[House Report 118-107]
[From the U.S. Government Publishing Office]


118th Congress }                                          { Report 
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                          { 118-107

======================================================================
 
               CUSTOM HEALTH OPTION AND INDIVIDUAL CARE 
                        EXPENSE ARRANGEMENT ACT

                                _______
                                

 June 12, 2023.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Smith of Missouri, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3799]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3799) to amend the Internal Revenue Code of 1986 to 
provide for health reimbursement arrangements integrated with 
individual health insurance coverage, having considered the 
same, reports favorably thereon with an amendment and 
recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................4
          A. Purpose and Summary.................................     4
          B. Background and Need for Legislation.................     4
          C. Legislative History.................................     4
          D. Legislative History.................................     5
 II. EXPLANATION OF THE BILL..........................................5
          A. Treatment of Health Reimbursement Arrangements 
              Integrated with Individual Market Coverage (sec. 2 
              of the bill and sec. 9815 of the Code).............     5
III. VOTE OF THE COMMITTEE...........................................10
 IV. BUDGET EFFECTS OF THE BILL......................................11
          A. Committee Estimate of Budgetary Effects.............    11
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    11
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    11
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......11
          A. Committee Oversight Findings and Recommendations....    11
          A. Statement of General Performance Goals and 
              Objectives.........................................    11
          B. Information Relating to Unfunded Mandates...........    11
          C. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    12
          D. Tax Complexity Analysis.............................    12
          E. Duplication of Federal Programs.....................    12
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........12
          A. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    12
VII. DISSENTING VIEWS................................................17

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Custom Health Option and Individual 
Care Expense Arrangement Act'' or the ``CHOICE Arrangement 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 2711 and 2713 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 to any employees within 
                                such specified class.
                          ``(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 primary site of 
                                employment 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 the of 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) 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 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 is, 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 remains 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 90 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 appraise 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) No Inference.--To the extent not inconsistent with the amendments 
made by this section--
          (1) 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
          (2) 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.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2023.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3799, the ``Custom Health Option and 
Individual Care Expense Arrangement Act,'' as ordered reported 
by the Committee on Ways and Means on June 7, 2023, codifies a 
2019 rule (26 CFR 54.9802-4) which allows employers to offer 
their employees tax-advantaged funds for their employees to 
purchase qualified health insurance plans on the individual 
market through ``CHOICE Arrangements''.

                 B. Background and Need for Legislation

    26 CFR 54.9802-4 allows employers to offer tax-exempt, 
defined contributions to their employees for the employees to 
purchase qualified health insurance on the individual market 
through Individual Coverage Health Reimbursement Arrangements 
(ICHRAs). Unlike Qualified Small Employer Health Reimbursement 
Arrangements (PL 114-255), these accounts do not have 
restrictions on business size or annual contribution limits. 
Additionally, ICHRAs may be offered to different classes of 
employees, such as part-time, full-time, or seasonal employees, 
while ensuring discrimination protections for the groups of 
employees.
    While this coverage option is valuable to employers, this 
was created through administrative rulemaking and not 
legislation. The Committee believes legislation is needed to 
codify this important health coverage option so employers can 
be confident the option will be permanent.

                         C. Legislative History


Background

    H.R. 3799 was introduced on June 5, 2023, and was referred 
to the Committee on Ways and Means.

Committee hearings

    On Thursday, March 23, 2023, the Ways and Means 
Subcommittee on Health held hearing on ``Why Health Care is 
Unaffordable: The Fallout of Democrats' Inflation on Patients 
and Small Businesses''.

Committee action

    The Committee on Ways and Means marked up H.R. 3799, the 
``Custom Health Option and Individual Care Expense Arrangement 
Act,'' on June 7, 2023, and ordered the bill, as amended, 
favorably reported (with a quorum being present).

                         D. Legislative History

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearings were used to develop and consider H.R. 3799:
    Committee on Ways and Means Subcommittee on Health ``Why 
Health Care is Unaffordable: The Fallout of Democrats' 
Inflation on Patients and Small Businesses''.

