President Barack Obama will announce the move on Friday. He will also nominate White House Office of Management and Budget Director Sylvia Mathews Burwell on Friday to replace Sebelius, the White House official said.
The move sets the stage for a contentious election-year battle over Burwell's confirmation.
"The president wants to make sure we have a proven manager and relentless implementer in the job over there, which is why he is going to nominate Sylvia," Denis R. McDonough, White House chief of staff, told The New York Times.
Burwell has been overseeing White House OMB for just under a year, having served previously as president of the Walmart Foundation. She is a key player inside the White House on all budget matters, and she served as one of Obama's closest advisers during the federal government shutdown last year. She's a graduate of Harvard and Oxford University, and an alumnus of the Clinton administration.