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[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 2875 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 2875
To amend the Internal Revenue Code of 1986 to provide for the treatment
of health reimbursement arrangements integrated with individual market
coverage.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
September 18 (legislative day, September 16), 2025
Mr. Sheehy introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for the treatment
of health reimbursement arrangements integrated with individual market
coverage.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Custom Health Option and Individual
Care Expense Act'' or the ``CHOICE Act''.
SEC. 2. TREATMENT OF HEALTH REIMBURSEMENT ARRANGEMENTS INTEGRATED WITH
INDIVIDUAL MARKET COVERAGE.
(a) In General.--Section 9815(b) of the Internal Revenue Code of
1986 is amended--
(1) by striking ``Exception.--Notwithstanding subsection
(a)'' and inserting the following: ``Exceptions.--
``(1) Self-insured group health plans.--Notwithstanding
subsection (a)'', and
(2) by adding at the end the following new paragraph:
``(2) Custom health option and individual care expense
arrangements.--
``(A) In general.--For purposes of this subchapter,
a custom health option and individual care expense
arrangement shall be treated as meeting the
requirements of section 9802 and sections 2705, 2711,
2713, and 2715 of title XXVII of the Public Health
Service Act.
``(B) Custom health option and individual care
expense arrangements defined.--For purposes of this
section, the term `custom health option and individual
care expense arrangement' means a health reimbursement
arrangement--
``(i) which is an employer-provided group
health plan funded solely by employer
contributions to provide payments or
reimbursements for medical care subject to a
maximum fixed dollar amount for a period,
``(ii) under which such payments or
reimbursements may only be made for medical
care provided during periods during which the
individual is covered--
``(I) under individual health
insurance coverage (other than coverage
that consists solely of excepted
benefits), or
``(II) under part A and B of title
XVIII of the Social Security Act or
part C of such title,
``(iii) which meets the nondiscrimination
requirements of subparagraph (C),
``(iv) which meets the substantiation
requirements of subparagraph (D), and
``(v) which meets the notice requirements
of subparagraph (E).
``(C) Nondiscrimination.--
``(i) In general.--An arrangement meets the
requirements of this subparagraph if an
employer offering such arrangement to an
employee within a specified class of employee--
``(I) offers such arrangement to
all employees within such specified
class on the same terms, and
``(II) does not offer any other
group health plan (other than an
account-based group health plan or a
group health plan that consists solely
of excepted benefits) to any employees
within such specified class.
In the case of an employer who offers a group
health plan provided through health insurance
coverage in the small group market (that is
subject to section 2701 of the Public Health
Service Act) to all employees within such
specified class, subclause (II) shall not apply
to such group health plan.
``(ii) Specified class of employee.--For
purposes of this subparagraph, any of the
following may be designated as a specified
class of employee:
``(I) Full-time employees.
``(II) Part-time employees.
``(III) Salaried employees.
``(IV) Non-salaried employees.
``(V) Employees whose home location
is in the same rating area.
``(VI) Employees who are included
in a unit of employees covered under a
collective bargaining agreement to
which the employer is subject
(determined under rules similar to the
rules of section 105(h)).
``(VII) Employees who have not met
a group health plan, or health
insurance issuer offering group health
insurance coverage, waiting period
requirement that satisfies section 2708
of the Public Health Service Act.
``(VIII) Seasonal employees.
``(IX) Employees who are
nonresident aliens and who receive no
earned income (within the meaning of
section 911(d)(2)) from the employer
which constitutes income from sources
within the United States (within the
meaning of section 861(a)(3)).
``(X) Under such rules as the
Secretary may prescribe, employees who
are hired for temporary placement with
an unrelated person that is not the
common law employer.
``(XI) Employees who are hired in
the same date range.
``(XII) Such other classes of
employees as the Secretary may
designate.
An employer may designate (in such manner as is
prescribed by the Secretary) two or more of the
classes described in the preceding subclauses
as the specified class of employees to which
the arrangement is offered for purposes of
applying this subparagraph.
``(iii) Special rule for new hires.--An
employer may designate prospectively so much of
a specified class of employees as are hired
after a date set by the employer. Such subclass
of employees shall be treated as the specified
class for purposes of applying clause (i).
``(iv) Rules for determining type of
employee.--For purposes for clause (ii), any
determination of full-time, part-time, or
seasonal employment status shall be made under
rules similar to the rules of section 105(h) or
4980H, whichever the employer elects for the
plan year. Such election shall apply with
respect to all employees of the employer for
the plan year.
``(v) Permitted variation.--For purposes of
clause (i)(I), an arrangement shall not fail to
be treated as provided on the same terms within
a specified class merely because the maximum
dollar amount of payments and reimbursements
which may be made under the terms of the
arrangement for the year with respect to each
employee within such class--
``(I) increases as additional
dependents of the employee are covered
under the arrangement, and
``(II) increases with respect to a
participant as the age of the
participant increases, but not in
excess of an amount equal to 300
percent of the lowest maximum dollar
amount with respect to such a
participant determined without regard
to age.
``(D) Substantiation requirements.--An arrangement
meets the requirements of this subparagraph if the
arrangement has reasonable procedures to substantiate--
``(i) that the participant and any
dependents are, or will be, enrolled in
coverage described in subparagraph (B)(ii) as
of the beginning of the plan year of the
arrangement (or as of the beginning of coverage
under the arrangement in the case of an
employee who first becomes eligible to
participate in the arrangement after the date
notice is given with respect to the plan under
subparagraph (E) (determined without regard to
clause (iii) thereof)), and
``(ii) any requests made for payment or
reimbursement of medical care under the
arrangement and that the participant and any
dependents remain so enrolled.
