S. 2875 — CHOICE Act

This section establishes an exception to group health plan requirements under IRC §9815(b) by adding a new paragraph for custom health option and individual care expense arrangements—defined as employer-funded health reimbursement arrangements (HRAs) providing payments or reimbursements up to a maximum fixed dollar amount solely for medical care furnished while the participant is enrolled in individual health insurance coverage (other than excepted benefits) or Medicare Parts A and B or Part C—and treats such arrangements as satisfying IRC §9802 (prohibiting discrimination based on health status) and PHS Act §§2705 (wellness programs), 2711 (lifetime and annual limits), 2713 (preventive services), and 2715 (uniform plan modifications). To qualify, the arrangements must (1) meet nondiscrimination rules—requiring they be offered on the same terms to all employees in a specified class (e.g., full-time employees, part-time employees, seasonal employees, or combinations thereof, including prospective new hires) without offering other non-excepted, non-account-based group health plans to that class (except small-group coverage), with permitted variations increasing amounts for additional dependents or by age (not exceeding 300% of the lowest base amount); (2) include reasonable procedures substantiating enrollment in qualifying coverage at the start of the plan year (or eligibility date) and ongoing for reimbursements; and (3) satisfy specified notice requirements.

This section establishes an exception to the cafeteria plan qualified benefit exclusion under IRC §125(f)(3)(A) for employees participating in a custom health option and individual care expense (CHOICE) arrangement (as defined in §9815(b)(2)), allowing pre-tax purchase of Exchange insurance through an employer cafeteria plan. The amendment applies to taxable years beginning after December 31, 2025.

This section establishes a new general business credit (IRC §45BB) available to eligible employers (i.e., not applicable large employers under IRC §4980H) for employees enrolled in a CHOICE arrangement (i.e., custom health option and individual care expense arrangement under IRC §9815(b)(2)(B)) that qualifies as minimum essential coverage. For the two-year credit period beginning with the month the employer first establishes such an arrangement, the credit equals $100 per enrolled employee per month in the first year and $50 per enrolled employee per month in the second year, with the dollar amounts adjusted for inflation after 2026. The credit applies to taxable years beginning after December 31, 2025, is included in the general business credit under IRC §38(b)(42), and may be used against alternative minimum tax liability.