                      II. EXPLANATION OF THE BILL


   A. Treatment of Health Reimbursement Arrangements Integrated With 
  Individual Market Coverage (sec. 2 of the bill and sec. 9815 of the 
                                 code)


                              PRESENT LAW

Group health plan requirements

    The Internal Revenue Code (the ``Code'') imposes various 
requirements with respect to employment-related health plans, 
referred to for this purpose as group health plans.\1\ The 
Patient Protection and Affordable Care Act (``PPACA'')\2\ 
expanded the market reform requirements applicable to group 
health plans.\3\
---------------------------------------------------------------------------
    \1\See, e.g., sec. 4980B (relating to continuation coverage or 
``COBRA'' requirements) and Chapter 100 (secs. 9801-9834, relating to 
various additional requirements, such as prohibitions on preexisting 
condition exclusions and discrimination based on health status). Code 
section 5000 also imposes Medicare secondary payor requirements on 
group health plans.
    \2\Pub. L. No. 111-148, March 23, 2010, as amended by the Health 
Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 
March 30, 2010.
    \3\See, e.g., sections 2711 and 2713 of the PPACA. These provisions 
of the PPACA are incorporated into the Code through section 9815.
---------------------------------------------------------------------------
    Under the Code, an employer is generally subject to an 
excise tax of $100 a day per employee if it sponsors a group 
health plan that fails to meet any of these requirements.\4\ 
Generally, if the failure is due to reasonable cause and not to 
willful neglect, the maximum tax that can be imposed for 
failures during a taxable year is the lesser of 10 percent of 
the employer's group health plan expenses for the prior year or 
$500,000. In some cases, the excise tax does not apply if the 
failure is due to reasonable cause and not to willful neglect 
and the failure is corrected within a certain period. In 
addition, in some cases in which failure is due to reasonable 
cause and not to willful neglect, some or all of the excise tax 
may be waived to the extent payment of the tax would be 
excessive relative to the failure involved.
---------------------------------------------------------------------------
    \4\Section 4980B(a) and (b) apply to a violation of the COBRA 
requirements, subject to an exception for plans of employers with fewer 
than 20 employees. Section 4980D(a) and (b) apply to a violation of the 
requirements under Chapter 100, subject to an exception for a plan of 
an employer with no more than 50 employees if coverage is provided 
solely through insurance. In some cases, a party other than the 
employer, such as a multiemployer plan, may be liable for the tax. For 
simplicity, this document refers to ``employers'' to indicate all such 
entities that may sponsor group health plans.
---------------------------------------------------------------------------

Other health rules under the Code

    Under the PPACA, ``minimum essential coverage'' includes 
employer-sponsored coverage under a group health plan, other 
than certain types of limited coverage, such as coverage only 
for vision or dental medical services.\5\ Minimum essential 
coverage also includes coverage purchased in the individual 
insurance market, other than certain types of limited coverage, 
such as coverage only for vision or dental medical services.
---------------------------------------------------------------------------
    \5\Sec. 5000A.
---------------------------------------------------------------------------
    An advanceable, refundable income tax credit, the premium 
tax credit (``PTC''), is available to certain individuals who 
purchase health insurance coverage in the individual market 
through an Exchange (``Exchange coverage'').\6\ However, an 
employee is generally not eligible for the PTC if his or her 
employer offers affordable minimum essential coverage under a 
group health plan and the coverage provides minimum value. For 
this purpose, coverage is affordable if the employee's share of 
the premium for self-only coverage under the group health plan 
is not more than 9.12 percent (for 2023)\7\ of the employee's 
household income. To provide minimum value, the coverage 
offered under the group health plan must cover at least 60 
percent of the total costs of benefits covered under the plan. 
An individual who applies for advance PTC with respect to 
Exchange coverage for a year must provide the Exchange with 
certain information, including information relating to 
employer-provided minimum essential coverage.\8\
---------------------------------------------------------------------------
    \6\Sec. 36B. An Exchange is established under section 1311 of the 
PPACA. Lower-income individuals who are eligible for PTCs and enrolled 
in health insurance coverage purchased on an Exchange may also be 
eligible for cost-sharing reductions under section 1402 of the PPACA.
    \7\Rev. Proc. 2022-34, 2022-33 I.R.B. 143. This percentage is 
updated as needed to reflect cost-of-living changes.
    \8\Sec. 1411(b) of the PPACA. This information is subject to 
verification during the Exchange process under section 1411(c) and (d) 
of the PPACA.
---------------------------------------------------------------------------
    If an applicable large employer fails to offer employees 
minimum essential coverage, or offers minimum essential 
coverage that either is not affordable (under the standard 
described above) or fails to provide minimum value, and any 
employee is allowed PTC, the employer may be subject to a tax 
penalty.\9\ For this purpose, applicable large employer 
generally means, with respect to a calendar year, an employer 
that employed an average of at least 50 full-time employees 
(including full-time equivalents) on business days during the 
preceding calendar year.\10\
---------------------------------------------------------------------------
    \9\Sec. 4980H.
    \10\In determining whether an employer is an applicable large 
employer (that is, whether the employer has at least 50 full-time 
employees), besides the number of full-time employees, the employer 
must include the number of its full time equivalent employees for a 
month, determined by dividing the aggregate number of hours of service 
of employees who are not full-time employees for the month by 120. In 
addition, in determining applicable large employer status, members of 
the same controlled group, group under common control, and affiliated 
service group under section 414(b), (c), (m) and (o) are treated as a 
single employer.
---------------------------------------------------------------------------

