Financial talk with Lane Keeter
Some of you may remember the brouhaha of a couple of years ago about employers who were reimbursing their employees for the premiums of individual health insurance plans (or paying such premiums directly) rather than providing group health insurance, and how it was interpreted by the IRS that under Obamacare that was not allowed.
A new law just signed into effect, restores the ability for certain small employers that don’t sponsor a group plan to do just that under certain conditions. Here is a brief summary of the new law:
Effective January 1, 2017, certain eligible small employers with less than 50 full-time employees will be allowed to offer employees a stand-alone health reimbursement arrangement (HRA) under the 21st Century Cures Act that was signed into law by President Obama. The HRA can be used by employees to pay for coverage on the individual market, including through the Exchanges.
Under the Affordable Care Act (ACA), stand-alone HRAs for active employees generally must be integrated with other employer-sponsored coverage in order to meet the ACA’s coverage mandates. Employers offering nonintegrated, stand-alone HRAs to active employees could potentially be subject to penalties of $100 per day per affected individual. Some smaller employers, who are not subject to the Employer Mandate, wanted to be able to reimburse their employees for some or part of their individual health insurance premiums; however, the restrictions on stand-alone HRAs prevented them from doing so. A provision in the 21st Century Cures Act removes the restrictions for eligible small employers.
To be eligible to offer a qualified small employer HRA, an employer must not be an applicable large employer (i.e., for the prior calendar year, it must have an average of less than 50 full-time and full-time equivalent employees) and must not offer a group health plan to any of its employees.
The qualified HRA must generally be offered to all employees, except:
1) Employees with less than 90 days of service;
2) Part-time and seasonal employees;
3) Employees under age 25; and
4) Employees covered under a collective bargaining agreement.
The amount of benefits can vary based on the cost of the health insurance premiums that takes into account age and the number of eligible family members. The qualified HRA can only be funded by employer contributions. Further, it can be used for medical expenses AND health insurance premiums upon the employee submitting proof of coverage, but payments or reimbursements for the year cannot exceed $4,950 for self-only coverage or $10,000 for family coverage.
An eligible small employer offering a qualified HRA must provide eligible employees written notice at least 90 days before the beginning of the plan year. New hires must be provided written notice by the first date the employee is eligible for coverage. Under a transition rule for 2017, the notice must be provided within 90 days after enactment of the law (i.e., by March 13, 2017). Failure to provide the required notices can result in a $50 penalty for each employee up to $2,500 per year.
The notice must include the following information:
1) The amount available for the year under the HRA;
2) A statement that employees applying for coverage through an Exchange must inform the Exchange of the amount available under the HRA; and
3) A statement that employees may be subject to a tax under the Individual Mandate if they do not have minimum essential coverage for any month and reimbursements under the qualified HRA may be taxable income.
This is a positive change that will be welcomed by many small employers. However, as you can see, it’s not as easy as just paying the premium for an employee and going on about your business. There are fairly strict rules to follow, including the reimbursement of other medical expenses, documentation requirements, and written notices.
(Lane Keeter, CPA is Office Managing Partner of the Heber Springs Office of EGP, PLLC, CPAs & Consultants)