Whether your small business has a staff of one or 40, almost everyone sees health insurance provided by their employer as a major benefit of their job. But for most small business owners, the rising cost of health insurance makes it difficult to afford healthcare for employees and keep up with regular business costs.
The 21st Century Cures Act, which President Obama signed into law in December 2016, could offer an affordable alternative to expensive group health insurance. The Small Business Healthcare Relief Act (SBHRA) was added to the 21st Century Cures Act in December after originally sitting in Congress as its own bill. The small business provision allows small business owners to offer their employees qualified small employer health reimbursement arrangements (QSEHRAs) with individual health plans.
The new law became effective Jan. 1, 2017, and comes during a time when, for years, small business owners could not sign up for HRAs without the risk of being fined up to $36,500 per employee per year. The penalties didn’t always exist, however. In 2013, federal departments including the U.S. Treasury said signing up for HRAs on individual health plans would lead to huge fines under the Affordable Care Act (ACA).
For small business owners who used HRAs on individual health insurance as a form of tax-free employer contributions to employees’ healthcare, the penalties left them in a bind. Why would penalties be connected to a health insurance option that financially helps employees and employers? Fortunately, the SBHRA has repealed the fines, which is why it received overwhelming bipartisan support.
A breakdown of the SBHRA and its requirements
The SBHRA allows small business owners to help pay for their employees’ healthcare costs, such as premiums, by way of QSEHRAs without the worry of facing a penalty. The new law requires small employers to meet the following criteria before signing up for penalty-free QSEHRAs:
- Small employers must have fewer than 50 full-time equivalent (FTE) employees, which are employees who work 130 hours in a month or 30 or more hours a week for 120 consecutive days.
- Small employers should not currently offer group health plans to employees.
If small business owners meet the criteria and want to offer QSEHRAs to their employees, the plan must:
- Be provided on the same terms to all eligible employees (FTEs).
- Be funded solely by the employer without salary reduction contributions. This means that employees cannot contribute their funds to QSEHRAs.
- Provide payment or reimbursement for employees’ and their family members’ medical expenses only after the employee provides proof of coverage through their paid premium.
- Limit annual payments and reimbursements to specified dollar amounts (see below).
Small business owners can decide how much they want to contribute to employees’ QSEHRAs, but there is a limit. The 21st Century Cures Act caps the QSEHRA amount at $4,950 per individual employee and $10,000 per employee with dependents. It’s important to know that small employers aren’t completely safe from penalties if they don’t properly report contributions. Small business owners are required to report all QSEHRA contributions to the IRS through documents like W-2 forms; if they don’t, they could incur a penalty.
In the past, employees could receive subsidies or ACA premium tax credits instead of noncompliant HRAs as a way to cut down health insurance costs. While those options are still available, they cannot be combined with QSEHRAs. In other words, double benefits are not allowed.
Find a health insurance broker or agent to help you find the right plan for your employees
Owning a small home business can be stressful. While finding health insurance for you and your employees might be a priority, you may not have enough time to keep up with changes to healthcare in addition to maintaining your business.
That’s where health insurance brokers and agents can help. Part of a broker’s or agent’s responsibility is to stay informed about new laws like the 21st Century Cures Act so they can help you find the most affordable quality health plans.
The 21st Century Cures Act keeps the employer and employee in mind. Employees can now receive employer contributions to help pay for their healthcare, and small business owners have a cheaper alternative to group insurance while still providing tax-free healthcare funds for their staff.
