The U.S. House of Representatives has passed the budget reconciliation bill—formally titled the One, Big, Beautiful Bill—by a razor-thin margin. While the bill covers a wide range of domestic policy goals, hidden in the fine print are provisions that could transform how small employers offer health benefits. Specifically, the bill codifies what it refers to as CHOICE Arrangements.

What are CHOICE Arrangements?

CHOICE refers to Custom Health Option and Individual Care Expense. While CHOICE Arrangements may be new in name, it’s not replacing ICHRA; it’s simply codifying it. CHOICE is a broader framework under which ICHRA continues to serve as the primary tool. CHOICE allows the flexibility of defined contribution health benefits while preserving what already works—ICHRA.

There’s been some debate about whether this bill rebrands ICHRA as CHOICE. Our take? CHOICE Arrangements establish a broader category with ICHRA still at the heart of it. For those of us who’ve spent the last five years educating employers and brokers about ICHRA, this is welcome news—not a rebranding exercise. If anything, it solidifies the central role ICHRA will play from now on.

Codification and Enhancement of ICHRA

The bill locks in the 2019 ICHRA regulations and introduces three important enhancements that increase the program’s flexibility and value:

  1. Codification of ICHRA under CHOICE

This legislation formally enshrines ICHRA into federal law. That stability means employers can move forward with confidence—knowing this defined contribution strategy is here to stay and no longer subject to regulatory reversal.

  1. Tax Parity for On-Exchange Plans

Previously, employees using ICHRA could only take advantage of pre-tax payroll deductions when purchasing off-exchange health plans. The new bill changes that. Now, employees enrolled in a ICHRA can use a pre-tax salary reduction through a Section 125 cafeteria plan to pay for on-exchange individual health insurance premiums.

This creates true tax parity between enrollment options, giving employees more flexibility to shop on- or off-exchange without losing the ability to have their portion of the premium deducted from payroll on a pre-tax basis.

It’s important to note, however, that employees still cannot receive a premium tax credit (PTC) if they accept an ICHRA offer. This change doesn’t make ICHRA-compatible coverage eligible for both pre-tax payroll treatment and subsidies—but it does significantly improve the value of using an ICHRA with an on-exchange plan.

  1. New Employer Tax Credit

To stimulate growth, the bill introduces a two-year tax credit for small employers (under 50 full-time employees) that offer CHOICE Arrangements for the first time:

  • $100 per month per employee in year one
  • $50 per month per employee in year two

This incentive arrives at a critical time. With enhanced ACA exchange subsidies set to expire, the Congressional Budget Office estimates up to 4.4 million Americans could lose affordable coverage. This new credit could empower small businesses, many of which previously couldn’t afford to offer any benefits to step in and close that gap with CHOICE Arrangements like ICHRA.

HSA Enhancements and Integration with ICHRAs

The bill introduces several significant enhancements to Health Savings Accounts (HSAs) that will benefit both employers and employees, effective for plan years beginning after December 31, 2025:

  • Expanded Eligibility: Individuals who are only enrolled in Medicare Part A will remain eligible to contribute to an HSA, allowing older employees to continue benefiting from HSAs.
  • Increased Contribution Limits: The contribution limits for HSAs will see a substantial increase—up by $4,300 for self-only coverage and $8,550 for family coverage. This increase allows employees to save more pre-tax dollars for healthcare expenses. These increased amounts will be phased out at higher income levels, though employer contributions and cafeteria plan contributions are excluded from those thresholds.
  • Contributions for Spouses and FSA Compatibility: The bill allows spouses to allocate their HSA catch-up contributions between them in any manner, providing more flexibility in managing family healthcare funds. Additionally, individuals can contribute to an HSA even if their spouse has a health FSA, which was previously restricted.
  • Medical Expenses Incurred Prior to HSA Establishment: Certain medical expenses incurred before establishing an HSA can now be reimbursed from the account, offering more comprehensive financial support.
  • Direct Primary Care (DPC) Compatibility: Direct Primary Care arrangements will no longer disqualify individuals from HSA eligibility. Fees paid to DPC providers are now considered qualified medical expenses and may be reimbursed with HSA funds.
  • Additional Qualified Expenses: The range of qualified medical expenses has been broadened to include fitness memberships and participation in physical activities—up to $500 per year for individuals and $1,000 for families.
  • Bronze and Catastrophic Plans as HSA-Compatible: Any bronze or catastrophic plan offered on the Exchange will now qualify as a high-deductible health plan (HDHP) for HSA purposes. This makes it easier for individuals using an ICHRA to select a compatible plan and unlock HSA benefits.
  • On-Site Employee Clinics: On-site employee health clinics (as defined under the statute) will no longer disqualify employees from HSA eligibility, giving employers more flexibility in their benefit designs.
  • FSA/HRA Termination Rollover Option: Employers will have the option to terminate an existing FSA or HRA and roll over the remaining balances into a new HSA, offering a streamlined transition to consumer-directed health plans.

These enhancements align perfectly with ICHRAs, offering a comprehensive, flexible benefits package that can meet the diverse needs of today’s workforce. By bringing ICHRA and HSA strategies together under one roof, Flyte enables employers to design tax-advantaged benefit solutions that are not only cost-effective but support employees through every stage of life and every level of care.

Where Things Stand

The bill now heads to the Senate this week where it may face revisions. Still, the bipartisan enthusiasm for expanding CHOICE Arrangements and modernizing HSAs suggests these provisions are likely to remain intact.

And that’s good news.

As traditional group health plans continue to frustrate employers with rising premiums and limited flexibility, the future is looking brighter with the addition of CHOICE Arrangements and ICHRA taking center stage.

Let’s Talk Strategy

Whether you’re an employer searching for a smarter path forward or a broker guiding clients through benefit transformation, Flyte is here to help. We believe in the power of flexible, sustainable, and employee-friendly benefits.

Because at the end of the day, the best part of CHOICE is ICHRA.

Let’s talk about how it could work for your team.