As an employer, staying on top of evolving legislation is key, especially when it could impact how you provide health benefits to your team. Currently, a new bill is under consideration in Washington, informally referred to as the “One Big Beautiful Bill.” Among its many provisions is a notable update to the Individual Coverage Health Reimbursement Arrangement (ICHRA), a popular health benefit model that allows employers to reimburse employees for individual health insurance and qualified medical expenses.

The One Big Beautiful Bill (OBBB) introduces CHOICE Arrangements, short for Custom Health Option and Individual Care Expense, which would build on the ICHRA model, aiming to codify it into law with added improvements and incentives. So, what exactly does this mean for your business? If you already offer an ICHRA or are considering one, how would a CHOICE Arrangement change things?

In this article, we’ll explain what CHOICE Arrangements are, how they work, and how they compare to existing models like ICHRA and QSEHRA.

Note: CHOICE Arrangements are not yet law. This article is based on proposed legislation and may change as it moves through Congress.

What is a CHOICE Arrangement?

A Custom Health Option and Individual Care Expense Arrangement (CHOICE Arrangement) is a proposed update to the existing ICHRA model. While the structure is similar, the goal behind CHOICE Arrangements is to enhance the flexibility, accessibility, and appeal of this already popular benefits model.

Under a CHOICE Arrangement, employers offer a defined contribution by setting a monthly reimbursement allowance that employees can use to purchase their own individual health insurance plans and cover out-of-pocket medical expenses. This structure gives employers predictable cost control and gives employees the power to choose a plan that fits their unique healthcare needs, networks, and budgets.

The acronym CHOICE emphasizes the two key features of the proposed model:

• Custom Health Option: Employees aren’t stuck with a one-size-fits-all group plan. They have the freedom to select coverage that includes their preferred doctors, prescriptions, and benefits.
• Individual Care Expense: Reimbursements aren’t limited to premiums—employers can also choose to cover qualified medical expenses like copays, therapy sessions, and prescription drugs.

While CHOICE Arrangements aren’t yet law, they’re part of the One Big Beautiful Bill (OBBB) currently under review in Congress. If passed, they would build upon ICHRA’s foundation by offering added incentives, like pre-tax premium deductions and small business tax credits, making them an even more attractive option for employers looking to provide benefits without the high cost and complexity of traditional group plans.

To summarize, CHOICE Arrangements aim to put control back in the hands of both employers and employees, paving the way for a more modern and customizable approach to health benefits.

Why Is ICHRA Changing to CHOICE?

The shift from Individual Coverage HRA (ICHRA) to CHOICE Arrangement isn’t just a name change; it reflects a broader effort to improve and expand a benefits model that’s already helping thousands of employers offer affordable, flexible healthcare. While ICHRA has been a game-changer since its launch, allowing employers of all sizes to reimburse employees for individual health insurance and medical expenses, some policymakers and industry leaders believe it’s time for an upgrade. Overall, the proposal for CHOICE Arrangements is not about replacing ICHRA, but rather codifying it into law with additional features aimed at improving flexibility, simplicity, and small business adoption.

The OBBB aims to do just that by introducing enhancements designed to:

1. Make the Concept More Accessible

The acronym “ICHRA” isn’t the most intuitive or engaging. By rebranding it as CHOICE, the new model immediately communicates what it’s about: giving people more choice in how they access and pay for healthcare. It’s a more human-centered name that aligns better with the trend toward personalization in employee benefits.

2. Expand Participation—Especially Among Small Employers

Despite its advantages, ICHRA adoption among small employers has remained relatively limited. CHOICE Arrangements aim to fix that by introducing new tax credits for small businesses that implement them. This incentive could make offering health benefits far more feasible for companies that have traditionally opted out due to cost.

3. Streamline and Simplify the Process

One proposed change in the CHOICE model is to shorten the required notice period from 90 days to 60 days, reducing friction for employers who want to implement these benefits more quickly. Other potential enhancements, like pre-tax premium deductions for ACA marketplace plans, would also remove administrative barriers that have limited ICHRA’s flexibility.

4. Reflect the Future of Benefits

The workforce is evolving. Employees want customization, and employers want predictability and simplicity. CHOICE Arrangements are designed to support this shift, positioning the benefit as a long-term, scalable solution, not just an alternative to traditional group plans, but a better option.

In short, the proposed move from ICHRA to CHOICE is about more than rebranding. It’s a strategic push to modernize health benefits, improve adoption across employer types, and deliver a better experience for both companies and their teams.

How CHOICE Arrangements Work for Employers and Employees

A CHOICE Arrangement functions as a defined contribution model: instead of offering a traditional group health insurance plan, employers provide a set amount of money each month that employees can use to purchase their own individual health insurance and cover eligible medical expenses. The goal is to offer flexibility for employees while giving cost control and simplicity to employers.

