Small business owners struggling to find a health plan for their staff and facing limited affordable options will welcome new provisions that again allow them access to health reimbursement arrangements (HRAs). Under the revised Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), small business owners with less than 50 full-time employees are no longer prevented from helping pay for individual employee’s health insurance through reimbursement arrangements. As of Jan. 1, 2017, the revision effectively restores an alternative that had been popular with the small business sector prior to the launch of the Affordable Care Act (ACA).
Small business owners again will be able to take advantage of these programs – now known as QSEHRAs – and the programs will be considered a part of their tax-advantaged employer contributions to employees. Prior to 2013, an HRA was a more cost-efficient alternative to group insurance programs for many small business owners. The fines levied against small employers who stuck with HRAs after the launch of ACA far exceeded penalties imposed for not offering health care coverage at all.
The Small Business Healthcare Relief Act is part of the 21st Century Cures Act – signed into law by President Obama on Dec. 13, 2016 – designed to address (at least in part) some unintended consequences of ACA. It overwrites specific ACA requirements and penalties, allowing small business enterprises that meet the following criteria to offer HRAs again:
- Fewer than 50 employees who work 130 hours per month or 30 plus hours a week for 120 consecutive days;
- No group health plan currently in place;
- Must be provided to all eligible employees under the same terms;
- Funds provided solely by the employer (no salary contributions);
- Employees to provide proof of coverage in order to receive payment for their (and their family members’) medical care expenses.
There are caps on the small business HRAs (QSEHRAs) that meet the law’s requirements. For a single employee, the maximum is $4,950, and for an employee with dependents, it is $10,000.
In order to prevent double-dipping, the law prohibits an employee from receiving both government subsidies to lower the cost of their health care insurance premium and funds through a tax-free QSEHRA. Employers and employees are required to file the appropriate IRS documentation.
This measure will help small business owners offer health coverage to their employees. It restores a previous option to employers who had preferred to offer HRAs before the ACA took the option away. However, choosing the right health insurance plan still remains a complicated task. Make sure you get sound advice from your insurance and tax experts to help you identify the best option for your business.