HR 5463119th CongressIn Committee

Choice Arrangement

Introduced: Sep 18, 2025

Sponsor: Rep. Hern, Kevin [R-OK-1] (R-Oklahoma)

Economy & TaxesHealthcare

Standard Summary

Comprehensive overview in 1-2 paragraphs

This bill, titled the Choice Arrangement Act of 2025, would reshape how employer-provided health reimbursement arrangements (HRAs) can be used in conjunction with individual market coverage. It creates a new category called a “custom health option and individual care expense arrangement” (CHOICE arrangement) that is funded solely by the employer and integrated with the employee’s eligible individual market coverage (and certain other comprehensive coverage). If adopted, CHOICE arrangements would be treated as meeting key ACA-related and health plan requirements, would be subject to new nondiscrimination, substantiation, and notice rules, and would be eligible for a new employer tax credit (the CHOICE arrangement credit). The bill also allows employees participating in a CHOICE arrangement to purchase exchange insurance under a cafeteria plan and provides for W-2 reporting of CHOICE benefits. The changes would take effect for plan years beginning after December 31, 2025. In short, the bill aims to expand how employers can use HRAs tied to individual market coverage, adding a formal framework (with rules and a tax credit) intended to promote employer-provided CHOICE arrangements while maintaining certain consumer protections.

Key Points

1CHOICE arrangement defined and treated as compliant
2- Establishes a new CHOICE arrangement (a custom health option and individual care expense arrangement) that is employer-funded and limited to payments for medical care up to a fixed maximum per employee per period.
3- Payments/reimbursements are only for medical care during periods when the employee is covered by eligible health coverage (individual market coverage or certain Medicare/Medicare-like coverage).
4- Must meet certain criteria (nondiscrimination, substantiation, and notice) and be treated as meeting requirements in sections that govern health plans and public health service act provisions.
5Nondiscrimination, substantiation, and notice requirements
6- Nondiscrimination: Employers must offer the CHOICE arrangement to all employees within a specified class on the same terms and cannot offer other group health plans to those employees within that class (with some exceptions for certain small-group plans).
7- Specified classes: The bill enumerates various employee classes (e.g., full-time, part-time, salaried, seasonal, site of employment, certain bargaining or waiting-period groups, nonresident aliens with no U.S. earned income, etc.) and allows the Secretary to designate additional classes.
8- Substantiation: Plans must have reasonable procedures to verify enrollment in eligible coverage and ongoing eligibility for reimbursements.
9- Notice: Employees must generally receive written notice about their rights and obligations at least 60 days before the plan year, with additional timing rules for certain new hires or newly established employers.
10W-2 reporting
11- Adds CHOICE arrangement benefits to the list of items employers must report on employees’ W-2 forms as a “permitted benefit” for enrolled individuals under a CHOICE arrangement.
12Cafeteria plan exception for exchange insurance
13- Creates an exception under Section 125(f)(3) so that employees participating in a CHOICE arrangement can purchase exchange insurance without the usual limitations that would otherwise apply.
14New CHOICE arrangement tax credit for employers
15- Adds a new Sec. 45BB: an employer credit for CHOICE arrangements.
16- Calculation: In the first year, $100 per enrolled month; in the second year, half of the first-year amount per enrolled month. The credit period covers the first two years after the employer implements the CHOICE arrangement.
17- Eligibility: Employers that are not an applicable large employer (ALE) under 4980H and whose employees are eligible for minimum essential coverage via a CHOICE arrangement.
18- Inflation adjustments: Starting in 2027, the dollar amount is adjusted annually for cost-of-living increases, rounded down to the nearest $10.
19- Credit integration: The CHOICE arrangement credit becomes part of the general business credit; it can be used against regular tax liability and the alternative minimum tax (AMT) where applicable.
20- Effective date: Applies to taxable years beginning after December 31, 2025.
21Regulatory alignment and effectiveness
22- The Treasury/HHS/Labor Secretaries would modify existing rules to conform to these amendments.
23- The bill preserves that key pre-existing rules related to other health arrangements are not to be inferred or overridden except as explicitly amended.
24Effective date for changes
25- The amendments apply to plan years beginning after December 31, 2025 (i.e., plan years 2026 and later).

Impact Areas

Primary group/area affected- Employers (especially non-ALE employers) and their benefits/HR departments: can offer CHOICE arrangements with an explicit tax credit and a clear framework, potentially expanding the use of HRAs tied to individual market coverage.- Employees enrolled in CHOICE arrangements: could gain access to employer-funded, dollar-limited reimbursements for medical care tied to their own individual market or eligible government coverage, with nondiscrimination and notice protections.Secondary group/area affected- Health insurers and issuers of individual-market plans: more employer-sponsored reimbursement options may influence demand for specific individual-market and exchange coverage.- Employers administering cafeteria plans (Section 125): new exception allows CHOICE participants to obtain exchange coverage without triggering some traditional cafeteria-plan restrictions.Additional impacts- Tax and regulatory implications: introduction of a new tax credit (45BB) and changes to W-2 reporting and AMT treatment could affect employer costs, tax planning, and payroll administration.- Coverage dynamics: broader use of CHOICE arrangements could increase access to coverage for some employees, but design details (nondiscrimination, coverage requirements, and maximums) will shape who benefits and how.- Administrative complexity: adding substantiation, notice, and class-based nondiscrimination rules increases administrative duties for employers implementing CHOICE arrangements and for employers’ HR/benefits teams.

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