CHOICE Act

This bill amends the Internal Revenue Code to allow health reimbursement arrangements (HRAs) integrated with individual health insurance to be treated as meeting certain group health plan requirements, and creates related tax provisions for employers and employees.

Sec. 2, Treatment of health reimbursement arrangements integrated with individual market coverage: This section defines a "custom health option and individual care expense arrangement" (CHOICE arrangement) as an employer-funded HRA that reimburses medical care only while the individual has individual health insurance or Medicare. It must meet nondiscrimination rules (offered to all employees in a specified class on the same terms, with no other group health plan offered to that class), substantiation requirements (verifying enrollment and expenses), and notice requirements (written notice 60 days before the plan year). It also requires employers to report the total permitted benefits on W-2 forms. The amendments apply to plan years beginning after December 31, 2025.

Sec. 3, Participants in CHOICE arrangement eligible for purchase of exchange insurance under cafeteria plan: This section allows employees participating in a CHOICE arrangement to use cafeteria plan salary reduction to purchase individual health insurance through an exchange. It 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 not applicable large employers under section 4980H) who establish a CHOICE arrangement. The credit is $100 per month per enrolled employee in the first year of the credit period, and half that amount in the second year. The employee must be eligible for minimum essential coverage through the arrangement. The credit is part of the general business credit and allowed against the alternative minimum tax. Dollar amounts are adjusted for inflation after 2026. It applies to taxable years beginning after December 31, 2025.