Health reimbursement arrangements

    In addition to offering health coverage, employers 
sometimes reimburse medical expenses of their employees (and 
their spouses and dependents). These arrangements are sometimes 
used by employers to pay or reimburse employees for medical 
expenses that are not covered by health insurance and are 
commonly referred to as health reimbursement arrangements 
(``HRAs'').\11\
---------------------------------------------------------------------------
    \11\See secs. 105(b) and 106; Rev. Rul. 61-146, 1961-2 C.B. 25; 
Notice 2002-45, 2002-2 C.B. 93, July 15, 2002, and Rev. Rul. 2002-41, 
2002-2 C.B. 75. Under section 105(h), a self-insured HRA must meet 
certain nondiscrimination requirements in order for the benefits 
provided to a highly compensated individual to be excluded from income. 
For this purpose, the following groups of employees may be excluded: 
employees who have not completed three years of service with the 
employer, employees under age 25, part-time or seasonal employees, 
employees covered by a collective bargaining agreement if health 
benefits were the subject of good faith bargaining, and nonresident 
aliens with no earned income from sources within the United States. 
Employer payments and reimbursements for health insurance and medical 
expenses are also excluded from wages for employment tax purposes. 
Secs. 3121(a)(2), 3231(e)(1), 3306(b)(2), 3401(a)(20), Rev. Rul. 56-
632, 1956-2 C.B. 101. For simplicity, this document refers to ``HRAs'' 
to indicate all arrangements to which the individual coverage HRA final 
rules (described later in this document) apply.
---------------------------------------------------------------------------
    The amounts in an HRA can be used only to reimburse medical 
expenses (including health insurance premiums) and not for 
other purposes, and HRAs cannot be funded on a salary reduction 
basis. HRAs must have a maximum dollar amount for each coverage 
period, and amounts remaining in an HRA at the end of the year 
may be carried forward to be used to reimburse medical expenses 
in following years.\12\
---------------------------------------------------------------------------
    \12\General guidance with respect to HRAs is provided in Notice 
2002-45.
---------------------------------------------------------------------------
    An employee may exclude amounts provided through an HRA 
from gross income. For employer payments or reimbursements 
under an HRA to be excluded from gross income, expenses must be 
substantiated and an employee must be entitled to receive 
payments from the employer only if he or she incurs qualifying 
expenses.\13\
---------------------------------------------------------------------------
    \13\Treas. Reg. sec. 1.105-2.
---------------------------------------------------------------------------
    After the enactment of the PPACA and before the 
establishment of individual coverage HRAs (as described below), 
an HRA generally failed to meet the group health plan 
requirements imposed by the PPACA unless the HRA complied with 
Internal Revenue Service (``IRS'') rules relating to HRAs 
provided in conjunction with (or ``integrated'' with) certain 
other employer-sponsored coverage that met the group health 
plan requirements.\14\ An HRA that is integrated with such 
employer-sponsored coverage is often referred to as an 
``integrated'' HRA, and an HRA that is not integrated with such 
employer-sponsored coverage is often referred to as a ``stand-
alone'' HRA. Thus, an employer could be subject to an excise 
tax if it provided employees a stand-alone HRA covering medical 
expenses, with the exception of certain limited benefits, for 
example, coverage only for vision or dental medical 
services.\15\
---------------------------------------------------------------------------
    \14\See, e.g., Notice 2013-54, 2013-40 I.R.B. 287, September 30, 
2013. The 21st Century Cures Act created a limited exception to this 
rule in the form qualified small employer health reimbursement 
arrangements (QSEHRAs). Unlike traditional HRAs, QSEHRAs are designed 
so that small employers may subsidize employees' purchase of individual 
coverage on an Exchange. Pub. L. No. 114-255, sec. 18001, December 13, 
2016.
    \15\See Notice 2015-87, 2015-52 I.R.B. 889, December 28, 2015.
---------------------------------------------------------------------------
            Individual coverage HRAs
    In August 2019, final rules were issued permitting 
employers to contribute to HRAs used for the purpose of 
