CHOICE Act

## Summary The CHOICE Act aims to expand employer-sponsored health reimbursement arrangements (HRAs) by allowing them to be integrated with individual health insurance coverage (e.g., plans purchased on the open market or through exchanges) or Medicare. HRAs are employer-funded accounts that reimburse employees for medical expenses. Currently, HRAs are typically tied to traditional group health plans, but this bill creates a new category called "Custom Health Option and Individual Care Expense Arrangements" (CHOICE arrangements) that would let employers offer HRAs to employees who instead enroll in individual coverage. The bill ensures these arrangements meet federal health insurance requirements, provides tax credits to employers offering them, and allows employees to use pre-tax cafeteria plan funds to purchase individual market insurance alongside a CHOICE arrangement. The goal is to give small businesses and employees more flexibility in health benefits while maintaining consumer protections. ## Key Points - Integration with Individual Coverage: Employers can offer HRAs (CHOICE arrangements) to reimburse employees for medical expenses if they are enrolled in individual health insurance or Medicare, not just traditional group plans. - Nondiscrimination Rules: Employers must offer CHOICE arrangements to all employees within a specified class (e.g., full-time, part-time, or seasonal workers) on the same terms and cannot offer other group health plans to the same class. - Substantiation and Notice Requirements: Employers must verify employees have qualifying individual coverage before reimbursements and provide clear written notice about the arrangement’s terms. - Tax Credit for Employers: Small employers (those not classified as "large" under the Affordable Care Act) receive a tax credit of $100/month per enrolled employee in the first year and $50/month in the second year. Adjustments for inflation apply after 2026. - Cafeteria Plan Exception: Employees in CHOICE arrangements can use pre-tax funds from cafeteria plans (which let workers choose benefits) to buy individual market insurance, bypassing existing restrictions. ## Impact Areas - Small Employers: The tax credit and flexibility to offer CHOICE arrangements could incentivize small businesses to adopt these plans instead of traditional group coverage. - Employees in Individual Market: Workers may gain financial support from employers to purchase individual insurance policies, potentially lowering their out-of-pocket costs. - Health Insurance Markets: Increased employer involvement in the individual market might affect premiums, competition, and enrollment dynamics. - Tax Policy: The new employer tax credit will reduce federal revenue, though the exact impact depends on adoption rates. - Regulatory Compliance: Employers must navigate new rules for nondiscrimination, verification of coverage, and reporting to ensure arrangements meet federal standards. *Technical terms explained*: - Health Reimbursement Arrangement (HRA): An employer-funded account that reimburses employees for medical expenses. - Cafeteria Plan: A workplace benefit plan allowing employees to choose from a menu of pre-tax benefits (e.g., health insurance, FSAs). - Minimum Essential Coverage: The baseline level of health insurance required under the Affordable Care Act to meet individual mandate standards. - Nondiscrimination Requirements: Rules ensuring benefits are offered fairly across employee classes (e.g., full-time vs. part-time workers).