119-s2875

[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.
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