purchasing individual health insurance coverage, without 
violating the group health plan requirements (the ``final 
rules'').\16\ The final rules provide that employers may offer 
employees an ``individual coverage HRA,'' and, that if those 
individuals use the amounts contributed to that HRA to purchase 
health insurance coverage on the individual market, the group 
health plan meets the relevant group health plan requirements. 
An individual coverage HRA may also be used in conjunction with 
coverage under Medicare Part A and B or C.\17\
---------------------------------------------------------------------------
    \16\T.D. 9867, 84 Fed. Reg. 28888, June 20, 2019.
    \17\Treas. Reg. sec. 54.9802-4(e).
---------------------------------------------------------------------------
    Individual coverage HRAs are subject to detailed 
regulations, including the following requirements: the terms of 
the individual coverage HRA must require that employees, 
spouses, and dependents enrolled in the HRA also be enrolled in 
individual health insurance coverage;\18\ employers are not 
permitted to allow employees to choose between an individual 
coverage HRA and traditional employment-related health 
coverage;\19\ employers are required to offer individual 
coverage HRAs on the same terms to all employees within 
enumerated classes of employees;\20\ generally, employers are 
required to provide employees notice regarding the individual 
coverage HRA at least 90 calendar days before the beginning of 
the plan year;\21\ and employers are required to adopt 
reasonable procedures for substantiation regarding individuals' 
enrollment in qualifying individual coverage.\22\
---------------------------------------------------------------------------
    \18\Treas. Reg. sec. 54.9802-4(c)(1).
    \19\Treas. Reg. sec. 54.9802-4(c)(2).
    \20\Treas. Reg. sec. 54.9802-4(c)(3).
    \21\Treas. Reg. sec. 54.9802-4(c)(6).
    \22\Treas. Reg. sec. 54.9802-4(c)(5).
---------------------------------------------------------------------------
    Because individual coverage HRAs are employer-sponsored 
group plans, individuals enrolled in individual coverage HRAs 
are not eligible for PTCs. Furthermore, the final rules include 
an affordability test, under which the value of the employer 
contribution to the individual coverage HRA is compared to the 
price of the lowest cost silver plan available to the employee. 
Similar to the rule for traditional group health plans, if the 
employee's share of the premium for self-only coverage under 
that plan is more than 9.12 percent (for 2023) of the 
employee's household income, the individual coverage HRA is not 
considered affordable and the employee may be entitled to PTCs 
for individual health coverage purchased on an Exchange.\23\
---------------------------------------------------------------------------
    \23\Treas. Reg. sec. 1.36B-2(c)(3). An individual coverage HRA that 
is affordable is also treated as providing minimum value.
---------------------------------------------------------------------------
    In addition to amounts contributed to an individual 
coverage HRA by the employer, employees may make contributions 
through a cafeteria plan to purchase individual coverage, if, 
for example, the employer's contribution to the individual 
coverage HRA is less than the premium for the individual 
coverage selected by the employee. However, amounts available 
through a cafeteria plan may not be used to purchase individual 
health coverage on an Exchange, so, in these circumstances, 
employees must use the individual coverage HRA to purchase off-
Exchange coverage.\24\
---------------------------------------------------------------------------
    \24\Sec. 125(f)(3), providing that an employer generally may not 
provide a qualified health plan offered through an Exchange as a 
cafeteria plan benefit.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that individual coverage HRAs have 
greatly enhanced the health coverage options available to 
individuals, families, and employers. Individual coverage HRAs 
have provided more choice and flexibility for working people, 
and have saved employers, particularly small businesses, on the 
administrative expenses and burdens associated with traditional 
employer-sponsored health insurance. The Committee therefore 
believes it is appropriate to codify the regulations permitting 
the adoption of these arrangements, to ensure that families and 
businesses may continue to benefit from them.

