belong to you, not your employer. However, you must start paying the full premium out of pocket since the employer reimbursement has stopped.

Need help choosing a plan? Benepicks partners with SmartConnect, whose licensed insurance agents help Medicare-eligible individuals compare and enroll in plans at no cost. Contact support@benepicks.com for more help.

This article is for educational purposes only and is not tax, legal, or insurance advice. Benepicks is not connected with or endorsed by the U.S. government or the federal Medicare program.