By Michael Z. Stahl
Small businesses’ health insurance options with employer contributions have been comparable to rolling tumbleweed in a desolate town. Until now.
Small business owners once again have more flexibility and compliant options when choosing individual health insurance plans thanks to a new law. A small business provision, formerly its own bill named the Small Business Healthcare Relief Act (SBHRA), was adopted under the 21st Century Cures Act in December 2016. The bill was signed into law by President Barack Obama and became effective Jan. 1.
The biggest, and possibly most cost-saving, game changer in the bill is the elimination of penalties for health reimbursement arrangements (HRAs) with individual plans. The SBHRA could make a huge positive impact on small employers’ health care budgets. With the rising cost of health care, HRAs have long seemed like the most viable solution for small business owners who wanted to help employees pay for their health insurance without breaking the bank.
But the last time small employers had the option of offering employees health plans with HRAs was before 2013 when federal departments stated that enrolling in HRAs on individual health plans would result in a penalty under the Affordable Care Act. Since then, small business owners have risked paying penalties up to $36,500 per employee per year if they contributed funds to employees’ health care costs through HRAs. But not anymore.
What brokers need to know about the SBHRA
The 21st Century Cures Act received much bipartisan support because it removed the penalties that had been placed on a solution to employer contributions outside of expensive group health coverage. Small business employers now can offer individual health plans with qualified small employer health reimbursement arrangements (QSEHRAs) without the worry of facing high fines. This can serve as an attractive alternative to group health insurance.
With former President Obama lifting the penalties connected to HRAs, brokers can share the good news with customers, opening a previously closed door to health plan options. Following is a breakdown of what the new law entails.
Before showing your customers health plans with HRAs, Section 18001 of the 21st Century Cures Act states that there are two requirements small business owners must meet in order to be eligible for qualified HRAs.
- Small business owners should have fewer than 50 full-time equivalent (FTE) employees. FTE employees are defined as those who work 30 or more hours a week for more than 120 days in a year.
- Small business owners do not currently offer a group health plan to their employees.
If your client meets these requirements and decides to offer QSEHRAs to their employees, the plan they choose must:
- Be provided on the same terms to all eligible employees.
- Be funded solely by the employer without salary reduction contributions.
- Provide payment or reimbursement for employees’ and their family members’ medical expenses only after the employee provides proof of coverage.
- Limit annual payments and reimbursements to specified dollar amounts.
Although there are no penalties for signing up for qualified HRAs, small business owners could still be fined for failing to report QSEHRA contributions to the Internal Revenue Service. Small employers will need to provide written communication to employees about the allowed benefit amount on W-2 forms.
How to help your customers understand the SBHRA
Assure your small business clients that the new law is a win-win for employer and employees, and that you will help them find the best health plans with QSEHRAs by doing the research for them. Staying in the know on the latest changes to health care, especially on the changes that affect small businesses, is an effective way to gain your customers’ trust.
Explain to your small business customers what the law means for them and their employees. No penalties and more individual health plan choices will keep employees happy and secure with a competitive benefits package, which has proven to contribute to employee retention.
QSEHRAs are tax-free reimbursements that serve as a means to help pay for health care expenses, such as premiums. Some small business owners have previously given bonuses or ACA premium tax credits in lieu of noncompliant HRAs. Fortunately, small employers won’t have to worry about finding an alternative method to make employer contributions.
The law limits QSEHRAs to $4,950 per single employee and $10,000 per employee with families. Employees cannot contribute to QSEHRAs, only employers can. It’s important to mention to small employers that if they provide QSEHRAs to their staff, employees cannot receive ACA premium tax credits or other qualifying HRAs. In other words, double dipping is not allowed.
The SBHRA comes at a time when small business owners have been struggling to find a way to provide quality health insurance at an affordable rate to their employees. QSEHRAs are penalty free (as long as employers properly report their contributions to the IRS) and allow small businesses to contribute to their employees’ health care costs. Furthermore, the law provides new selling opportunities for agents and brokers and it provides just the kind of relief small employers have been eagerly awaiting.
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