                        EXPLANATION OF PROVISION

    The provision codifies the final rules permitting employers 
to offer individual coverage HRAs--renamed as Custom Health 
Option and Individual Care Expense, or ``CHOICE,'' 
arrangements--without violating the group health plan 
requirements. Specifically, the provision specifies that a 
CHOICE arrangement that otherwise satisfies the requirements 
prescribed in the proposal complies with sections 2711 and 2713 
of the PPACA.
    The provision defines a CHOICE arrangement as an HRA under 
which payments or reimbursements may only be made for medical 
care during periods during which a covered individual is also 
covered under individual health insurance coverage offered in 
the individual market (other than coverage that consists solely 
of excepted benefits) or under Medicare parts A and B or C. In 
addition, a CHOICE arrangement must meet the following 
requirements:
           The CHOICE arrangement must be offered to 
        all employees in the same class of employees on the 
        same terms.
           The employer may not offer any other group 
        health plan to any employees in such a class.
           The CHOICE arrangement must have reasonable 
        procedures to substantiate that the covered individual 
        is, or will be, enrolled in qualifying individual 
        market coverage as of the beginning date of coverage 
        under the arrangement; and that the covered individual 
        remains so enrolled when requests are made for payment 
        or reimbursement of medical care.
           A CHOICE arrangement generally must provide 
        each employee eligible to participate in the in the 
        CHOICE arrangement with written notice of the 
        employee's rights and obligations under the arrangement 
        not later than 90 days before the beginning of the plan 
        year. The notice must be sufficiently accurate and 
        comprehensive to appraise the employee of such rights 
        and obligations be written in a manner calculated to be 
        understood by the average employee eligible to 
        participate.
    The provision includes the following classes of employees:
           Full-time employees;
           Part-time employees;
           Salaried employees;
           Non-salaried employees;
           Employees whose primary site of employment 
        is in the same rating area;
           Employees who are included in a collective 
        bargaining unit;
           Employees who have not met a waiting period 
        requirement;
           Seasonal employees;
           Employees who are non-resident 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;\25\ and
---------------------------------------------------------------------------
    \25\Under the section 861(a)(3) rules for the source of income from 
personal services.
---------------------------------------------------------------------------
           Such other classes as designated by the 
        Treasury.
    Under the provision, an employer may designate two or more 
of the classes as specified classes to which the arrangement is 
offered, and distinctions regarding full-time, part-time, and 
seasonal employees must be made under rules similar to those 
that apply under sections 105(h) or 4980H, at the election of 
the employer for the plan year. An arrangement does not fail to 
qualify as a CHOICE arrangement if the maximum dollar amount 
varies within a class because the amount increases with the 
number of additional individuals covered under the arrangement, 
or increases as the age of the employee increases (as long as 
the increase is not in excess of 300 percent of the lowest 
maximum dollar amount available). Finally, an employer that 
currently offers a traditional group health plan to a class of 
employees is permitted to prospectively offer newly-hired 
employees in that class a CHOICE arrangement while continuing 
to offer previously-hired employees a traditional health plan 
without violating the rule prohibiting differing offers within 
a class of employees.
    The provision provides that, to the extent not inconsistent 
with the provision, no inference is intended with respect to 
the individual coverage HRA final rules. The provision also 
specifies that all references in the provision to CHOICE 
arrangements must be treated as including references to 
individual coverage HRAs.

                             EFFECTIVE DATE

    The provision is effective for plans years beginning after 
December 31, 2023.

