New Small Business Law Makes Qualified HRAs Legal
It’s safe to say that small business owners want the best for their employees. Creating a work place with a competitive edge includes providing comprehensive health benefits. Because you’re acting with your employees’ best interest in mind, the last thing you might have expected was to be fined $36,500 per year, per employee for helping your employees pay for health coverage. But that’s exactly what many small business owners have faced until now. The Small Business Health Care Relief Act, which has just been signed into law, is the solution to these hefty penalties.
The 21st Century Cures Act
Formerly its own bill, the Small Business Health Care Relief Act was added to the 21st Century Cures Act in December with a health reimbursement arrangement (HRA) provision that allows small business owners to offer qualified small employer HRAs (QSE HRAs) without being fined. The 21st Century Cures Act garnered much bipartisan support and was signed into law by President Obama on Tuesday, Dec. 13.
Where did the HRA fines come from?
In 2013, the U.S. Treasury clarified that small business owners were at risk of hefty fines under the Affordable Care Act (ACA) if they signed up for HRAs on individual health plans. In fact, penalties could be up to 18 times more than what an equivalent applicable large employer would be fined for not offering coverage at all.
This affected many small employers who, as an alternative to expensive group health insurance, had opted for the more affordable individual market as a way to save on healthcare costs while still providing minimum essential health benefits to employees. Some employers have contributed to employees’ cost of a plan through HRAs, which are a tax-free approach to help pay for premiums and out-of-pocket expenses. It sounds harmless, doesn’t it? Unfortunately, that was not the case. The HRA penalties just didn’t make sense for small employers.
What should small business owners do now to avoid penalties?
The 21st Century Cures Act will save small employers from paying penalties if they offer qualified QSE HRAs to their employees. The law will go into effect after Dec. 31, 2016, but for now, there are two simple steps you can take to avoid those penalties.
- Talk with a licensed HealthMarkets insurance agent. Just as you are looking out for your employees, agents are looking out for you. They’ll have the knowledge to find the right plan for you and your employees and the compliance knowledge to keep you from being fined.
- Do NOT sign up for HRAs. Individual health plans with HRAs are illegal under the ACA, until after Dec. 31 when the new law takes effect. HRAs may only be used legally with ACA-compliant group health plans, according to the IRS. There are other healthcare cost-saving alternatives that will keep you and your employees covered while not breaking the bank.
What happens now that QSE HRAs are legal?
The small business portion of the 21st Century Cures Act has the employer and employee in mind. Small employers will have the option to offer a contribution to employees’ health plans without the worry of being penalized. Under the new law, there are two requirements business owners must meet to be eligible for qualified small employer HRAs:
- You are an employer who has fewer than 50 full-time equivalent employees (employees who work 30 or more hours a week)
- You do not offer group health plans to your employees
If you are eligible and you decide to offer qualified small employer HRAs to employees, the plan 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
The bill caps QSE HRAs at $4,950 per single employee and $10,000 per employee with dependents. Keep in mind that giving or receiving double benefits is not allowed. In other words, if an employer provides qualified HRAs to employees, ACA premium tax credits or other qualifying HRAs are mostly not allowed.
Your HealthMarkets licensed insurance agent will help keep you on track, but it’s important for you to know that you should report any qualified small employer HRA contributions. Employees’ W-2 forms will need that information. You’ll also need to provide written communication to your employees about the allowed benefit amount.
What does the 21st Century Cures Act mean for small businesses?
Two words: no penalties.
The new law gives you the liberty to do right by your employees without facing a large penalty, which serves as a financial relief for you and your business. In the past, employees have received bonuses or ACA premium tax credits as a way to help pay for healthcare costs, including premiums. That’s because HRAs were not offered under the ACA (which is the root of the penalties).
Now, it is likely that the new law will encourage small employers to offer QSE HRAs to employees as a cost-saving, tax-advantaged way to financially contribute to their healthcare costs. Small business employers and employees want flexibility and more compliant options when choosing individual health plans. The Small Business Health Care Relief Act under the 21st Century Cures Act will give them that.