CHOICE Arrangements: What are they and how do they work?

The landscape of employee benefits is constantly evolving, and a significant shift may be on the horizon. The "One Big Beautiful Bill" currently under consideration includes several key provisions impacting how employers can offer health benefits. Among these, the proposed changes to Individual Coverage Health Reimbursement Arrangements (ICHRAs), rebranded as CHOICE Arrangements, are generating considerable excitement. Let's dive into what CHOICE Arrangements are, where they came from, and how they could reshape the future of employer-sponsored healthcare.

Note: This topic is quickly evolving! We will keep this blog up to date with the latest information as new developments come in. Feel free to subscribe to our blog to be notified on the latest!

What is a CHOICE Arrangement?

At its core, a CHOICE Arrangement, or Custom Health Option and Individual Care Expense arrangement, is a tax-advantaged benefits solution that employees can use to purchase individual health insurance coverage and pay for qualified medical expenses. Think of it as an employer providing a defined contribution that employees can then use to choose a health plan that best fits their individual needs and circumstances. Like it's predecessors, ICHRA and QSEHRA, CHOICE Arrangements would allow for individuals to find a health plan that keeps their important doctors in network and prescriptions covered.

Again, they are part of a piece of legislation that still has a long way to go before it is signed into law, but we are keeping an eye on all of it to inform employers, employees, and benefits consultants of these exciting changes. 

After analyzing the legislation, here's our CEO's take.

What does CHOICE stand for in CHOICE Arrangement?

CHOICE Arrangement stands for Custom Health Option and Individual Care Expense. The acronym and the meaning behind it hit at the heart of what makes this personalized healthcare movement so special. We talk a lot about the importance of choice for employees and this new "rebrand" is just what ICHRA needed. We'd argue that it's a catchier name, too. 

Where Did They Come From?

CHOICE Arrangements are not entirely new; they are built upon the foundation of the Individual Coverage Health Reimbursement Arrangement (ICHRA), which was established in 2020. The proposed legislation seeks to codify and enhance the existing ICHRA framework, recognizing the potential for personalized and flexible healthcare benefits. The "rebrand" to CHOICE Arrangements signals a potential move towards greater individualization and control in health coverage. The legislation that includes the CHOICE Arrangements, "One Big Beautiful Bill" as some call it, is currently being considered in the House Ways & Means Committee and can potentially go to a vote in the House as early as Memorial Day and a vote in the Senate as early as July 4th. 

How Do CHOICE Arrangements Work?

Under a CHOICE Arrangement, employers offer a specific amount of money to their employees. Employees then use these funds to:

• Purchase individual health insurance coverage on or off the Affordable Care Act (ACA) marketplace.
• Pay for qualified medical expenses as defined under IRS regulations (e.g., deductibles, copays, prescriptions) if employers choose to reimburse medical expenses. This can be super helpful with things like counseling, therapy, prescription costs, and co-pays. 
• Get reimbursed on their paycheck or leverage payment solutions like Take Command's autopay to streamline the movement of funds. 

A key proposed change is the ability for employees to potentially pay for their individual health insurance premiums on the Exchange on a pre-tax basis. Currently, pre-tax deductions for individual premiums are generally limited to Medicare or off-Exchange plans through cafeteria plans. This change could significantly increase the affordability and appeal of Exchange-based coverage for employees enrolled in a CHOICE Arrangement.

What is the Difference Between an ICHRA, a QSEHRA, and a CHOICE Arrangement?