Here’s how it works from both perspectives:

For Employers

1. Set a Monthly Contribution: Employers determine how much they want to contribute to each employee’s health coverage. This amount can vary by employee class (e.g., full-time vs. part-time) and is entirely customizable.
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2. Decide What’s Covered: Employers can choose to reimburse just insurance premiums or include qualified medical expenses, such as copays, prescriptions, and therapy.
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3. Communicate the Benefit: Under the proposed CHOICE rules, employers would notify employees 60 days in advance of the benefit’s start date (shortened from the current 90-day notice under ICHRA).
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4. Reimburse Employees Tax-Free: Reimbursements are tax-free for both employers and employees, as long as employees are enrolled in a qualified health plan. Currently, pre-tax payments for ACA marketplace premiums through a cafeteria plan are prohibited. If OBBB passes, employees may also be able to pay for ACA Exchange premiums pre-tax, increasing affordability and adoption.
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5. Simplify Administration: Employers can manage CHOICE benefits through third-party platforms or reimbursement tools, freeing up internal resources and reducing HR overhead.

For Employees

1. Shop for a Health Plan That Fits: Employees use their employer’s contribution to purchase an individual health insurance plan that meets their needs, on or off the ACA Marketplace. This allows them to keep preferred doctors, access specific networks, or prioritize certain prescription coverage.
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2. Submit Proof of Coverage: To receive tax-free reimbursements, employees need to provide proof that they’re enrolled in an eligible plan.
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3. Get Reimbursed Easily: Reimbursements can be processed through payroll or a third-party benefits platform. Some services may offer auto-pay features for premiums to streamline the experience.
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4. Use Funds for Medical Expenses: If the employer allows, employees can also submit eligible receipts for qualified medical expenses like copays, prescriptions, or lab work for reimbursement, just like with ICHRA.

Key Proposed Enhancements with CHOICE

• Pre-tax deductions for ACA Exchange premiums (currently not allowed under ICHRA)
• Shorter notice period (60 days vs. 90)
• New small business tax credits to encourage adoption
• Same fundamental structure as ICHRA, but codified with better branding, increased flexibility, and stronger incentives

What Will Be Different: CHOICE vs. ICHRA vs. QSEHRA

If you're currently offering an ICHRA or have looked into Qualified Small Employer HRAs (QSEHRAs), the introduction of CHOICE Arrangements may raise important questions. While all three models fall under the health reimbursement arrangement umbrella, CHOICE Arrangements, if passed into law, will offer several key updates aimed at improving flexibility, access, and employer adoption.

Here’s a side-by-side comparison of CHOICE Arrangements, ICHRA, and QSEHRA to help you understand what may change:

Qualified Small Employer HRA (QSEHRA)

• Eligible Employers: Only available to employers with fewer than 50 full-time equivalent (FTE) employees
• Contribution Limits: Yes, annual maximums set by the IRS
• Group Plan Restrictions: Cannot be offered alongside a group health plan
• Reimbursable Expenses: Individual premiums and qualified medical expenses
• Notice Requirements: Must provide a simple annual notice to employees
• Ideal For: Very small businesses without a group health plan

Individual Coverage HRA (ICHRA)

• Eligible Employers: Available to employers of any size
• Contribution Limits: No annual maximums
• Group Plan Restrictions: Cannot offer both a group plan and ICHRA to the same class of employees
• Reimbursable Expenses: Individual premiums and, optionally, qualified medical expenses
• Notice Requirements: Requires 90 days' advance notice to employees
• Limitations: Does not currently allow pre-tax payroll deductions for ACA Marketplace plans; administrative requirements may be complex for small teams

CHOICE Arrangement (Proposed)

• Eligible Employers: All employers, including small and mid-sized businesses
• Contribution Limits: No federal cap; employer-defined contribution
• Group Plan Restrictions: Same as ICHRA—cannot offer to the same class of employees as a group plan
• Reimbursable Expenses: Individual premiums and, optionally, medical expenses
• Notice Requirements: The proposal includes reducing the notice period from 90 days to 60 days
• What’s New:
  • Potential for pre-tax deductions for ACA Marketplace premiums
  • Introduction of a small business tax credit for new adopters
  • Rebranding and simplification to drive wider adoption

The Bottom Line:

CHOICE Arrangements would retain the flexibility of ICHRA but introduce new enhancements, particularly for small businesses, making it easier to offer competitive health benefits without the administrative burden or unpredictable costs of traditional group plans.

How CHOICE Arrangements Benefit Small and Large Employers

One of the most promising aspects of CHOICE Arrangements is their broad appeal to businesses of all sizes. Whether you're running a lean, growing team or managing a large multi-state organization, CHOICE Arrangements offers flexibility, cost control, and simplicity—without the headaches of traditional group health insurance.

