Even though the Republican health care repeal-and-replace legislation didn't come to a vote last week, Congress passed an important provision for small businesses last December: the creation of the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or Small Business HRA.
The Small Business HRA is a new benefit that allows businesses with fewer than 50 employees to reimburse individual health insurance premiums and other medical expenses tax-free for employees, as well as employees’ spouses and dependents. There are a few limitations— businesses must stick to annual allowance amounts at or below $4,950 for single employees and $10,000 for employees with a family, for example—but the Small Business HRA provides a new opportunity for businesses to engage with health insurance reimbursement without fear of stepping on the toes of government regulations.
Many small accounting firms have already found success with health insurance reimbursement. This is particularly true for those struggling to afford traditional group plans. According to Zane Benefits’ 2017 Small Business Health Insurance Reimbursement Report, accounting firms using reimbursement plans typically pay between 24 and 56 percent less than they do with group insurance plans.
For firms interested in implementing a Small Business HRA, several steps must be completed to do so correctly and compliantly. Skipping or altering any portion of those steps that include governmental regulation could subject the firm to fines of up to $100 per day per employee.
Step One: Pick a start date and notify employees
The first step is to pick a start date, or plan effective date, for your new Small Business HRA.
If you don’t have a benefits plan in place, it’s a best practice to start your HRA immediately.
However, if you have an existing group health insurance policy that needs to be canceled, you should delay the start date of the HRA until immediately after your group plan’s cancellation date, giving employees time to purchase new coverage.
You’re also required to provide a detailed notice to employees announcing the Small Business HRA. Under the Internal Revenue Code, each notice is required to inform the employee of their annual benefit amount, instruct the employee to share the benefit amount with any exchange if applying for a premium tax credit, and explain that the employee could be subject to a tax penalty under IRS Section 5000A if they fail to maintain minimum essential coverage during the year.
You must send this notice at least 90 days before the start of each calendar year in which you’ll offer the benefit. If you’re introducing the Small Business HRA mid-year, you must supply employees with the notice on or before the day they become eligible. Your firm could be fined $50 per employee (capped at $2,500 per year) if you fail to provide this notice.
Step Two: Confirm who will be eligible and set allowance amounts
Businesses using a Small Business HRA must offer it to all full-time W-2 employees. However, you can also choose to offer it to part-time employees, provided you offer the same monthly allowance to part-time employees as you do to full-time employees.
Next, you’ll decide how much you’d like to offer employees each month. Generally, this amount should be the same among all employees, though you can offer different amounts to different employees based on age and family status.
One best practice in determining allowance amounts is to look at average industry contributions to ensure you’re offering a competitive benefit. According to the Small Business Health Insurance Reimbursement Report, accounting firms offer an average of $489 per employee per month. By family status, these firms offer $385 for single employees and $574 for employees with a family.
Remember, you must keep your allowances at or below the federal cap of $4,950 annually for single employees and $10,000 for employees with families.
Step Three: Establish legal plan documents and compliant administration policies and procedures
The IRS and the Department of Labor require businesses offering a Small Business HRA to establish and maintain written plan documents.
Among other requirements, these documents must include:
• The name of the Small Business HRA plan administrator;
• The name of the HIPAA privacy officer;
• Designation of any named fiduciaries;
• A description of benefits provided;
• The standard of review for benefit decisions;
• Eligibility criteria;
• The effective date of participation;
• Amendment and termination rights and procedures, and what happens to plan assets in the event of plan termination;
• Rules restricting and regulating administrative or documentation review duties to a Small Business HRA third-party administrator or committee;
• How the Small Business HRA is funded;
• Information regarding ERISA, HIPAA, and other federal mandates;
• Internal and independent third-party appeals process for adverse benefit decisions.
Because of the complexity of creating and maintaining these documents, many firms contract with a third-party administrator or software platform.
Step Four: Provide resources to help employees buy individual health insurance
Though your firm isn’t required to provide help for employees shopping for health insurance, it is good practice to so. For most people, this is a daunting experience – individual policies are long, full of specialized language, and difficult to compare. To support your employees, you should be prepared to provide help. Offer information on how to buy individual health insurance or connect employees with a broker or concierge service.
Remember, however, that federal guidelines prohibit your firm from being involved in an employee’s decision to purchase an individual policy or their decision of which carrier or policy to use.
Succeeding with a Small Business HRA
Once your plan documents are created and the Small Business HRA is in place, your firm is ready to administer it. Administering a Small Business HRA comes with its own complexities, but the value delivered to both your firm and your employees is great.
The Small Business HRA not only cuts costs for small accounting firms, it provides employees with choice and portability in their benefits. This can make a big difference when you’re looking to stand out from your peers in the competition for the industry’s best talent.
As the health insurance landscape continues to shift, the Small Business HRA will continue to provide small businesses with a viable alternative to traditional corporate benefits—one that delivers all the advantages of a reimbursement plan without the government penalties.