This bill amends the Internal Revenue Code to establish new "Custom Health Option and Individual Care Expense Arrangements" (CHOICE arrangements). These arrangements allow employers to provide tax-preferred funds for employees to pay for medical care, provided the employees are covered by individual health insurance or Medicare. The bill specifies that these employer-funded health reimbursement arrangements must meet certain federal health coverage requirements.

To qualify as a CHOICE arrangement, the plan must be funded solely by employer contributions and reimburse medical care up to a fixed dollar amount. Crucially, payments can only be made when the individual is enrolled in individual health insurance coverage (excluding excepted benefits) or Medicare Parts A, B, or C. The arrangements must also adhere to strict nondiscrimination rules, ensuring they are offered on the same terms to all employees within a specified class, and meet substantiation and notice requirements.

The legislation defines various "specified classes of employees" for nondiscrimination purposes, such as full-time, part-time, or salaried employees, and allows for variations in reimbursement amounts based on dependents or age. Furthermore, the bill mandates that the total benefits provided under a CHOICE arrangement be reported on an employee's W-2 form. It also permits employees participating in these arrangements to purchase health insurance through an exchange via a cafeteria plan, which was previously restricted.

To incentivize the adoption of CHOICE arrangements, the bill introduces a new employer tax credit for eligible small employers, amounting to $100 per employee per month for the first year and $50 for the second year, applying to plan and taxable years beginning after December 31, 2025.