                       III. VOTE OF THE COMMITTEE

    In Compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 3799, The ``Custom Health Option and 
Individual Care Expense Arrangement Act'' on June 7, 2023.
    H.R. 3799 was ordered favorably reported to the house of 
representatives as amended by a roll call vote of 25 Yeas To 18 
Nays (With A Quorum Being Present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
           Representative              Yea     Nay    Present       Representative       Yea     Nay    Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO).....................      X   ......  .........  Mr. Neal.............  ......      X   .........
Mr. Buchanan.......................      X   ......  .........  Mr. Doggett..........  ......      X   .........
Mr. Smith (NE).....................      X   ......  .........  Mr. Thompson.........  ......      X   .........
Mr. Kelly..........................      X   ......  .........  Mr. Larson...........  ......      X   .........
Mr. Schweikert.....................      X   ......  .........  Mr. Blumenauer.......  ......      X   .........
Mr. LaHood.........................      X   ......  .........  Mr. Pascrell.........  ......      X   .........
Dr. Wenstrup.......................      X   ......  .........  Mr. Davis............  ......      X   .........
Mr. Arrington......................      X   ......  .........  Ms. Sanchez..........  ......      X   .........
Dr. Ferguson.......................      X   ......  .........  Mr. Higgins..........  ......      X   .........
Mr. Estes..........................      X   ......  .........  Ms. Sewell...........  ......      X   .........
Mr. Smucker........................      X   ......  .........  Ms. DelBene..........  ......      X   .........
Mr. Hern...........................      X   ......  .........  Ms. Chu..............  ......      X   .........
Ms. Miller.........................      X   ......  .........  Ms. Moore............  ......      X   .........
Dr. Murphy.........................      X   ......  .........  Mr. Kildee...........  ......      X   .........
Mr. Kustoff........................      X   ......  .........  Mr. Beyer............  ......      X   .........
Mr. Fitzpatrick....................      X   ......  .........  Mr. Evans............  ......      X   .........
Mr. Steube.........................      X   ......  .........  Mr. Schneider........  ......      X   .........
Ms. Tenney.........................      X   ......  .........  Mr. Panetta..........  ......      X   .........
Mrs. Fischbach.....................      X   ......  .........
Mr. Moore..........................      X   ......  .........
Mrs. Steel.........................      X   ......  .........
Ms. Van Duyne......................      X   ......  .........
Mr. Feenstra.......................      X   ......  .........
Ms. Malliotakis....................      X   ......  .........
Mr. Carey..........................      X   ......  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 3799, as 
reported.
    The bill is estimated to have no effect on Federal fiscal 
year budget receipts for the period 2023-2033.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee states further that the bill involves no new or 
increased tax expenditures.

  C. Cost Estimate Prepared by the Congressional               Budget 
                                 Office

    The Committee has requested but not received from the 
Director of the Congressional Budget Office a statement as to 
whether this bill contains any new budget authority, spending 
authority, credit authority, or an increase or decrease in 
revenues or tax expenditures.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives, the Committee made findings and 
recommendations that are reflected in this report.

        A. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill does not authorize funding, so no statement of general 
performance goals and objectives is required.

              B. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

  C. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                       D. Tax Complexity Analysis

    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Internal Revenue 
Code of 1986 and that have ``widespread applicability'' to 
individuals or small businesses, within the meaning of the 
rule.

                   E. Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED


      A. Changes in Existing Law Proposed by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986




           *       *       *       *       *       *       *
Subtitle K--Group Health Plan Requirements

           *       *       *       *       *       *       *


CHAPTER 100--GROUP HEALTH PLAN REQUIREMENTS

           *       *       *       *       *       *       *


Subchapter B--OTHER REQUIREMENTS

           *       *       *       *       *       *       *


SEC. 9815. ADDITIONAL MARKET REFORMS.

  (a) General rule.--Except as provided in subsection (b)--
          (1) the provisions of part A of title XXVII of the 
        Public Health Service Act (as amended by the Patient 
        Protection and Affordable Care Act) shall apply to 
        group health plans, and health insurance issuers 
        providing health insurance coverage in connection with 
        group health plans, as if included in this subchapter; 
        and
          (2) to the extent that any provision of this 
        subchapter conflicts with a provision of such part A 
        with respect to group health plans, or health insurance 
        issuers providing health insurance coverage in 
        connection with group health plans, the provisions of 
        such part A shall apply.
  (b)  [Exception.--] Exceptions._
          (1) Self-insured group health plans.--Notwithstanding 
        subsection (a), the provisions of sections 2716 and 
        2718 of title XXVII of the Public Health Service Act 
        (as amended by the Patient Protection and Affordable 
        Care Act) shall not apply with respect to self-insured 
        group health plans, and the provisions of this 
        subchapter shall continue to apply to such plans as if 
        such sections of the Public Health Service Act (as so 
        amended) had not been enacted.
          (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 
                2711 and 2713 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 to any 
                                employees within such specified 
                                class.
                          (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 primary 
                                site of employment 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 the 
                                of 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) 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 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 is, 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 
                        remains 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 90 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 appraise 
                                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.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

                          House of Representatives,
                               Committee on Ways and Means,
                                      Washington, DC, June 7, 2023.

