Choice Arrangement

This bill amends the Internal Revenue Code to create rules for employer-provided health reimbursement arrangements (HRAs) that are integrated with individual health insurance coverage, called "custom health option and individual care expense arrangements" or "CHOICE arrangements." It also allows employees in these arrangements to use cafeteria plans to buy exchange insurance and creates a temporary tax credit for small employers who offer them.

Sec. 2, Treatment of health reimbursement arrangements integrated with individual market coverage: This section defines a CHOICE arrangement as an employer-funded HRA that only reimburses medical care when the employee also has individual health insurance or Medicare. It sets nondiscrimination rules requiring the employer to offer the arrangement to all employees in a specified class (like full-time or part-time) on the same terms and not offer another group health plan to that class, with exceptions for small group market plans. It requires procedures to verify that employees have the required coverage and that they receive a written notice at least 60 days before the plan year. These rules apply to plan years starting after December 31, 2025.

Sec. 3, Participants in CHOICE arrangement eligible for purchase of exchange insurance under cafeteria plan: This section allows employees who participate in a CHOICE arrangement to use a cafeteria plan to buy health insurance through an exchange, overriding a general rule that prevents this. This applies to taxable years beginning after December 31, 2025.

Sec. 4, Employer credit for CHOICE arrangement: This section creates a new business tax credit for eligible employers (those who are not applicable large employers under the employer mandate) who offer a CHOICE arrangement. The credit is $100 per month per enrolled employee for the first year the arrangement exists and $50 per month for the second year, adjusted for inflation after 2026. The employee must be considered eligible for minimum essential coverage through the arrangement. This applies to taxable years beginning after December 31, 2025.