From ICHRA to CHOICE: What the “One Big Beautiful Bill Act” Means for Employers

The One Big Beautiful Bill Act (OBBBA) aims to reshape the future of employer-sponsored health benefits. At the center of this transformation is the rebranding and expansion of the Individual Coverage Health Reimbursement Arrangement (ICHRA) into the newly codified CHOICE Arrangement—short for Custom Health Option and Individual Care Expense.

For small and midsize employers, this marks a pivotal shift in how health benefits can be delivered—offering more flexibility, tax advantages, and long-term stability.

What Is CHOICE?

The CHOICE Arrangement builds on the foundation of ICHRA, which allowed employers to reimburse employees for individual health insurance premiums and qualified medical expenses. But CHOICE goes further by:

• Codifying ICHRA into federal law, offering long-term stability and clarity.

• Allowing employers to offer both CHOICE and traditional group plans to the same class of employees—something previously restricted.

• Enabling pre-tax payroll deductions for ACA Marketplace premiums by amending Section 125 of the Internal Revenue Code.

These updates make CHOICE a more powerful and accessible tool for employers seeking affordable group health insurance options.

Why Employers Should Pay Attention

The OBBBA introduces several incentives for employers to adopt the CHOICE Arrangement, especially for small businesses and those in underserved areas.

Enhanced Tax Credits for Small Employers

To encourage adoption, the proposed legislation introduces a two-year tax credit for small businesses (non-ALEs) that implement a CHOICE Arrangement for the first time:

• Year 1: Employers receive a $100 per enrolled employee per month tax credit. That’s up to $1,200 per employee annually.

• Year 2: The credit is halved to $50 per enrolled employee per month.

These employer tax credits are designed to offset administrative and setup costs, making CHOICE an attractive option for startups and growing companies.

Additional Deductions for Underserved Areas

Employers offering CHOICE to workers in rural or medically underserved areas may qualify for enhanced tax deductions. While IRS guidance is still pending, this provision aims to expand access to care where traditional group plans are limited or unaffordable.

Section 125 Integration

CHOICE also allows employees to pay for ACA Marketplace health insurance premiums using pre-tax payroll deductions, reducing taxable income for employees and lowering payroll tax liability for employers.

This integration makes CHOICE not just a flexible option—but a strategic health benefits solution for cost-conscious employers.

What’s Next?

If you’ve been hesitant about ICHRA in the past, now is the time to revisit your strategy. The CHOICE Arrangement offers a more stable, tax-efficient, and employee-friendly way to provide health benefits—especially for businesses looking to control costs without sacrificing coverage quality.

If the OBBBA is passed, employers will likely claim these credits during annual tax filing, with documentation requirements and IRS forms expected ahead of the 2026 tax season.

Curious if CHOICE is right for your business?

We’re here to help you evaluate your current benefits strategy and explore how CHOICE could improve flexibility and cost control. Contact us for a free consultation!

Disclaimer:   The information provided herein is for educational and informational purposes only and reflects our understanding of the One Big Beautiful Bill Act (OBBBA) and proposed CHOICE Arrangement provisions as of June 23, 2025. These provisions are currently under Senate review and subject to change. Employers are encouraged to consult with a qualified tax professional or legal advisor before making decisions based on pending legislation.