The House-passed reconciliation bill includes so many varied provisions that some that are getting less attention now could end up being surprisingly consequential if enacted into law. That might be what occurs with the changes aimed at helping small employers pay for individual health coverage for their workers. The House bill devotes a new tax subsidy to this idea, which means it could rise in popularity as an insurance option relative to what is occurring in today’s market.

An employer-financed individual coverage option is a departure from the traditional pathways to insurance enrollment. Most working-age Americans and their families get employer-sponsored insurance (ESI). Lower-income households are, for the most part, eligible for Medicaid. The Affordable Care Act (ACA) created a new premium credit program to support individuals not eligible for ESI or Medicaid. They can buy insurance in the individual marketplaces set up by the law in every state.

The House bill would codify and expand upon a fourth option initiated during the first Trump administration which allows employers to pay for the premiums charged to their workers when those workers buy coverage in the ACA’s individual markets.

The initial version of this idea was authorized in rulemaking finalized in 2019. Under the Individual Coverage Health Reimbursement Arrangement (ICHRA) option, employers can put money into tax-exempt health reimbursement arrangements (HRAs) which workers then use to pay for individual market premiums. The ACA substantially altered this individual market by restricting the use of health status by insurers when setting premiums.

HRAs are tax-exempt employer-financed and managed accounts that workers can access to pay for qualified medical expenses. Unlike Health Savings Accounts (HSAs), HRAs are not owned by the participating workers, which means they lose whatever balances are in them when they separate from the sponsoring firms. Unused HRA balances carry forward from year to year for workers staying employed with the sponsoring firms.

The innovation that the first Trump administration developed was to give employers a new pathway to sponsoring insurance for their workers without having to take on substantial financial or insurance risks. Instead of organizing the insurance coverage themselves, the participating employers can put money into ICHRAs which the workers then use to pay for premiums in the individual market. One potential advantage of ICHRA coverage is that because the coverage is owned by the workers, they might be able to stay with their plans when switching jobs or becoming unemployed.

It is no small irony that ICHRA looks to place more people into the ACA-regulated individual market, as the first Trump administration had tried to repeal the law in 2017.

One reason ICHRA’s take up has been modest to date is that ICHRA prohibits eligibility for the ACA’s premium credits. That means the full premium must be paid through a combination of employer contributions to the HRAs and out-of-pocket spending by the workers. One estimate put total enrollment in ICHRAs (and a related option designed specifically for small businesses) at just 0.5 million in 2024.

The House bill would codify ICHRA and rebrand it as the “Custom Health Option and Individual Choice Expense,” or CHOICE, arrangement. It also would provide small employers, defined as those with fewer than 50 full-time employees, with a two-year tax credit when they initiate CHOICE arrangements. The tax credit would be set at $100 per month per CHOICE employee in year one, and $50 in year two. These amounts would be indexed to grow with inflation after 2026 (a small employer taking up the CHOICE option in future years would get the credits as indexed for two years).

The Joint Committee on Taxation (JCT) estimates the CHOICE provisions would have a modest effect on the market, with only $492 million in lost revenue over ten years. The implication is that take-up would remain limited.

That may prove to be a correct assumption. As noted, employees using ICHRA are ineligible for the ACA’s premium tax credits, which can be lucrative. Many workers not offered ESI might believe they would be better off enrolling in the ACA marketplaces without their employers getting involved.

But for workers with slightly higher incomes, and thus less potential support from the ACA’s premium credits, the new CHOICE option might prove to be attractive. The House bill’s new tax credit might incentivize small employers with workers who mainly fit this description to take up the option.

The current version of the Senate reconciliation bill makes no mention of the House’s CHOICE arrangement, but it remains possible the House version will still end up in a final compromise that is sent to the president to become law.