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Small Business Employee Benefits and HR Blog

The SBHRA Heads to the White House—What It Means for Small Business

Forthcoming federal regulations could make it easier for small businesses to offerThe SBHRA Heads to the White House—What It Could Mean for Your Business
high-quality, compliant health benefits to their employees.

New language approved by Congress in December 2016 as part of the 21st Century Cures Act, the Small Business Healthcare Relief Act (SBHRA) could bring a certain class of health reimbursement arrangement (HRA) back into compliance when administered by businesses with fewer than 50 employees.

Past federal regulatory changes have made navigating employee benefits challenging for small businesses, but the SBHRA would give qualified employers an expanded set of options and some much-needed clarity.

The legislation still requires the approval of the White House, but President Barack Obama has expressed his support for the SBHRA, so a new solution for beleaguered small businesses is almost certainly on the way.

Not only would the law create an easy-to-use, compliant health reimbursement plan, but it would also provide welcome relief from the threat of penalties and ultimately make it easier for small businesses to hire and keep talented employees.

Sound interesting? Let’s find out what the law would mean for you and your business.

What the SBHRA Would Do

If White House–approved, effective January 1, 2017, the SBHRA will restore your ability to use an HRA to administer employee benefits.

Previously, stand-alone HRAs were considered noncompliant under federal law. Beginning in 2014, a joint notice from the Departments of Labor, Health and Human Services, and the Treasury subjected employers using these noncompliant plans to fines of up to $36,500 per employee per year.

The SBHRA would change that by creating a new excepted benefits plan: the Qualified Small Employer Health Reimbursement Arrangement, or Small Business HRA.

What Small Business HRAs Offer

If the SBHRA is passed, a Small Business HRA will allow qualified small businesses to use tax-advantaged funds to reimburse employees for individual health insurance premiums, deductibles, copays, and other out-of-pocket medical expenses. That means your employees will have access to tax-free reimbursements for the health plan of their choosing as well as many medical expenses like copays, prescriptions, deductibles, bandages, contact lenses, and long-term care.

And thanks to the Small Business HRA’s excepted status, you’ll get many of the benefits of a stand-alone HRA without the costly penalties.

In fact, the Small Business Healthcare Relief Act will extend the amount of time small businesses have to come into compliance with federal regulation. If you’re currently using a noncompliant group health plan, you will have until January 1, 2017, to move over to a compliant plan before you’ll be subject to IRS fines.

What’s New in the Small Business HRA

While the Small Business HRA may look similar to the pre-2014 stand-alone HRA, there are several important differences you’ll need to consider.
Participants must have health insurance that qualifies as minimum essential coverage in order to receive HRA reimbursements tax-free.

  • With few exceptions, the HRA benefit needs to be offered to all full-time employees.
  • Generally, an employer must make the same HRA contributions for all eligible employees; however, you may assign differing amounts depending on an employee’s family status.
  • There is an annual employer contribution cap. Instead of providing unlimited funding to the HRA, you will be limited to $4,950 for single employees and $10,000 for families.

How the Small Business HRA Compares with other Compliant Options

While the SBHRA will introduce a new health reimbursement plan for small businesses if approved, it will not affect plans that are already compliant with federal law, like the healthcare reimbursement plan (HRP), integrated HRA, or one-person stand-alone HRA.

HRPs, which were fully legal benefits solutions before the SBHRA, will still be acceptable. If you are using an HRP for your business, you can continue to do so. You can also transition into offering a Small Business HRA beginning January 1.

Similarly, one-person stand-alone HRAs remain compliant as long as your plan has just one participant.

Comparing the Small Business HRA, HRPs, and One-Person Stand-Alone HRAs

One-person stand-alone HRAs, Small Business HRAs, and HRPs share many similarities, but they also have important differences. As you consider the best approach for your business, you should be clear on what each plan does and doesn’t include.

We’ll use this chart to review how these three plans stack up.

 

One-Person Stand-Alone HRA

Small Business HRA

HRP

Currently Available and Compliant?

Yes.

If passed, will become compliant January 1, 2017.

Yes.

Who Can Contribute?

Employer only.

Employer only.

Employer only.

What Types of Expenses Are Reimbursable?

Health insurance premiums and qualified out-of-pocket medical expenses.

Health insurance premiums and qualified out-of-pocket medical expenses.

Health insurance premiums and basic preventive care.

Limits on Employer Size?

No. Available to employers of all sizes, but limited to plans with only one participant.

Yes. Available only to employers with fewer than 50 full-time-equivalent employees.

No. Available to employers of all sizes.

 

Eligibility Restrictions Allowed?

Yes. Employers may restrict eligibility based on bona fide job criteria.

No. Generally, all employees are eligible for the HRA. Employers may exclude employees who are part-time or seasonal.

Yes. Employers may restrict eligibility based on bona fide job criteria.

Different Contribution Amounts Allowed?

Yes. Employers may restrict contribution amounts based on bona fide job criteria and/or family status.

 

Yes, but limited. Generally, an employer must make the same HRA contributions for all eligible employees. However, amounts may vary based on family status.

Yes. Employers may restrict contribution amounts based on bona fide job criteria and/or family status.

Annual Contribution Limits?

No.

Yes. HRA annual contributions will be capped at $4,950 for a single employee and $10,000 for an employee with a family.

No.

Premium Tax Credits Allowed?

Yes.

Yes; however, if an employee is eligible for a premium tax credit, the amount of the credit will be reduced dollar-for-dollar by the monthly HRA amount.*

Yes.

Employees Required to Have Insurance?

No.

Yes. Employees are required to be covered by minimum essential coverage, or else HRA reimbursements will be subject to income tax.

No.

W-2 Reporting Required?

No.

Yes.

No.

Special Notification Requirements?

 

Yes. Employers are required to notify employees about available HRA contribution amount, certain reporting requirements to the health insurance marketplace, and the minimum essential coverage requirement. Employers must provide notification 90 days in advance of the HRA start date or by the employee’s first day of HRA eligibility.

No.

*President-Elect Donald Trump and incoming HHS Secretary Tom Price have both called for the immediate end of these income-based Premium Tax Credit subsidies, so this issue may become moot very soon.

Taking Advantage of the SBHRA

Through Small Business HRAs, employees have the cost savings and flexibility they need to choose the most appropriate health plan for their needs on the individual market. 

Employers, meanwhile, have an important new benefit in their lineup that will appeal to both current and potential employees.

If President Obama signs the SBHRA, beginning January 1, you’ll be able consider these new plans in addition to the already existing lineup of compliant options that provide personalized benefits to your employees. 

You can view the bill in its entirety here. Skip to section 18001, which contains the SBHRA language, by clicking here.

Learn how the Small Business HRA works today.

Got any further questions about the new legislation? Leave them in the comments below.

 

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