What is the CHOICE Arrangement? ICHRA could become CHOICE

By Chase Charaba on December 30, 2025 at 8:30 AM

Congress is once again considering legislation that includes an overhaul and rebranding of the individual coverage health reimbursement arrangement (ICHRA). The House-passed Lower Health Care Premiums for All Americans Act includes provisions that would rename ICHRA as the custom health option and individual care expense (CHOICE) arrangement, bringing about several changes to the benefit¹.

This follows earlier attempts in 2025 to codify ICHRA through H.R. 1, also known as the “One Big Beautiful Bill Act” (OBBBA). That bill initially passed the House, but the Senate version removed the CHOICE provisions. Now, with the latest House bill, Congress has a chance to codify ICHRA in 2026.

PeopleKeep by Remodel Health is following these developments to ensure we're providing the most accurate information. In this blog post, we'll share what these changes could look like for employers and employees.

In this blog post, you'll learn:

What the CHOICE Arrangement is and how it differs from ICHRA
What the GOP bill proposes for this new arrangement
What's next for the bill

This article was updated on December 30, 2025, to reflect the latest legislative changes. We’ll continue to follow this closely and provide updates here.

ICHRA could become the CHOICE Arrangement

The Lower Health Care Premiums for All Americans Act includes provisions that would formally codify the ICHRA into federal statute as the CHOICE Arrangement.

An ICHRA allows employers of all sizes to reimburse their employees tax-free for individual health insurance premiums and qualifying out-of-pocket medical expenses. This gives employers a cost-effective alternative to traditional group health insurance while giving employees the freedom to choose a plan that best fits their needs.

ICHRAs have seen significant growth in recent years, with the HRA Council reporting 29% growth between 2023 and 2024. However, one hurdle for some employers and insurance professionals is that the ICHRA isn't part of federal statute. The federal government created it through executive order and federal regulations.

HRAs aren't a new concept. Adoption of health reimbursement arrangements (HRAs) grew following the IRS's formal recognition of the benefits in 2002. However, the Affordable Care Act (ACA) limited their growth for a number of years. Then, in 2016, Congress created ICHRA's small business counterpart, the qualified small employer HRA (QSEHRA).

Following on the promise of QSEHRA, the Departments of the Treasury, Labor, and Health and Human Services created the ICHRA in 2019. It became available to employers of all sizes in 2020. PeopleKeep was the first vendor to bring an ICHRA administration platform to the market.

The One Big Beautiful Bill Act included language that looked to codify ICHRA as the CHOICE Arrangement². This would have provided long-term stability for the tax-free health benefit. However, the provisions were cut from the final bill that became law in July 2025.

Now, with the latest GOP-backed healthcare bill that passed the House of Representatives on December 17, 2025, the CHOICE Arrangement may have a chance at becoming reality.

What changes if ICHRA becomes the CHOICE Arrangement?

The proposed bill retains much of the 2019 ICHRA final rules and the cut provisions from the OBBBA. However, some changes would greatly alter the way the HRA works as the CHOICE Arrangement.

Codifies ICHRA in statute

Currently, the ICHRA is governed by federal regulations established through an executive order. This bill would codify ICHRA in federal statute by amending the Internal Revenue Code §9815(b), giving it long-term support.

Pre-tax Section 125 salary deductions for on-exchange insurance premiums

Currently, the ICHRA final rules allow employers to pay health insurance premiums pre-tax instead of reimbursing employees. If an employee’s premium is more than their ICHRA allowance, employees can pay the rest on a pre-tax basis through payroll deduction. However, this only applies to individual health plans purchased off-exchange and Medicare premiums. Employees with Marketplace coverage must first pay their premiums and then request reimbursement.

The Lower Health Care Premiums for All Americans Act would allow for pre-tax deductions for on-exchange premiums through a Section 125 plan. The bill would amend Section 125 to create an exception to the no exchange coverage rule for CHOICE Arrangements.

New W-2 reporting requirements

Unlike a QSEHRA, the ICHRA doesn’t require W-2 reporting. This bill would add similar W-2 reporting requirements for CHOICE Arrangements to those of the QSEHRA.

Offering CHOICE Arrangements and small group health insurance

The ICHRA has always allowed employers to offer both the ICHRA and a group health plan. But, this only applies to separate employee classes. The ICHRA has 11 employee classes that employers can use to differ benefit eligibility and allowances. This means employers can offer an ICHRA to some classes, like hourly or part-time workers, while offering a group plan to another class.

With an ICHRA, you can't offer a group plan and the HRA to the same class of employees. Employees also can't choose between one benefit and the other.

The proposed rules for the CHOICE Arrangement would allow small employers to offer both a small group plan and the arrangement to the same class of employees. This would potentially allow employees to select the option that best fits their needs.

A shortened notification period

The ICHRA final rules recommend that employers give their employees at least 90 days' notice before the benefit starts. This gives employees enough time to enroll in individual health insurance coverage and determine whether to opt in or out of the benefit.

However, the CHOICE Arrangement would only require employers to provide a 60-day statutory notice. It also has special timing rules for newly eligible employees.

What was cut from this latest version of the CHOICE Arrangement compared to previous efforts?

Previous versions of the CHOICE Arrangement provisions included language around a new tax credit for small businesses.

The ICHRA is an excellent option for organizations with 50 or fewer full-time equivalent employees (FTEs). While Congress made the QSEHRA for these small businesses, the ICHRA provides additional flexibility that many organizations require, such as employee classes.

Deciding whether to offer a QSEHRA or ICHRA comes down to plan features and the needs of the employer. For example, an employee only needs minimum essential coverage (MEC) to participate in a QSEHRA, not an individual health plan.

Previous versions of the bill would have created a new two-year tax credit for these small businesses that aren't applicable large employers (ALEs).

Here's how the tax credit would have worked:

Employers could get $100 per employee per month for the first year
The tax credit would drop to $50 per employee per month in the second year
Employees would have needed to have MEC and participate in the CHOICE Arrangement to qualify

This tax credit would have created quite the incentive for small businesses to select the CHOICE Arrangement over the QSEHRA or expensive group health plans. However, the Lower Health Care Premiums for All Americans bill removed this language.

What's the status of the CHOICE Arrangement?

The Lower Health Care Premiums for All Americans Act is making its way through Congress. So far, the bill has passed in the House of Representatives by a vote of 216-211 on December 17, 2025. The bill is expected to head to the Senate for consideration in 2026. If the Senate passes the bill as-is, it could become law soon. However, the Senate will likely make changes to the bill or reject it entirely due to the other, more controversial provisions included in the bill.

Once a version of the bill passes, it can head to the White House for President Trump's signature.

Previously, the One Big Beautiful Bill Act passed the House of Representatives by a vote of 215-214 with the CHOICE Arrangement intact. However, the Senate made significant changes to the bill, including the elimination of the CHOICE Arrangement provisions.

Having two ICHRA-related bills pass the House in 2025 shows legislative interest in the health benefit.

PeopleKeep by Remodel Health is watching the progress of this legislation. We'll keep this page updated with the latest news. For now, it's a good idea to prepare for the potential changes. If you aren't offering a health benefit, or you're looking to control your costs, consider whether a CHOICE Arrangement is a potential solution for your business.

If you want to learn more about the ICHRA and evaluate this option for your business, contact an HRA specialist.

This blog post was originally published on May 22, 2025. It was last updated on December 30, 2025.