The “CHOICE” Is Yours: Why the Latest House Bill Could Be a Turning Point for ICHRA

Author: Terry Burke , Senior Advisor at Oliver Wyman

Update: President Trump’s “One, Big Beautiful Bill” passed the U.S. House on Thursday, May 22nd. Next up, a battle with the Senate.

What you need to know in “One, Big, Beautiful Bill Act” (OBBBA):

• The Individual Coverage Health Reimbursement Arrangement (ICHRA) could be codified into law and rebranded as Custom Health Option and Individual Care Expense (CHOICE) arrangements.
• Employers may receive up to $1,800 per employee in federal tax credits over two years.
• The Bill would remove longstanding barriers: Pre-tax payments for On-Exchange ACA plans and more flexibility for small businesses.

Spoiler alert: If this bill passes, ICHRA won’t just have a new name — it’ll have a new trajectory. On May 14, 2025, the House Ways and Means Committee advanced a sweeping reconciliation package that includes one of the most meaningful proposed changes to ICHRA since its creation. Among its most pivotal provisions is the formal codification of ICHRA into law and its rebranding as CHOICE arrangements.

Quick Refresher: What’s ICHRA Again?

First introduced in 2020 under the Trump administration through Executive Order 13813, ICHRA allows employers to reimburse employees tax-free for individual health insurance premiums. Unlike traditional group plans, ICHRA gives employers more control over costs and gives employees more control over coverage, whether purchased on or off the ACA marketplace.

Until now, ICHRA has existed in a bit of a gray area — supported by regulation but never passed into law. That has left some employers and health plans hesitant to adopt. This bill could change that if approved by Congress.

The Big ICHRA Proposals in the House Bill

Here’s what’s proposed for ICHRA — or as it may soon be known, CHOICE arrangements.

The name change is a great one if you ask me. No other word on planet earth rhymes with ICHRA. Maybe you can get away with supercalifragilisticICHRA-alidocious… but it doesn’t really roll off the tongue.

 1. Codification Into Federal Law

Codifying ICHRA as CHOICE arrangements would grant the model permanence. No longer reliant on executive orders or vulnerable to administrative change, CHOICE would become a durable option for employers seeking defined contribution health benefits.

 2. New Employer Tax Credit for Employers

To accelerate adoption, especially among small businesses, the bill proposes:

• $1,200 credit per enrolled employee in Year 1 ($100 per employee per month).$600 credit per enrolled employee in Year 2 ($50 per employee per month).

Employers must offer a CHOICE arrangement that qualifies as an “affordable” benefit under ACA standards and must ensure employees are enrolled in minimum essential coverage. This credit is additive to any state-level incentives (e.g., Indiana’s 2023 HRA credit) — a double benefit for forward-thinking employers.

 3. Allows Pre-Tax Payment for On-Exchange Plans

Right now, employees can only pay for Off-Exchange plans on a pre-tax basis through a Section 125 cafeteria plan. What’s a cafeteria plan? These plans allow employees to deduct certain benefit contributions (like health insurance premiums) from their paycheck before taxes — reducing both their taxable income and payroll taxes for the employer.

Under current law, this pre-tax option doesn’t apply to plans purchased on the ACA Marketplace. The new bill would fix that by allowing pre-tax salary deductions for On-Exchange plans, closing a long-standing policy gap and making ACA coverage more affordable for employees using ICHRA/CHOICE funds.

 4. W-2 Reporting Requirement

Employers would be required to include the amount of the ICHRA/CHOICE benefit on the employee’s Form W-2. This is consistent with how other tax-advantaged benefits are reported.

 5. Shorter Employee Notice Window

The advance notice period to inform employees about CHOICE benefits would drop from 90 to 60 days, helping employers move more quickly when adopting or modifying benefit strategies.

 6. Flexibility for Small Employers

Small businesses with less than 50 full-time employees could offer both a group health plan and a CHOICE arrangement to the same class of employees — something currently prohibited. Applicable larger employers (ALEs) would not have this option. That’s a major flexibility gain for small businesses. This Bill would also give the Secretary of Health and Human Services the ability to add additional ICHRA classes.

Here’s my friend Tom Cohen talking about the Bill to ACAP plans on a recent webinar.

Why This Bill Might Be ICHRA’s Tipping Point

The short version: This bill removes three of the biggest friction points holding ICHRA back.

1. Lack of legal permanence? Fixed.
2. No pre-tax parity with On-Exchange plans? Fixed.
3. Weak incentives for small business adoption? Fixed with $1,800 tax credit.

Combined, these updates make CHOICE a modern, flexible, and scalable model for expanding ACA coverage into the underinsured employer market — especially for:

• Employers priced out of traditional group coverage.
• Health plans trying to grow Individual enrollment.
• Brokers helping clients navigate complex workforce needs.

If passed, OBBBA could trigger a wave of new ICHRA adoption heading into Plan Year 2026 — and health plans that prepare now will be best positioned to compete.

We’re still early, but the direction of travel is clear. This Bill has the potential to bring defined contribution health benefits into the mainstream. And while it’s not law yet, the momentum and design of the CHOICE arrangement show where the market is headed. The CHOICE model can improve ACA marketplace stability by bringing healthier, employed populations into the individual market. Like Medicare Advantage, this public-private partnership could reduce adverse selection and broaden risk pools.

We’ve long known that ICHRA has the potential to transform how employers deliver benefits. This bill gives it the structure, incentives, and stability to do just that. It’s time that we finally take the ICK out of ICHRA. And I’m copyrighting that phrase, so no one steal it.

If your health plan is looking to grow and retain your individual membership with ICHRA, here are a few steps to consider:

• Evaluate your ICHRA capabilities and Exchange readiness Are your plans available On and Off-Exchange? Do you have shopping tools that integrate with BenTech partners?
• Refresh your employer and broker outreach strategies Emphasize flexibility, affordability, and ease of implementation — especially for small employers who could benefit from tax credits.
• Work with BenTechs and system integrators that understand ICHRA/CHOICE The right partners can streamline onboarding, support employer classes, and ensure seamless enrollment, billing, and member data management.

Ask yourself, are you ICHRA ready? I’ll be cutting through the blah, blah, blah surrounding ICHRA on June 3rd. Join Kevin Deutsch , General Manager and SVP of Health Plan Solutions at Softheon and me for our Fierce webinar all about ICHRA. Save the date and prepare yourself for my Dirty Dozen Checklist for Payers.

About Terry

Terry Burke is a seasoned healthcare strategist that knows how to achieve sustainable results. He has spent his career building high-performance teams that create value by applying novel solutions to meaningful problems in healthcare. Terry’s many years of experience cover individual, small group, and family lines of business at multiple health plans including AmeriHealth Caritas, Anthem, and Blue Cross Blue Shield.

Content originally published on Softheon.com.