``(E) Notice.--
``(i) In general.--Except as provided in
clause (iii), an arrangement meets the
requirements of this subparagraph if, under the
arrangement, each employee eligible to
participate is, not later than 60 days before
the beginning of the plan year, given written
notice of the employee's rights and obligations
under the arrangement which--
``(I) is sufficiently accurate and
comprehensive to apprise the employee
of such rights and obligations, and
``(II) is written in a manner
calculated to be understood by the
average employee eligible to
participate.
``(ii) Notice requirements.--Such notice
shall include such information as the Secretary
may by regulation prescribe.
``(iii) Notice deadline for certain
employees.--In the case of an employee--
``(I) who first becomes eligible to
participate in the arrangement after
the date notice is given with respect
to the plan under clause (i)
(determined without regard to this
clause), or
``(II) whose employer is first
established fewer than 120 days before
the beginning of the first plan year of
the arrangement,
the requirements of this subparagraph shall be
treated as met if the notice required under
clause (i) is provided not later than the date
the arrangement may take effect with respect to
such employee.''.
(b) Inclusion of CHOICE Arrangement Permitted Benefits on W-2.--
(1) In general.--Section 6051(a) of such Code is amended by
striking ``and'' at the end of paragraph (18), by striking the
period at the end of paragraph (19) and inserting ``, and'',
and by inserting after paragraph (19) the following new
paragraph:
``(20) the total amount of permitted benefits for enrolled
individuals under a custom health option and individual care
expense arrangement (as defined in section 9815(b)(2)) with
respect to such employee.''.
(c) Treatment of Current Rules Relating to Certain Arrangements.--
(1) No inference.--To the extent not inconsistent with the
amendments made by this section--
(A) no inference shall be made from such amendments
with respect to the rules prescribed in the Federal
Register on June 20, 2019, (84 Fed. Reg. 28888)
relating to health reimbursement arrangements and other
account-based group health plans, and
(B) any reference to custom health option and
individual care expense arrangements shall for purposes
of such rules be treated as including a reference to
individual coverage health reimbursement arrangements.
(2) Other conforming of rules.--The Secretary of the
Treasury, the Secretary of Health and Human Services, and the
Secretary of Labor shall modify such rules as may be necessary
to conform to the amendments made by this section.
(d) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2025.
SEC. 3. PARTICIPANTS IN CHOICE ARRANGEMENT ELIGIBLE FOR PURCHASE OF
EXCHANGE INSURANCE UNDER CAFETERIA PLAN.
(a) In General.--Section 125(f)(3) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(C) Exception for participants in choice
arrangement.--Subparagraph (A) shall not apply in the
case of an employee participating in an custom health
option and individual care expense arrangement (within
the meaning of section 9815(b)(2)) offered by the
employee's employer.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2025.
SEC. 4. EMPLOYER CREDIT FOR CHOICE ARRANGEMENT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 is amended by adding at the end
the following new section:
``SEC. 45BB. EMPLOYER CREDIT FOR CHOICE ARRANGEMENT.
``(a) In General.--For purposes of section 38, in the case of an
eligible employer, the CHOICE arrangement credit determined under this
section for any taxable year is an amount, with respect to each
employee enrolled during the credit period in a CHOICE arrangement
maintained by the employer, equal to--
``(1) $100 multiplied by the number of months for which the
employee is so enrolled during the first year in the credit
period, and
``(2) one-half of the dollar amount in effect under
paragraph (1) for the taxable year, multiplied by the number of
months for which the employee is so enrolled during the second
year of the credit period.
``(b) Arrangement Must Constitute Minimum Essential Coverage.--An
employee shall not be taken into account under subsection (a) unless
such employee's eligibility for the CHOICE arrangement (determined
without regard to the employee being enrolled) would cause the employee
to be treated under section 36B(c)(2) as being eligible for minimum
essential coverage consisting of an eligible employer-sponsored plan
(as defined in section 5000A(f)(2)).
``(c) Definitions.--For purposes of this section--
``(1) CHOICE arrangement.--The term `CHOICE arrangement'
means a custom health option and individual care expense
arrangement (as defined in section 9815(b)(2)(B)).
``(2) Credit period.--The credit period with respect to an
eligible employer is the first 2 one-year periods beginning
with the month during which the employer first establishes a
CHOICE arrangement on behalf of employees of the employer.
``(3) Eligible employer.--The term `eligible employer'
means, with respect to any taxable year beginning in a calendar
year, an employer who is not an applicable large employer for
the calendar year under section 4980H.
``(d) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year
beginning in a calendar year after 2026, the dollar amount in
subsection (a) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
such taxable year begins by substituting `calendar year
2025' for `calendar year 2016' in subparagraph (A)(ii)
thereof.
``(2) Rounding.--If any amount after adjustment under
paragraph (1) is not a multiple of $10, such amount shall be
rounded to the next lower multiple of $10.''.
(b) Credit Made Part of General Business Credit.--Section 38(b) of
such Code is amended by striking ``plus'' at the end of paragraph (40),
by striking the period at the end of paragraph (41) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(42) the CHOICE arrangement credit determined under
section 45BB(a).''.
(c) Credit Allowed Against Alternative Minimum Tax.--Section
38(c)(4)(B) of such Code is amended--
(1) by redesignating clauses (x), (xi), and (xii) as
clauses (xi), (xii), and (xiii), respectively, and
(2) by inserting after clause (ix) the following new
clause:
``(x) the credit determined under section
45BB,''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 of such Code is amended by adding
at the end the following new item:
``Sec. 45BB. Employer credit for CHOICE arrangement.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2025.
<all>
Introduced in Senate
Read twice and referred to the Committee on Finance.
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