Congress is considering legislation that includes an overhaul and rebranding of the individual coverage health reimbursement arrangement (ICHRA). The One Big Beautiful Bill Act would rename ICHRA as the Custom Health Option and Individual Care Expense (CHOICE) Arrangement and bring about many changes.
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 tax bill proposes for this new arrangement
- What's next for the bill
ICHRA could become the CHOICE Arrangement
The One Big Beautiful Bill 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 looks to codify ICHRA as the CHOICE Arrangement. This provides long-term stability for the tax-free health benefit.
What changes if ICHRA becomes the CHOICE Arrangement?
The proposed bill retains much of the 2019 ICHRA final rules. However, some changes would greatly alter 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, now there's a new consideration for small businesses.
The bill would create a new two-year tax credit for these small businesses that aren't applicable large employers (ALEs).
Here's how the tax credit would work:
- Employers can 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 would create 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 allow 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 allow small employers to offer both a group plan and the arrangement to the same class of employees. This would allow 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 is making its way through Congress. So far, the bill has passed through multiple committees. On May 22, 2025, it passed the House of Representatives by a vote of 215-214. The bill now heads to the Senate for consideration. If the Senate passes the bill as-is, it could become law soon. However, the Senate will likely make changes to the bill. Any changes will need to go back to committee to reconcile the changes and bring it forward for another vote in the House.
Once a version of the bill passes both chambers, it can head to the White House for President Trump's signature.
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.
