In 2025, Congress considered legislation that included an overhaul and rebranding of the individual coverage health reimbursement arrangement (ICHRA). The initial House-passed version of the One Big Beautiful Bill Act would have renamed ICHRA as the Custom Health Option and Individual Care Expense (CHOICE) Arrangement and brought about many changes.
However, the Senate version of the Bill removed the CHOICE provisions. For now, ICHRA won't become CHOICE. But, there's still the potential for changes in the future. 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 would differ from ICHRA
- What the GOP tax bill proposed for this new arrangement
- What's next for ICHRA
ICHRA almost became the CHOICE Arrangement
The One Big Beautiful Bill Act included provisions that would have formally codified 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 Arrangement. 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.
What could change if ICHRA becomes the CHOICE Arrangement in the future?
While the CHOICE provisions failed in the Senate, the proposed bill offers a glimpse at what could happen if Congress renews its efforts to codify ICHRA. The Bill retained much of the 2019 ICHRA final rules. However, some changes would have greatly altered the way the HRA works as the CHOICE Arrangement1.
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. However, the CHOICE Arrangement would have introduced a new consideration for small businesses.
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 drops to $50 per employee per month in the second year
- Employees must have MEC and participate in the CHOICE Arrangement to qualify
This tax credit could've created quite the incentive for small businesses to select the CHOICE Arrangement over the QSEHRA or traditional group health plans.
Pre-tax salary deductions for insurance premiums
Currently, the ICHRA final rules allow employers to deduct health insurance premiums pre-tax instead of reimbursing employees. 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 One Big Beautiful Bill Act would've allowed for pre-tax deductions for on-exchange premiums.
Offering CHOICE Arrangements and 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 or the other.
The proposed rules for the CHOICE Arrangement would've allowed small employers to offer both a group plan and the arrangement to the same class of employees. This would've allowed employees to choose between the benefits.
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 notice.
What's the status of the CHOICE Arrangement?
The One Big Beautiful Bill Act passed both chambers of Congress, and President Trump signed the bill in July 2025. On May 22, 2025, it 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 eliminating the CHOICE Arrangement provisions.
While the CHOICE Arrangement failed in Congress, it may not be the end for the new benefit. Congress could always take up the issue in a separate piece of legislation.
For now, it's a good idea to prepare for the potential changes. The ICHRA remains a viable health benefit option for organizations of all sizes. If you aren't offering a health benefit, or you're looking to control your costs, consider whether an ICHRA is a potential solution for your business.
This blog post was originally published on May 22, 2025. It was last updated on July 10, 2025.
