On Dec. 13, the wide-ranging 21st Century Cures Act was signed into law by President Obama.
While the act included a number of initiatives to boost medical research and ease new drug approvals, the key provision for small business owners was the Small Business Healthcare Relief Act. The SBHRA effectively reinstated the use of Health Reimbursement Arrangements (HRAs), which had been prohibited back in 2013 via IRS guidance because they didn’t meet requirements of the Affordable Care Act.
Once again available, HRAs allow employers with fewer than 50 full-time employees to fund HRAs to pay for out-of-pocket medical costs and health insurance premiums for coverage purchased on the individual market.
Following the passage of Section 18001 of the legislation pertaining to the SBHRA, small businesses are now able to fund employees who purchase health insurance through the individual market, including for coverage purchased on the public exchanges. Previously, employers were prohibited from reimbursing employees who purchased health insurance through the individual exchange on a pre-tax basis. HRA plans can be excellent ways for small businesses to provide health insurance benefits and allow employees help in paying for a wide range of medical expenses not covered by insurance.
The National Federation of Independent Business was among the major advocates for the legislation, protecting small business owners from what it called “outrageous” IRS fines. “Our research showed that a significant percentage of NFIB members reimbursed employees for the cost of health insurance, a practice the IRS tried to stamp out despite the lack of clear direction from Congress,” said NFIB President and CEO Juanita Duggan. “Now Congress has acted to make it clear that businesses should not be punished just for trying to help their employees pay for healthcare costs.”
Prior to this new provision, owners who violated the rule had to pay a fine of $100 per day, per worker. That could amount to $36,500 a year, which is 18 times larger than the penalty imposed on larger employers that don’t offer insurance to their workers, according to NFIB. The IRS began enforcing the penalty on employers last July, despite it not being a part of the ACA.
The law – passed overwhelmingly by both the Senate and House of Representatives – allows reimbursement of up to $4,950 annually for an individual and up to $10,000 annually for a family beginning January 1, 2017. For those that receive insurance through the public marketplace, premium tax credits will be reduced by the qualified HRA benefit available.
“This legislation is a huge achievement for small businesses who are looking for more affordable ways to support coverage for their employees,” said Sally Poblete, founder and CEO of Wellthie. “This is especially important for the 40 million Americans who work in small businesses, 22 million of which don’t receive employer-sponsored coverage. It gives small business more flexibility to choose between the group market or the individual market, both in a tax-advantaged way.”
Poblete’s company offers an e-commerce platform for brokers and insurance carriers targeting small businesses and individuals. It has developed the first and only integrated quoting and decision-support tool that compares small group and individual offerings in one holistic platform. Wellthie is available in over 20 markets nationwide, covering 76% of the total small business population.
Under the bipartisan bill, small business employees will benefit from more flexible and more affordable employer coverage options. This is also a win for health insurance carriers, as well as insurance brokers, who will be faced with increased opportunities to support small businesses in finding affordable coverage.