Could CHOICE Reshape the Individual ACA Market?

New Wakely modeling shows where CHOICE adoption could drive individual ACA enrollment growth, and where market economics may limit the opportunity.

Individual Coverage Health Reimbursement Arrangements (ICHRA, recently rebranded by the federal government as Custom Health Option and Individual Care Expense Arrangement, or CHOICE), could create a significant new avenue for growth in the individual ACA market.

But the opportunity will not be the same everywhere.

In this new white paper, Wakely examines how employer adoption of CHOICE could affect individual ACA enrollment, morbidity, and the small group ACA market. Using simulation modeling across South Carolina, Iowa, and Tennessee, the analysis illustrates why local market economics and population characteristics will be critical to understanding CHOICE’s impact.

DOWNLOAD NOW

What the report examines

The report provides an actuarial perspective on:

How CHOICE works and how it differs from traditional employer-sponsored coverage
The current size and momentum of the CHOICE market
The barriers that have limited ICHRA adoption
How premium differences between individual and small group ACA coverage may influence employer adoption
How CHOICE migration could affect individual ACA enrollment and morbidity
Why vendor fees, plan design, network breadth, tax treatment, and employee preferences matter
How large group and state employee health plans could expand the potential CHOICE opportunity
The assumptions and limitations that should inform interpretation of the modeling

Key findings

CHOICE adoption will likely vary significantly by geography

The relative affordability of individual ACA coverage compared with small group ACA coverage is a central driver of employer adoption.

Wakely’s modeling estimates that, depending on the level of savings employers require before switching to CHOICE:

South Carolina: Individual ACA enrollment could increase by approximately 2.4% to 7.6%
Iowa: Individual ACA enrollment could increase by approximately 0.0% to 0.3%
Tennessee: Adoption may be limited because individual ACA premiums are projected to be materially higher than small group ACA premiums

Enrollment growth does not automatically mean improved morbidity

In South Carolina, the modeled shift from small group ACA coverage to CHOICE improved individual ACA morbidity by approximately 0.5% to 1.5%, depending on the scenario.

However, the impact could move in the opposite direction if healthier employer groups choose alternative arrangements such as level-funded products. CHOICE may therefore affect not only enrollment volume, but claims experience and future pricing requirements as well.

The full economics of CHOICE matter

Premium savings are only one part of the employer’s decision.

Vendor fees, employee preferences, network breadth, plan design, administrative requirements, tax considerations, and the availability of individual ACA products all influence whether CHOICE is attractive. In the modeling, an assumed vendor fee of $50 per employee per month materially reduced adoption, particularly in markets where individual and small group ACA premiums were already similar.

The opportunity may extend beyond small group ACA

The analysis focuses on small group ACA employers because of data availability. However, the broader employer-sponsored market is substantially larger.

Large group plans, self-funded employers, and state employee health plans could become important sources of future CHOICE growth. Their potential impact, and the associated morbidity implications, require additional analysis.

Why this matters for health plans and market leaders

CHOICE could change the relationship between employer-sponsored coverage and the individual ACA market.

For health plans, brokers, vendors, and policymakers, the strategic questions are not simply whether CHOICE will grow. The more important questions are:

Where is CHOICE economically viable?
Which employer segments are most likely to adopt it?
What types of members may move into or out of the individual ACA market?
How could those movements affect morbidity and pricing?
Which plan designs and networks will attract employees?
How should issuers identify and monitor CHOICE enrollment?
How should market strategy evolve as federal and state policy changes?

This paper provides a framework for evaluating those questions market by market.

About the analysis

Wakely developed a simulation model using 2024 Wakely ACA data and projected 2027 individual and small group ACA populations in South Carolina, Iowa, and Tennessee. The small group ACA simulation was run 100 times for each state to estimate a range of potential outcomes.

The findings are scenario-based and depend on important assumptions regarding enrollment, premiums, morbidity, employer behavior, employee take-up, plan selection, vendor fees, and regulatory conditions. Results should not be extrapolated to other states or employer coverage segments without additional analysis.

Who should read this paper?

This report is intended for: