CHOICE Act

Bill Number: S. 2875
Origin Chamber: Senate
Congress: 119th Congress, Session 1
Policy Area: Taxation
Status: Introduced
Latest Action: 2025-09-18: Read twice and referred to the Committee on Finance.
Last Updated: 2026-06-10T11:03:26Z

AI-Generated Summary

Purpose

The CHOICE Act aims to expand access to employer-sponsored health benefits by allowing certain health reimbursement arrangements (HRAs)—employer-funded accounts that reimburse employees for medical expenses—to integrate with individual health insurance plans or Medicare. This treats these arrangements as compliant with key requirements under the Affordable Care Act (ACA) and tax laws, promoting more flexible, customizable health coverage options without violating nondiscrimination or other federal rules.

Key Provisions

Definition of CHOICE Arrangements: These are employer-funded HRAs that:
Provide reimbursements up to a fixed annual dollar limit solely for medical care.
Only reimburse when the employee (and dependents) is enrolled in qualifying individual health insurance (not short-term or limited "excepted" benefits) or Medicare Parts A, B, or C.
Follow nondiscrimination rules, ensuring equal terms for employees in defined classes (e.g., full-time, part-time, seasonal, or new hires) and no other group health plans offered to that class (with exceptions for small-group insured plans).
Include procedures to verify enrollment in qualifying coverage and ongoing eligibility.
Require written notice to employees at least 60 days before the plan year starts (or sooner for new hires or new employers), explaining rights and obligations in simple language.
Compliance Treatment: CHOICE arrangements are deemed to meet ACA group health plan standards, including prohibitions on lifetime limits, coverage for preventive services, and appeals processes.
Reporting Requirements: Employers must report the total value of CHOICE benefits on employees' W-2 forms starting in 2026.
Cafeteria Plan Flexibility: Employees in CHOICE arrangements can use pre-tax salary contributions under cafeteria plans (Section 125) to buy health insurance through ACA exchanges, overriding prior restrictions.
Tax Credit for Employers: Small employers (those with fewer than 50 full-time employees, not "applicable large employers" under ACA rules) get a refundable tax credit:
$100 per employee per month for the first year of offering a CHOICE arrangement.
$50 per employee per month for the second year.
Amount adjusts for inflation after 2026; credit applies against regular and alternative minimum taxes.
Only counts employees whose eligibility would qualify as minimum essential coverage under ACA rules.
Guidance and Effective Dates: Builds on 2019 federal rules for HRAs; Treasury, HHS, and Labor must update regulations. Applies to plan years and tax years beginning after December 31, 2025.

Significant Changes to Existing Law

Amends Internal Revenue Code Section 9815(b) to add a new exception for CHOICE arrangements, expanding beyond current allowances for self-insured plans and individual coverage HRAs (ICHRA) from 2019 rules.
Modifies Section 125(f) to exempt CHOICE participants from cafeteria plan bans on exchange coverage purchases.
Adds new Section 45BB for the employer tax credit, integrating it into the general business credit (Section 38).
Clarifies that CHOICE rules do not alter prior HRA regulations but require conforming updates; treats CHOICE as including ICHRA for existing guidance.

Potential Impacts

On Citizens/Employees: Increases options for personalized health coverage, potentially lowering costs through employer reimbursements and pre-tax exchange purchases; ensures protections like preventive care coverage via integrated insurance, but requires active enrollment in individual plans.
On Employers: Eases compliance for offering benefits without full group plans, especially for small businesses via the tax credit (potentially saving thousands per employee over two years); larger employers may segment workforce classes for targeted offerings.
On Government Agencies: IRS gains new W-2 reporting duties; Treasury, HHS, and Labor must issue updated rules, increasing administrative workload but promoting ACA-aligned coverage to reduce uninsured rates.
On International Relations: No direct impact, as this is domestic tax and health policy.

Main Stakeholders Affected

Employers: Particularly small and mid-sized businesses seeking flexible benefits; applicable large employers (50+ full-time staff) are excluded from the tax credit but can still offer arrangements.
Employees and Dependents: Workers in defined classes (e.g., part-time, seasonal, or new hires) gain access to reimbursable individual coverage; nonresident aliens and temporary workers may be included or excluded based on rules.
Health Insurance Issuers and Exchanges: Potential boost in individual market enrollment, as reimbursements tie to their plans; exchanges see more pre-tax purchases.
Government Entities: IRS (tax credits and reporting), HHS (ACA compliance), and Department of Labor (plan oversight).

Notable Legal, Constitutional, or Political Implications

Legal: Harmonizes with 2019 HRA rules (e.g., 84 Fed. Reg. 28888) without overriding them, reducing litigation risk over ACA violations; emphasizes substantiation and notice to prevent fraud or ineligible reimbursements. May face challenges if seen as weakening ACA group plan mandates, but explicitly aligns with minimum essential coverage requirements.
Constitutional: No apparent issues, as it operates within Congress's taxing and spending powers under Article I; does not infringe on states' rights or individual liberties.
Political: Promotes market-driven health options, appealing to those favoring reduced employer mandates; could expand coverage for 20+ million in individual markets but raises equity concerns if benefits vary by employee class or favor certain workers (e.g., age-based increases up to 300% allowed).

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Sheehy, Tim [R-MT]

Cosponsors (4)

Sen. Blackburn, Marsha [R-TN], Sen. Banks, Jim [R-IN], Sen. Marshall, Roger [R-KS], Sen. Cramer, Kevin [R-ND]

Recent Actions

2025-09-18: Read twice and referred to the Committee on Finance.
2025-09-18: Introduced in Senate

Bill Versions

Custom Health Option and Individual Care Expense Act — issued 2025-09-18 — PDF (15 pages)