Below, we break down how this proposed benefit model could help both small employers and larger organizations meet their health benefit goals.

How CHOICE Arrangements Support Small Employers

For years, small businesses have struggled to offer affordable, competitive health benefits. Many simply opt out—only about 30% of small businesses offer health insurance today, a steep drop from 47% in 2000. CHOICE Arrangements aim to reverse that trend by removing common barriers.

Key advantages for small employers include:

• Cost Predictability: Instead of being tied to rising group plan premiums, small businesses can set a fixed monthly contribution that fits their budget.
• No Group Plan Required: CHOICE Arrangements allow employers to offer a benefit without the administrative burden of managing a traditional plan.
• Attracting and Retaining Talent: Even without a full group plan, small employers can offer real value by giving employees money to purchase their own health coverage.
• Tax-Free Reimbursements: Contributions are tax-deductible for the business and tax-free for employees (as long as they’re enrolled in a qualified plan such as a Minimum Essential Coverage (MEC) plan).
• New Tax Credit (Proposed): The OBBB includes a proposed credit that would apply to eligible small businesses that are newly adopting CHOICE Arrangements. The credit would be available for up to two years per employer and applies only to enrolled employees:
  • Year 1: Up to $100/month per enrolled employee
  • Year 2: Up to $50/month per enrolled employee

How CHOICE Arrangements Benefit Mid-Size and Large Employers

Larger companies face a different set of challenges: rising group plan costs, managing multiple benefit options across states or business units, and meeting employee expectations for flexibility. CHOICE Arrangements offer a smarter, more scalable alternative.

Key advantages for larger employers include:

• Defined Contribution Model: Employers set the budget, not the insurance market. This allows for better long-term cost control and forecasting.
• Simplified Multi-State Management: Instead of juggling multiple group plans across locations, employers can provide CHOICE nationally with minimal variation.
• Employee Satisfaction: Workers can choose coverage that fits their specific needs—whether that’s keeping a preferred provider, accessing specialty care, or selecting a plan with the right deductible.
• Recruitment & Retention: Offering personalized benefits can be a competitive differentiator in a tight labor market.
• Administrative Efficiency: By shifting to a reimbursement model, employers may reduce the time, resources, and compliance requirements typically associated with group health plans.
• Scalability During Growth: CHOICE Arrangements are ideal for businesses expanding into new markets or acquiring teams with diverse needs—no need to merge or overhaul existing plans.

CHOICE Arrangements: When Will They Take Effect?

As of May 26, 2025, CHOICE Arrangements are not yet available, but momentum is building. The OBBB has already passed through the House on May 22, 2025. Now, it lies with the Senate who could take it up later this year. The White House is looking for a July 4, 2025, deadline.

While there’s no official launch date yet, here’s what we know so far:

• Legislative Progress: The bill advanced out of the House Ways and Means Committee as of mid-May 2025.
• Passed the house: The bill passed the House on May 22, 2025
• Implementation Timeline (If Passed): If signed into law in 2025, CHOICE Arrangements could become available for employers to implement as early as plan year 2026, though this is still speculative and dependent on regulatory guidance.

What Should Employers Do in the Meantime?

Even though CHOICE Arrangements aren't available just yet, now is a great time to:

• Stay informed about legislative updates that could affect your benefits strategy.
• Evaluate your current ICHRA or QSEHRA setup and determine if CHOICE could offer a better fit down the road.
• Work with a trusted benefits partner to understand how to transition if CHOICE becomes law.
• Explore flexible benefit solutions, like Vitable, that are available now and can complement or bridge the gap until CHOICE Arrangements go live.

As legislation moves forward, we’ll continue monitoring updates closely and will share new information as it becomes available.

How Vitable Supports Employers: Before and After CHOICE Arrangements Are Available

Whether you're already offering ICHRA or planning ahead for CHOICE Arrangements, Vitable is your partner in delivering smarter, more accessible health benefits.

If you're managing an ICHRA today, we’ll help you transition smoothly when CHOICE becomes available, ensuring compliance, employee clarity, and minimal disruption. And if you're new to reimbursement-based benefits, Vitable makes it easy to get started.

What sets us apart? Every plan through Vitable includes Direct Primary Care, which offers real everyday care like unlimited primary care visits, 1,000+ free prescriptions and labs, and mental health support and more. We help empower businesses to provide real care employees want and use, while keeping costs affordable.

This legislation is still evolving, and its provisions could change as it moves through the legislative process. We're closely monitoring each development to keep you informed about how potential policy shifts may impact your business and your employees.

Have questions? Reach out to our team using the form below or follow our blog and our LinkedIn for the latest updates as this legislation progresses.

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