IRS Notice 2013-54 Explained
Essentially, employers who choose to offer reimbursement for individual health insurance policies instead of offering a group health plan may be subject to a fine of $100 a day per employee. That adds up to $36,500 an employee each year. The IRS termed these health reimbursement arrangements (HRAs), and clearly it's something they wanted to discourage.
This is not new regulation — in fact it was instituted in 2013. Still, many businesses are remain startlingly unaware of these huge potential fines. This is especially true in the small to mid-sized business sector where employers don't have the time or resources to keep up with each and every new regulation that rolls out.
Because the law flew under the radar with so many businesses the IRS offered several waivers for these penalties, but the last one only ran through to December 31st, 2016. That means if you have been offering reimbursement for health insurance since that date, you may be subject to these fines.
Small Businesses Face The Greatest Risk
What's truly unfortunate about this regulation is that it applies even to businesses that AREN'T required to provide health coverage under the ACA. That means that if you, as a small business, want to help your employees get health coverage but you feel like you can't afford a group health plan, you can't simply reimburse them for individual insurance premiums and call it a day.
The good news is that there are smarter ways to exercise cost containment strategies on your group health plan that will make group insurance more affordable and manageable for the long term. You just need the right approach and the right adviser to help you set up a group policy for your employees in which you can maintain greater control over plan and pricing. This is doable and is sustainable, if you are willing to move beyond traditional fully insured plans.
A Cure For Your IRS Woes
In late 2016, Congress did pass the 21st Century Cures Act. This act reopened the pathway to offering HRAs, should your business be willing to meet certain requirements. These new HRAs are called qualified small employer health reimbursement arrangements (QSEHRAs)
In order to qualify for QSEHRA status there are a number of requirements that must be met:
- You must have 50 or less full-time employees
- You must not otherwise offer a group health plan
- You must offer QSEHRAs to all full-time employees who have been working with you for at least 90 days and are over the age of 25
- QSEHRAs must be funded exclusively with employee contributions
- Contributions are limited to $4,950 per year for individuals and $10,000 per year for families
- You may only use your QSEHRA to reimburse qualified medical expenses, not insurance premiums
- QSEHRA reimbursements are taxable unless the employee provides proof that they have obtained minimum essential coverage according to the ACA
As you can see this is no small list of requirements. Still, for smaller employers who can't afford group plans, this could work to help employees who do have individual health plans, better manage their out of pocket expenses and deductibles. Though this might not be the best fit for all small businesses, and for slightly larger companies (with 15 to 50 employees) there could be a better way; it is still something worth considering, especially if you have less than 15 employees in need of health insurance.
If you are struggling with offering group health insurance to your employees, don’t be tempted to help them pay for individual plans and don’t just automatically resort to an Health Reimbursement Arrangement. Instead, let us help you design an affordable group plan solution that is best for you and your workforce. It’s likely that there will be a better approach that is manageable, sustainable, and IRS acceptable.
At Summerlin-Roberts we leverage our expertise in cost containment to provide the best possible benefits at the lowest possible price. Please, contact us today for more information on providing affordable health insurance for your employees.