CHOICE HRA and the H.R.1 – One Big Beautiful Bill Act

By: Gene Ennis – Core Documents, Inc.

Bradenton, FL May 29, 2025 – Core Documents is closely monitoring the new H.R.1 – One Big Beautiful Bill Act and its provisions that would rebrand the Individual Coverage HRA (ICHRA) effective January 1, 2026 into the CHOICE HRA, an acronym for the Custom Health Option and Individual Care Expense arrangement.

As of May 29, 2025, the “Big Beautiful Bill,” officially known as the One Big Beautiful Bill Act (H.R. 1), has passed the U.S. House of Representatives but has not yet been approved by the Senate.

House Passage

The House narrowly approved the bill on May 28, 2025, with a 215–214 vote. The legislation includes significant provisions such as deep cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP), tax reductions favoring the wealthy, and controversial measures like shielding former President Donald Trump and his associates from certain legal penalties. The Congressional Budget Office estimates the bill would increase the federal deficit by $3.8 trillion over the next decade.

Senate Status

The Senate has not yet voted on the bill. Senate Republicans are expected to revise the legislation, particularly concerning the proposed spending cuts and tax provisions. Differences between the House and Senate versions will need to be reconciled before the bill can proceed to President Trump’s desk.

In summary, while the bill has passed the House, it remains under consideration in the Senate and has not yet become law.

Provisions effective after December 31, 2025

All of the following provisions for the CHOICE HRA take effect in the 2026 Plan Year effective January 1, 2026.

How does the budget reconciliation bill alter ICHRAs into CHOICE HRAs?

The budget reconciliation bill currently being evaluated by the Senate, known as “The One, Big, Beautiful Bill,” includes important changes concerning ICHRAs. Sections 110201, 110202, and 110203 of the bill outline these changes and suggest the following alterations to ICHRAs.

Establishment in Federal Law and Rebranding the ICHRA to the CHOICE HRA

The bill aims to establish the final 2019 regulations that allow ICHRAs as law at the federal level. In effect, it transforms the existing regulatory framework for ICHRAs into statutory law. Additionally, the bill seeks to rename these arrangements to Custom Health Option and Individual Care Expense (CHOICE HRA) arrangements.

Ability to Use Cafeteria Plans for Premiums

Proposed legislation would allow employees participating in a CHOICE HRA arrangement (previously known as ICHRA) to use a salary reduction via a cafeteria plan to cover health plan premiums acquired through an Exchange. Under existing regulations, employers are typically prohibited from reimbursing employees for premiums purchased through an Exchange if any portion of the premium is paid via salary reduction. This restriction makes it difficult to implement an ICHRA while enabling employees to utilize a cafeteria plan for the remainder of the premium costs. This change would resolve that problem, aiding workers in reducing their out-of-pocket premium expenses.

New Tax Credit for Small Enterprises 

The legislation would establish a two-year tax credit for small enterprises (those employing fewer than 50 individuals) that provide coverage through CHOICE HRA arrangements for the first time. The credit will amount to $100 per employee per month during the first year and $50 per employee per month in the second year. Congress aims to promote the adoption of CHOICE HRA arrangements (ICHRAs) by small businesses.

Essentially, the budget reconciliation bill seeks to strengthen the legal basis for ICHRAs (now called CHOICE HRA arrangements), improve their functionality by permitting integration with cafeteria plans for premium payments, and encourage small businesses to adopt them through a tax credit.

What effects might the changes to ICHRAs bring about?

The legislation would establish the final 2019 regulations that allow Individual Coverage HRAs as federal law. By enshrining ICHRAs in legislation, it shifts the basis from a regulatory framework (first introduced through an executive order) to a statutory one. Employers are likely to benefit from increased flexibility and financial predictability by ensuring that the benefit is more securely defined in law. Additionally, the bill officially suggests renaming these arrangements to Custom Health Option and Individual Care Expense (CHOICE HRA) arrangements.

Improved Cost-Effectiveness for Employees

A significant change permits employees to utilize a salary reduction via a cafeteria plan to cover the portion of health plan premiums acquired through an Exchange that is not addressed by the ICHRA/CHOICE HRA allowance. Currently, employers typically cannot reimburse Exchange premiums if any portion can be paid through salary reduction, creating an impractical situation. By allowing this, the new legislation would assist workers in saving on their share of premium costs.

Incentivized Participation by Small Enterprises

The legislation aims to establish a two-year tax incentive for small enterprises (defined as those with fewer than 50 employees) that introduce coverage via CHOICE arrangements for the first time. The objective of this tax incentive is to motivate small employers, who often struggle with the cost of traditional group plans, to adopt ICHRAs/CHOICE arrangements. The incentive could further enhance the adoption of ICHRAs among small businesses since 83% of new adopters previously did not provide health benefits.

What lies ahead for the legislation and ICHRAs?

The reconciliation bill has passed through several committee votes before it was approved by the House; it still needs to pass the Senate. The chances of achieving this remain uncertain, as does the possibility of the ICHRA provisions being approved without modifications. The administration aimed to have the reconciliation bill signed by Memorial Day.