Small accounting firms struggling with health insurance

Some CPA practices are using health reimbursement arrangements as a way to provide coverage to employees, in some cases offering them more benefits.

Under a health reimbursement plan, small businesses set aside a specific amount of money every month to reimburse employees for individual health insurance and other medical expenses, instead of choosing a one-size-fits-all group plan and paying part of the premium.

Employee benefits provider Zane Benefits issued a report Tuesday based on a survey of its customers and also drawing on industry data. It found that CPA firms using a health reimbursement plan offered employees an average of $489 a month to spend on health insurance in 2016, representing a 14 percent increase since 2015.

Small CPA firms (those with between two and five employees) provided monthly allowances 15 percent larger than the allowances of larger firms with between 11 and 25 employees. Employees of CPA firms spent an average $415 percent month, or 85 percent of the allowance from their employer.

CPA firms using health reimbursement plans spent 24 percent less on single employees and 56 percent less on employees with a family every month, compared with group health insurance. The average allowance covered 100 percent of the average employee’s premium cost, compared with group plans that cover 82 percent of the premium.

The use of health reimbursement arrangements by CPA firms and other businesses may expand, thanks to legislation passed by Congress last December. The 21st Century Cures Act eliminated a tax penalty on employers who reimburse employees for the cost of health insurance premiums (see Congress eliminates IRS penalty on employer reimbursements for health insurance and Tax Strategy: The return of health reimbursement arrangements).

The Internal Revenue Service issued a notice Monday extending the period for an employer that provides a qualified small employer health reimbursement arrangement to furnish an initial written notice to its eligible employees regarding the arrangement.

Notice 2017-20 extended the period for an employer to furnish an initial written notice to its eligible employees regarding the qualified small employer health reimbursement arrangement, or QSEHRA, from March 13, 2017 (90 days after the 21st Century Cures Act was enacted) to at least 90 days after additional guidance regarding the contents of the QSEHRA notice is issued.

The notice also provides taxpayers with transition relief from penalties for failing to furnish the written notice until after further guidance has been issued.

The 21st Century Cures Act (Cures Act added a section to the tax code under which an eligible employer (generally an employer with fewer than 50 full-time employees, including full-time equivalent employees, that does not offer a group health plan to any of its employees) can provide a QSEHRA to its eligible employees. Under a QSEHRA, after an eligible employee provides proof of coverage, payments or reimbursements may be made to that eligible employee for expenses for medical care and including expenses for premiums for individual health insurance policies) incurred by the eligible employee or the eligible employee’s family members, provided certain requirements are satisfied.

Section 9831(d)(1) provides that a QSEHRA will not be treated as a group health plan. Section 9831(d)(4) generally requires an eligible employer to furnish a written notice to its eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided (or, in the case of an employee who is not eligible to participate in the arrangement as of the beginning of that year, the date on which an employee is first eligible).

For more information about QSEHRAs, see FAQs about Affordable Care Act Implementation.