How the One Big Beautiful Bill Transforms ICHRA Into CHOICE

The One Big Beautiful Bill Act is set to reshape how American businesses offer health benefits by transforming the Individual Coverage Health Reimbursement Arrangement (ICHRA) into the more flexible and supportive CHOICE Arrangement. For benefits brokers, HR leaders, and business owners across the US, understanding how this change works—and what it means for small and midsize businesses—is now more important than ever.

The Current Landscape: ICHRA and the Modern Workforce

ICHRA, introduced in 2019, allowed employers to reimburse employees for individual health insurance premiums and certain medical expenses. This model gave employers a way to move away from traditional group plans, offering more flexibility and cost control. Employees, in turn, gained the freedom to pick health plans that fit their needs—not just what their employer chose.

Despite these advantages, ICHRA adoption has been slow. Many employers and brokers found the rules complex, and employees sometimes missed out on tax credits because of how the reimbursement system worked. The One Big Beautiful Bill Act aims to change this by modernizing and codifying ICHRA as the CHOICE Arrangement.

What Is the One Big Beautiful Bill Act?

The One Big Beautiful Bill Act, sometimes called OBBB or OBBBA, is a sweeping piece of legislation that touches nearly every corner of the US economy. While it includes major tax cuts, changes to social programs, and new defense spending, its impact on health benefits is especially significant for small and midsize businesses.

At its heart, the bill is designed to make life easier for America’s job creators. By extending and expanding tax deductions, providing new incentives for offering health benefits, and simplifying the rules around health reimbursement arrangements, the bill is widely seen as a win for small business owners.

From ICHRA to CHOICE Arrangement: What Changes?

The CHOICE Arrangement—short for Custom Health Option and Individual Care Expense—builds on the foundation of ICHRA but adds important new features and incentives.

Key Changes Under the CHOICE Arrangement:

• Codification into Law: ICHRA has operated under regulatory guidance since 2019. The CHOICE Arrangement would be written into federal law, providing long-term stability and clarity for employers, brokers, and employees.

• Flexibility for Employers: Employers of all sizes can offer CHOICE Arrangements, and small businesses can now offer both CHOICE and group health plans to the same class of employees—a big shift from ICHRA rules.

• Improved Tax Treatment: Under CHOICE, employees may be able to pay for ACA Marketplace health insurance premiums using pre-tax dollars through payroll deduction—a major shift made possible by amending Section 125 of the Internal Revenue Code. This change enables employers to integrate CHOICE premiums into their existing cafeteria plans, offering employees the same tax advantages typically reserved for group health insurance contributions.

This pre-tax option was not available under ICHRA, marking a clear upgrade in both affordability and administrative simplicity for employers and employees alike.

• Small Business Tax Credits: The bill introduces a two-year tax credit for small businesses with fewer than 50 employees: $100 per participating employee per month in the first year, and $50 in the second year. This makes it much more affordable for small businesses to offer health benefits.

• Shorter Notice Periods: Employers must provide only 60 days’ notice before the plan year begins, down from 90 days under ICHRA.

What Does This Mean for Employers and Brokers?

For employers, the transformation of ICHRA into the CHOICE Arrangement means more options, more flexibility, and more financial incentives to offer health benefits. Small businesses, in particular, stand to benefit from the new tax credits and the ability to offer both CHOICE and group health plans to the same group of employees.

Brokers will see a new landscape as well. With CHOICE Arrangements, there’s an opportunity to help clients navigate the updated rules, maximize tax credits, and design benefits packages that attract and retain top talent. The streamlined notice requirements and pre-tax payroll options make administration simpler, too.

What Does This Mean for Employees?

Employees will have more control over their health coverage than ever before. With CHOICE Arrangements, they can choose the health plan that best fits their needs, use pre-tax dollars to pay for premiums, and keep their coverage even if they change jobs or work part-time.

One important note: Employees offered a CHOICE Arrangement are not eligible for ACA Marketplace subsidies. This is the same as under ICHRA, so it’s important for brokers and employers to communicate this clearly to their teams.

How Does the One Big Beautiful Bill Act Support Small Businesses?

The One Big Beautiful Bill Act is packed with provisions to help small businesses thrive. In addition to the new health benefits tax credits, the bill makes several other changes:

• Permanently Expands the Small Business Deduction: The Section 199A deduction, which allows small businesses to deduct up to 23% of qualified business income, is made permanent and increased from 20%.
• Increases Equipment Expensing Limits: Small businesses can now fully expense up to $2.5 million in equipment purchases in the first year, up from $1.25 million.
• Makes Marginal Rate Cuts Permanent: The bill locks in the 2017 marginal income tax rate cuts, preventing a scheduled increase for millions of small business owners.
• Increases Estate Tax Exemption: The estate tax exemption is raised to $15 million for individuals and $30 million for joint filers, giving family-owned businesses more room to plan for the future.

Why Should You Care About the CHOICE Arrangement?

For brokers and business leaders, the CHOICE Arrangement is more than just a new name for ICHRA. It’s a sign that defined contribution health benefits are here to stay. With CHOICE, employers can offer benefits that are flexible, cost-effective, and easy to administer—all while giving employees the freedom to choose the coverage that works best for them.

The new tax credits and streamlined rules make it easier than ever for small businesses to compete for talent and provide high-quality benefits. And with CHOICE Arrangements now part of federal law, employers and brokers can plan for the future with confidence.

The Bottom Line: What’s Next?

The One Big Beautiful Bill Act has passed the House and is now moving through the Senate. If it becomes law, CHOICE Arrangements could take effect as early as January 1, 2026.

For brokers and business leaders, now is the time to get ready. Review your current benefits offerings, educate your teams about the new rules, and start planning how you’ll take advantage of the new tax credits and flexibility under CHOICE.

Final Thoughts

The One Big Beautiful Bill Act is poised to make a big difference for American businesses and their employees. By transforming ICHRA into the CHOICE Arrangement, the bill gives employers more flexibility, employees more choice, and small businesses a much-needed boost with new tax credits and simplified rules. For brokers and business leaders, it’s a chance to rethink benefits strategy and build a healthier, happier workforce for the future.