House-Passed Reconciliation Bill Would Write ICHRA Into Law as a 'CHOICE arrangement'

On May 22, 2025, the House passed H.R. 1, the budget reconciliation bill titled the "One Big Beautiful Bill Act," by a vote of 215 to 214. Buried in its health title are three sections that matter to anyone selling individual coverage HRAs. Together they would move ICHRA out of regulation and into the Internal Revenue Code, under a new name: the custom health option and individual care expense arrangement, or CHOICE arrangement.

The bill is now in the Senate, which is working on its own version, so none of this is law yet. But it's worth understanding what the House text says, because clients and prospects are already asking.

Why codification matters

Today, ICHRA exists because of the 2019 final rule issued by Treasury, Labor, and HHS. Regulations can be revised or withdrawn by a future administration. Writing the arrangement into the tax code would give employers more confidence that the structure they adopt will still be there in five or ten years. That long-term certainty is a common concern for employers weighing a move away from group coverage.

What section 110201 would do

Section 110201 defines a CHOICE arrangement as an employer-funded health reimbursement arrangement that reimburses medical care, up to a fixed dollar amount, only for months when the person is covered by individual health insurance (not just excepted benefits) or by Medicare Parts A and B or Part C. Much of it mirrors the current rule:

• Same terms within a class. The arrangement must be offered on the same terms to everyone in a specified class, and the employer generally can't offer another group health plan to that class.
• Permitted variation. Amounts can rise with the number of covered dependents and with age, but the age-based amount can't exceed 300% of the lowest amount.
• Substantiation. The plan must have reasonable procedures to verify enrollment in qualifying coverage.
• New-hire subclass. Employers could carve out employees hired after a set date.

There are also notable differences from today's rule:

• A 60-day notice. Employees would get written notice at least 60 days before the plan year starts, instead of the 90 days required now. New hires and newly established employers would have until coverage takes effect.
• An updated list of classes. The statutory list includes full-time, part-time, salaried, non-salaried, seasonal, collectively bargained, waiting-period, and certain nonresident alien employees, plus employees whose primary site of employment is in the same rating area. The Secretary could designate others.
• Small-group carve-out. If an employer offers a fully insured small-group plan to everyone in a class, the bar on offering another group plan to that class wouldn't apply to that small-group plan.
• W-2 reporting. Employers would report the total permitted benefits under a CHOICE arrangement on employees' Forms W-2.

The section says no inference should be drawn about the 2019 rules except where they're inconsistent with the new language, and it directs the agencies to conform their regulations. It would apply to plan years beginning after December 31, 2025.

What section 110202 would do

Under current law, employees can't use a cafeteria plan to pay, pre-tax, for individual coverage bought through an Exchange. That's why ICHRA employees who want to pay their share of the premium with salary reductions typically buy coverage off-Exchange.

Section 110202 would remove that restriction for employees participating in a CHOICE arrangement, starting with taxable years beginning after December 31, 2025. For many employees, that would make it simpler to pair Exchange coverage with pre-tax payroll deductions.

What section 110203 would do

Section 110203 creates a new general business credit for employers that aren't applicable large employers. For each employee enrolled in a CHOICE arrangement, the employer could claim:

• $100 per month during the first year of the credit period, and
• half that amount per month during the second year.

The credit period is the first two years starting with the month the employer first establishes a CHOICE arrangement. To count, the employee's eligibility must be enough to make them ineligible for a premium tax credit, which means the arrangement has to be affordable. The dollar amount would be indexed for inflation after 2026.

What it wouldn't change

• Affordability still matters. The employer shared responsibility rules and the premium tax credit affordability test aren't rewritten by these sections.
• Employees still shop the individual market. Plan availability, networks, and premiums in each county remain the practical constraints.
• Existing ICHRAs aren't invalidated. The bill treats references to CHOICE arrangements as including ICHRAs for purposes of the existing rules.

What to tell clients now

1. Nothing changes for 2025 plan years. The current ICHRA rule, including the 90-day notice, still applies.
2. Plan for both outcomes. If you're designing a January 2026 ICHRA, build the timeline around today's 90-day notice. If the bill becomes law with the 60-day notice, you'll simply have more room.
3. Don't promise the credit. Small employers may hear about the $100-per-month credit. It only exists if the Senate keeps it and the bill is signed.
4. Watch the Senate text. Reconciliation bills often change between chambers. We'll update you when there's a final version.

The direction of the House bill is clear: lawmakers who wrote it see employer-funded individual coverage as a mainstream option. Whether these provisions survive the Senate is the open question.