Whether a custom health option and individual care expense (CHOICE) arrangement makes financial sense for a small employer depends less on healthcare costs in the abstract and more on which state that employer operates in, according to new actuarial modeling from Wakely Consulting Group, an HMA Company.
CHOICE, formerly known as the individual coverage health reimbursement arrangement (ICHRA), allows employers to fund individual reimbursement accounts that employees use to purchase coverage on the ACA marketplace rather than through a traditional group plan.
The October 2026 white paper, authored by Wakely actuaries Taylor Gehrke, Michael Cohen, and Kayla Zimdars, modeled CHOICE adoption scenarios across South Carolina, Iowa, and Tennessee. Each state was selected to represent a different premium relationship between individual ACA and small group ACA coverage. The results vary enough between markets that the authors explicitly caution against extrapolating findings to other states.
In South Carolina, where the paper estimates individual ACA premiums are at least 50% higher than small group ACA in 2027, the modeling estimates that individual ACA enrollment could increase between 2.4% and 7.6% if small employers switch to CHOICE, depending on the premium savings threshold they require before making the change.
In Iowa, where the two markets are priced much closer together, the enrollment impact ranges from 0.0% to just 0.3%. In Tennessee, where individual ACA premiums are estimated to be at least 50% higher than small group ACA, the paper finds meaningful adoption unlikely regardless of other incentives.
The analysis introduces a practical variable that reshapes the Iowa picture. When a $50-per-employee-per-month vendor fee is factored in, the premium savings advantage in Iowa effectively disappears. Wakely describes that figure as consistent with publicly available pricing from at least one CHOICE platform administrator, though fees vary across vendors. The implication is that in markets where individual and small group ACA premiums are roughly equivalent, vendor fees alone may be enough to make CHOICE uncompetitive without additional tax incentives.
CHOICE is not a cost-savings story in every market, and the paper’s scenario modeling makes clear that the same employer operating in different geographies could reach opposite conclusions about its viability.
The morbidity picture adds another layer of complexity. When employer-covered workers move from small group ACA coverage into the individual ACA risk pool, the effect on that pool’s health profile depends on the relative morbidity of the two populations.
In South Carolina, the paper estimates individual ACA morbidity could improve by 0.5% to 1.5% under CHOICE adoption scenarios, because the small group ACA population entering the pool is estimated to be healthier than existing individual ACA enrollees.
But if healthier employer groups opt for level-funded alternatives instead, the paper notes, CHOICE adoption could produce the opposite outcome, worsening the individual ACA risk pool and feeding through to future premium increases. A deteriorating risk pool raises the claims burden for all individual ACA enrollees in that state, putting upward pressure on premiums for everyone buying coverage outside of employer-sponsored plans.
Wakely identifies broker awareness as a structural barrier to adoption, noting that advisors who are unfamiliar with CHOICE will not present it to employer clients. The paper’s finding lands against a backdrop where more than half of benefits brokers have still never sold the product, then called an ICHRA, according to the TASC 2026 Broker ICHRA Survey, even as employer adoption of the model passed 20,000 businesses this year.
The risk transfer dimension compounds the advisor’s responsibility. As the Employee Benefit Research Institute’s Paul Fronstin has noted, CHOICE shifts more coverage risk onto employees than traditional group plans do, an exposure that becomes sharper when individual ACA premiums are rising and the market is under subsidy-expiration pressure.
CMS is expected to release new CHOICE guidance in late 2026 or early 2027. Wakely has committed to a follow-up analysis once the rule is published.