         DISSENTING VIEWS ON CHOICE ARRANGEMENT ACT, H.R. 3799

    H.R. 3799 (Rep. Hern, R-OK) codifies a Trump Administration 
rule on Individual Coverage Health Reimbursement Arrangements, 
(ICHRAs) and renames them as CHOICE Accounts. ICHRAs allow 
employers to offer workers a fixed reimbursement for premiums 
that workers can use on the individual insurance market to 
purchase a health insurance product.
    Employers can use ICHRAs to discriminate against certain 
classes of workers. The legislation allows employers to offer 
ICHRAs to only certain classes of workers, for example hourly 
workers or older workers but not C-suite executives. Employers 
might target groups of workers with higher health costs, 
sending them to the individual market with a voucher.
    ICHRAs could increase premiums and worsen risk in the 
individual market. A Brookings analysis found that allowing 
employers to offer ICHRAs alongside a traditional group health 
insurance plan could increase marketplace premiums by 16 
percent to 93 percent. To the extent employers find ways to 
offload high-cost or high-risk workers onto the individual 
market, the adverse selection would drive up premiums in the 
individual market.
    The bill could result in circumvention of Affordable Care 
Act (ACA) protections on pre-existing conditions, lifetime and 
annual limits, or preventive care. The legislation describes 
individual market coverage but does not explicitly reference 
the code in defining an individual health insurance plan that 
requires the ACA market protections like pre-existing 
conditions protections.
    The mere offer of an ICHRA may leave employees worse off. 
An employee who has an offer of an ``affordable'' HRA is 
prevented from accessing premium tax credits in the 
marketplace. This offer can be particularly problematic for 
lower-wage workers that would otherwise be able to find more 
affordable coverage in the Marketplace and could lead to higher 
premiums and out-of-pocket costs than under ACA coverage for 
the employee.
    Mr. Doggett (D-TX) offered an amendment to prevent ICHRAs 
from being used to discriminate against certain classes of 
workers and ensure that insurance coverage purchased with ICHRA 
funds complies with critical ACA protections by explicitly 
defining the term individual health insurance coverage. The 
amendment was defeated by Republicans.

                                           Richard E. Neal,
                                                    Ranking Member.

        Ranking Member Richard E. Neal, Opening Statement, 
            Committee on Ways and Means Markup of H.R. 
            3799,
                                           Wednesday, June 7, 2023.
    I have big concerns about this bill, starting with the fact 
that 36 hours ago, it had never been mentioned in this 
Committee. This bill would codify a Trump Administration rule 
on Individual Coverage Health Reimbursement Accounts, or ICHRAS 
(ICK-rahs), renaming them as CHOICE Accounts. And it certainly 
allows employers to make choices. By codifying this rule, 
employers would be allowed to discriminate against certain 
classes of workers. I suppose we shouldn't be surprised--in the 
13 years since Democrats stood up for the millions of Americans 
with pre-existing conditions, Republicans have tried time and 
time again to strike down the Affordable Care Act. The bill 
before us today seems like yet another Republican attempt to 
undermine the consumer protections the ACA provides.
    Employers could offer lesser coverage through ICHRAs to 
lower-income workers, hourly workers, or seasonal workers, 
reserving better coverage for their C-suite executives. 
Employers can also single out only the high-cost workers to get 
Marketplace coverage, leaving a cheaper, healthier pool for the 
employer's group coverage.
    We've seen this playbook from the Republicans before, using 
policies to make the Marketplace risk pool sicker, instead of 
robust. Once again, putting wealth before health. Republicans 
are so intent on serving Big Pharma and their wealthy donors 
that they want to build a sicker, poorer, and more segmented 
version of our country.
    For many low wage workers, they may be better off with no 
ICHRA and using the Marketplace premium tax credits 
strengthened by Democrats last Congress for more generous and 
affordable coverage. Unfortunately, even being offered an ICHRA 
could cause employees to lose subsidized Marketplace coverage 
under this arrangement, leaving workers and their families 
worse off.
    If we worked together, we could have mitigated these issues 
and included important safeguards that protect employees from 
discrimination and ensure they have the information to make the 
best health care choices for their families. Sadly, Republicans 
are doubling down on leaving America's workers and their 
families behind.
    Thank you, and I yield back.

                                  [all]