What is the difference between a CHOICE arrangement (ICHRA), a QSEHRA and a group health plan?

How do the three options compare?

A group plan is a plan you pick for your team. The other two are defined contribution benefits: you set a dollar amount and each employee buys their own plan. The table uses HealthCare.gov's comparison with 2026 limits.

Employers can offer a CHOICE arrangement or a QSEHRA at any time of year. New employees and employees getting a new offer have a special enrollment period to buy individual coverage.

How does a CHOICE arrangement work?

You give employees a set amount to spend on individual health insurance, and the reimbursement is not taxed to the employee. Employees own the plan they pick and generally can keep it if they leave, though your money stops. CMS says the arrangement is funded entirely by employer contributions.

• Employees can use it for a Marketplace plan, an individual plan bought outside the Marketplace, Medicare Part A and B, or Medicare Advantage.
• You can offer it to all employees or to certain classes, such as full time, part time, seasonal, salaried, hourly or employees in the same rating area. The rules list the classes, and you cannot make up your own.
• Within a class, the amount can vary only by age (up to a 3 to 1 ratio) and by the number of dependents covered.
• You generally must give written notice 90 days before the plan year, and you can set a waiting period for new hires.
• If you also offer a group plan, you cannot give the same class of employees a choice between the two. A class size minimum, 10 employees if you have fewer than 100, applies when you offer both.

An offer that counts as affordable ends an employee's eligibility for the premium tax credit. For 2026 plans, a CHOICE arrangement is affordable when the employee's cost for the lowest cost silver plan in their area, after your reimbursement, is less than 9.96% of household income. For 2027 the figure is 10.22%.

How does a QSEHRA work?

A QSEHRA lets a small employer reimburse employees tax free for premiums and some other medical costs, up to a yearly cap set by the IRS. For 2026 the cap is $6,450 for employee only coverage and $13,100 for a household. The 2027 limits had not been published when we reviewed this guide on October 26, 2026.

• You must have fewer than 50 full time employees and offer no group health plan, including a flexible spending account.
• You provide it on the same terms to all full time employees. Amounts can vary only by age and by the number of people covered.
• You give written notice when a new employee becomes eligible and 90 days before each plan year for current employees.
• Employees must have qualifying health coverage to use it. If an employee does not claim the money, you keep it.

How do these options affect my employees' Marketplace savings?

An offer that is affordable ends an employee's eligibility for the premium tax credit. An offer that is not affordable leaves the employee a choice. The details differ for each option.

HealthCare.gov offers affordability tools for employers and employees, and a licensed agent can help you test an offer before you make it.

Can I offer both a group plan and a CHOICE arrangement?

Yes, but not to the same employees. You can offer a group plan to one class, such as full time employees, and a CHOICE arrangement to another, such as part time employees. You cannot combine a CHOICE arrangement with a group plan or SHOP coverage for the same people.

If you offer a group plan, you may also add an excepted benefit HRA to reimburse things like dental, vision, coinsurance and copayments. The limit is $2,200 for plan years beginning in 2026 and $2,250 for 2027.

Which option fits my business?

It comes down to three questions: do you want the tax credit, how many full time employees do you have, and do you want to pick the plan or set a budget? These pairings follow the rules above.

• You want the Small Business Health Care Tax Credit: only SHOP group coverage can earn it.
• You have fewer than 50 full time employees and want a capped, predictable budget: a QSEHRA fits, within the yearly limit.
• You want no yearly limit, different amounts for different classes of employees or employees spread across areas: a CHOICE arrangement fits.
• You want one plan, chosen by you, for the whole team: a group plan fits.
• You have 50 or more full time employees: the employer mandate applies, and CHOICE eligibility choices can affect it. Talk to a licensed agent before you decide.

Our quote form lets you say which you want to compare. A licensed agent can show a group plan and a CHOICE arrangement budget side by side.

Insurers and hospitals mentioned

Explore the organizations or brands discussed in this article. A mention does not mean every plan or location is covered.

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