It's natural to wonder how CHOICE Arrangements stack up against existing health reimbursement arrangements:

• Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): QSEHRAs are available only to small employers (generally those with fewer than 50 full-time equivalent employees) who do not offer a group health plan. There are annual limits on the amount of reimbursement that can be provided.
• Individual Coverage Health Reimbursement Arrangement (ICHRA): Introduced in 2020, ICHRAs allow employers of any size to reimburse employees for individual health insurance premiums and other qualified medical expenses. Unlike QSEHRAs, there are no annual limits on the amount employers can offer, but they must meet certain notice requirements.
• CHOICE Arrangement: This is the proposed evolution of ICHRA. While the fundamental concept remains the same – employer-funded reimbursement for individual coverage – the "One Big Beautiful Bill" suggests potential enhancements like a streamlined notice period (reducing it from 90 to 60 days) and the possibility of pre-tax premium payments on the Exchange. Additionally, it introduces a new tax credit to incentivize small businesses to adopt these arrangements, something that will combat the troubling trend of small businesses dropping their health benefits due to cost. In fact, only 30% of small businesses offer health insurance, a figure down from 47% in 2000. 

In essence, CHOICE Arrangements aim to build upon the regulatory framework of ICHRAs, potentially making them more attractive and easier to implement for employers.

How Do CHOICE Arrangements Help Large Employers?

For larger organizations, CHOICE Arrangements offer several potential advantages:

• Cost Control: Employers can define their healthcare contribution, providing greater predictability and control over their healthcare spending compared to traditional group health plans with fluctuating premiums. No more year over year double digit renewals. No more surprises. 
• Administrative Simplicity: Managing individual reimbursements can potentially be less complex than administering a group health plan with enrollment, eligibility, and compliance requirements. This is especially true if a company has multiple group health plans for employees in different locations, or one that juggles multiple plans due to growth by M&A.
• Employee Choice and Satisfaction: Employees have the freedom to select a health plan that best meets their individual needs, potentially leading to higher satisfaction with their benefits package. As an ICHRA administrator, we see the value of this every day. With such a diverse workforce, why would anyone want a one-size-fits-all plan?
• Attracting and Retaining Talent: Offering a flexible and personalized benefit like a CHOICE Arrangement can be a powerful tool for attracting and retaining top talent in a competitive market. 

How Do CHOICE Arrangements Help Small Employers?

Small businesses, i.e., those with less than 50 full time equivalent employees, stand to gain significantly from the proposed changes to ICHRAs under the CHOICE Arrangement framework:

• Affordability: Offering a defined contribution through a CHOICE Arrangement can be a more budget-friendly option compared to the often high costs of traditional group health insurance, making it easier for small businesses to offer competitive benefits.
• Attracting Talent: Even without a traditional group plan, small employers can attract and retain employees by offering a valuable healthcare benefit that allows individuals to choose their own coverage.
• New Tax Credit Incentive: The proposed bill includes a new two-year tax credit for non-Applicable Large Employers (non-ALEs) that newly implement a CHOICE Arrangement. This credit, starting at $100 per enrolled employee per month in the first year and halving in the second, could significantly offset the initial costs of adoption and make CHOICE Arrangements even more appealing to small businesses. This mirrors the positive impact of state-level initiatives like Indiana's small business HRA tax credits.
• Simplified Administration: Many small businesses don't have HR departments to handle this sort of things, so CHOICE Arrangements, like their predecessors ICHRA and QSEHRA, can provide a way to outsource health benefits and take time back. Compared to navigating the complexities of group health insurance, managing a CHOICE Arrangement can be a more streamlined process for small businesses with limited administrative resources.

When will CHOICE Arrangements be available?

This is a great question. The availability of CHOICE Arrangements in their enhanced form depends on the passage and implementation of the "One Big Beautiful Bill." As the bill progresses through the legislative process, the specific timelines for these changes will become clearer. However, the current buzz and focus on these arrangements suggest that they could become a significant feature of the employee benefits landscape in the near future.

To wrap it up, the proposed shift from ICHRA to CHOICE Arrangements represents a potentially transformative step towards more personalized and flexible healthcare benefits.

With streamlined administration, the possibility of pre-tax premium payments on the Exchange, and new incentives for small businesses, CHOICE Arrangements could usher in a new era where employees have greater control over their healthcare choices, and employers can offer valuable benefits in a cost-effective and efficient manner.

The rise of CHOICE certainly has a promising ring to it, and its impact on the future of employee benefits bears close watching.