For 2027 an ICHRA is affordable when the employee cost of the lowest cost silver plan, after the allowance, is 10.22% of income or less.
Employers with 50 or more full-time equivalent employees must offer coverage that meets the ACA affordability test. For a CHOICE Arrangement, previously called an ICHRA, the test compares the allowance to the lowest cost silver plan in each employee rating area. The percentage for 2027 is 10.22%.
How the 2027 test works.
The 2027 Percentage Is 10.22%
The IRS set the 2027 affordability percentage at 10.22% in Rev. Proc. 2026-26. Employee cost above that share of income is not affordable.
The Benchmark Is the Lowest Cost Silver Plan
For an ICHRA, the test uses the lowest cost silver self-only plan available to the employee in their rating area, minus the allowance.
Age and Location Change the Answer
The silver plan premium rises with age and varies by rating area, so the allowance needed differs for each employee and each location.
Three Income Safe Harbors
Employers commonly test against W-2 pay, rate of pay or the federal poverty line. Each gives a different required allowance.
Who the Test Applies To
The employer mandate applies to employers with 50 or more full-time equivalent employees. Smaller employers have more room but should still model the cost.
Classes Can Help
Different allowances for different classes can keep each class affordable without overpaying for others. The classes must follow the federal rules.
The affordability issues that catch employers.
Low Paid and Older Employees Drive the Number
The employee with the lowest pay and the highest silver premium sets the allowance floor for a class. Model that employee, not the average.
Premiums Change Each Year
Silver premiums change at renewal, so an allowance that passed this year may fail next year. Review it every year.
Illustrative Math
An employee earning 3,000 dollars a month has a 10.22% limit of 306.60 dollars. If the lowest cost silver plan is 650 dollars, the allowance must be at least 343.40 dollars. These figures are illustrative only.
Penalty Exposure Is Real
An unaffordable offer can trigger an employer penalty and let employees claim premium tax credits. Counsel and your tax advisor should confirm the exposure.
Same Rules Under Either Name
CHOICE Arrangement is the new federal name for the ICHRA. The affordability rules are the same.
Group Plan Comparison
Compare the cost of an affordable ICHRA with the group plan before you decide.
What to settle before setting an allowance.
Which employees have the lowest pay in each class?
Test them first.
Which rating areas do employees live in?
The silver benchmark changes by area.
Which safe harbor will we use?
Pick W-2, rate of pay or federal poverty line and document it.
How will we update the allowance each year?
Plan a yearly review at renewal.
Who helps employees buy a plan?
Plan enrollment support before the notice goes out.
Is the group plan still the better answer?
Compare the two before you decide.
The questions employers ask about ICHRA affordability.
What is the 2027 affordability percentage?
The IRS set it at 10.22% for 2027 in Rev. Proc. 2026-26.
Which plan is the benchmark for an ICHRA?
The lowest cost silver self-only plan available to the employee in their rating area, minus the monthly allowance.
Does the test apply to every employer?
The ACA employer mandate applies to employers with 50 or more full-time equivalent employees. Smaller employers should still model the cost.
Is a CHOICE Arrangement different from an ICHRA?
No. CHOICE Arrangement is the new federal name announced in September 2026. The affordability rules are the same.
Can the allowance be different for different employees?
It can differ by class, and by age within limits. Classes must follow the federal rules and be applied the same way to everyone in them.
What happens if the offer is not affordable?
Employees may qualify for premium tax credits, and the employer may face a penalty. Ask counsel and your tax advisor about your exposure.
Do we need to redo this every year?
Yes. Silver premiums and the affordability percentage change each year, so review the allowance at renewal.
General information about individual coverage HRAs, not legal or tax advice. Plan-specific questions belong with ERISA counsel and your tax advisor, and we will bring them in.
Where these details come from.
This page summarizes public guidance reviewed in October 2026. Rules change, so confirm current requirements with counsel.
CMS: Individual Coverage HRAs →
U.S. Department of Labor: Employee Benefits Security Administration →
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program: cost, plan performance, risk and administration.
Switch to CFH. Unhappy with your broker? Your employees won’t notice. You will. →
Cookies on This Site
We use cookies to keep the site working properly and to understand how it is used. You can decline anything that is not essential. See our Privacy Policy for the detail.
- Essential: needed for the site to load and for you to move around it. These cannot be switched off.
- Analytics: tell us which pages get read, so we know what is worth writing more of.
- Advertising: set by third parties such as ad and social platforms to measure and target campaigns.