Choice Arrangement
- Sponsor
- Rep. Hern, Kevin [R-OK-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Sep 18, 2025
Bottom line
The bill aims to expand employer flexibility in offering health benefits by facilitating HRAs for individual market coverage and providing a tax credit to encourage their adoption, potentially shifting employees from traditional group plans to individual market plans.
What it actually does
This bill amends the Internal Revenue Code of 1986 to establish specific rules for "Custom Health Option and Individual Care Expense arrangements" (CHOICE arrangements), which are employer-provided health reimbursement arrangements (HRAs) integrated with individual market health insurance or Medicare. It clarifies that these arrangements meet certain Affordable Care Act (ACA) requirements, sets nondiscrimination and operational standards, requires reporting on W-2 forms, allows participants to use cafeteria plans for Exchange coverage, and creates a new employer tax credit for small businesses offering these arrangements.
Proponents argue
Proponents would argue that this bill increases flexibility for employers and employees, allowing individuals to choose health plans that best fit their needs in the individual market while still receiving employer contributions. It could empower small businesses to offer health benefits more easily and potentially lower healthcare costs by increasing competition in the individual market. The tax credit incentivizes employers, especially small businesses, to adopt these arrangements.
Opponents contend
Opponents might argue that this bill could undermine traditional employer-sponsored group health plans, potentially leading to a sicker risk pool in the individual market and higher premiums for those who remain. Concerns could be raised about the adequacy of individual market coverage compared to comprehensive group plans, and the potential for employers to shift costs or responsibilities to employees. The tax credit could be seen as an unnecessary subsidy or a mechanism to encourage a less robust form of coverage.
The bill is concise, allowing an informed reader to understand its core provisions within a reasonable timeframe.
Section 2(a), amending IRC Section 9815(b)
Custom Health Option and Individual Care Expense Arrangements (CHOICE) Definition and Compliance
This provision defines "Custom Health Option and Individual Care Expense arrangements" (CHOICE arrangements) as employer-funded HRAs that reimburse medical care expenses for individuals covered by individual health insurance or Medicare. It explicitly states that these arrangements are treated as meeting certain requirements of the Affordable Care Act (ACA), specifically sections 9802, 2705, 2711, 2713, and 2715 of the Public Health Service Act, which relate to nondiscrimination, guaranteed renewability, essential health benefits, and internal/external review.
Supporters argue
Supporters would argue this provision clarifies the legal status of CHOICE arrangements, ensuring they are compliant with existing health care laws, thereby encouraging their adoption as a flexible employer-sponsored health benefit option.
Critics contend
Critics might argue that this provision could be seen as an attempt to circumvent certain ACA protections by allowing HRAs to be integrated with potentially less comprehensive individual market plans, without fully subjecting them to all group health plan requirements.
Tradeoffs
Balances employer flexibility and employee choice with the regulatory framework of the ACA.
Section 2(a), amending IRC Section 9815(b)(2)(C)
Nondiscrimination Rules for Offering CHOICE Arrangements
This section outlines rules to prevent employers from discriminating in offering CHOICE arrangements. Employers must offer the arrangement on the same terms to all employees within a specified class (e.g., full-time, part-time, salaried, by rating area, or under collective bargaining). Employers generally cannot offer both a CHOICE arrangement and another group health plan (except account-based plans or excepted benefits) to the same class of employees. It allows for variations in maximum dollar amounts based on dependents or participant age (up to 300% of the lowest amount).
Section 2(a), amending IRC Section 9815(b)(2)(D) and (E)
Operational Requirements for CHOICE Arrangements
This provision mandates that CHOICE arrangements must have reasonable procedures to verify that participants and their dependents are, or will be, enrolled in individual health insurance or Medicare. It also requires employers to provide written notice to eligible employees at least 60 days before the plan year begins, detailing their rights and obligations under the arrangement. Special deadlines apply for new hires or newly established employers.
Section 2(b), amending IRC Section 6051(a)
Reporting of CHOICE Arrangement Benefits on W-2 Forms
This provision amends the Internal Revenue Code to require employers to report the total amount of permitted benefits for enrolled individuals under a CHOICE arrangement on employees' W-2 forms. This ensures transparency regarding the value of employer-provided health benefits.
Section 3, amending IRC Section 125(f)(3)
Cafeteria Plan Eligibility for Exchange Coverage with CHOICE Arrangements
This section amends the Internal Revenue Code to allow employees participating in a CHOICE arrangement to purchase individual health insurance coverage through an Exchange (marketplace) using a cafeteria plan. Previously, cafeteria plans generally could not be used to purchase coverage on an Exchange. This change facilitates the integration of employer contributions via CHOICE arrangements with individual market plans.
Section 4, adding new IRC Section 45BB
New Employer Tax Credit for Offering CHOICE Arrangements
This section establishes a new general business credit for eligible employers (those not classified as "applicable large employers" under Section 4980H, generally small employers) who offer CHOICE arrangements. The credit is $100 per employee per month for the first year and $50 per employee per month for the second year of the credit period. The credit amounts are subject to inflation adjustment after 2026.
Allows an employer to designate a subclass of employees hired after a specific date as a "specified class" for nondiscrimination purposes. This means new hires can be treated differently from existing employees regarding the offering of CHOICE arrangements.
Section 2(a), amending IRC Section 9815(b)(2)(C)(iii)
Why it matters:Standard legislative practice to provide flexibility for employers in managing benefits for different cohorts of employees.
Case for: Proponents would argue this provides necessary administrative flexibility for employers, allowing them to implement new benefit structures without disrupting existing arrangements for current employees.
Case against: Critics might argue this could create a two-tiered system where new employees receive different, potentially less favorable, benefits compared to long-term employees, undermining the spirit of nondiscrimination.
Estimated impact: Facilitates the adoption of CHOICE arrangements by employers by easing transition for new hires.
Specifies that determinations of full-time, part-time, or seasonal employment status for nondiscrimination purposes can be made under rules similar to IRC Section 105(h) or 4980H, at the employer's election. This choice applies to all employees for the plan year.
Section 2(a), amending IRC Section 9815(b)(2)(C)(iv)
Why it matters:Technical cross-reference to existing definitions for consistency and clarity in tax law.
Case for: Proponents would argue this provides employers with flexibility and consistency by allowing them to use established definitions for employee classifications, reducing administrative burden.
Case against: No specific opposition is typically raised against this provision as it provides administrative clarity.
Estimated impact: Standardizes employee classification for CHOICE arrangement purposes.
States that no inference should be made from the amendments in this bill regarding the rules prescribed in the Federal Register on June 20, 2019 (84 Fed. Reg. 28888), relating to HRAs and other account-based group health plans, to the extent not inconsistent with the amendments. It also treats "custom health option and individual care expense arrangements" as including "individual coverage health reimbursement arrangements" for purposes of those rules.
Section 2(c)(1)
Why it matters:This is a standard legislative technique to clarify the relationship between new statutory language and existing regulatory guidance, preventing unintended interpretations or challenges to prior rules.
Case for: Proponents would argue this clause provides legal certainty, ensuring that the bill's changes do not inadvertently invalidate or create ambiguity around existing HRA regulations, thus promoting stability in the regulatory environment.
Case against: Critics might argue that this clause could be seen as an attempt to insulate existing regulations from scrutiny, even if they might be inconsistent with the spirit of the new law, or that it creates a complex interplay between statute and regulation.
Estimated impact: Preserves the legal standing of existing HRA regulations while integrating the new CHOICE arrangements.