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The Potentially High Cost of the Affordable
By Burt Beauchamp, CPA
Many small businesses would like to provide healthcare to employees, but some can't because the cost is too high. Under the Affordable Care Act (ACA), small businesses with less than 50 employees aren't required to offer health insurance, but large businesses can be penalized if they don't offer affordable coverage.
Section 105 medical reimbursement plans aim to cover almost any out-of-pocket medical expenses that employees might encounter, and a Health Reimbursement Arrangement (HRA) is similar. An HRA only differs from a Section 105 reimbursement plan because it has a carryover feature, which allows an employee to use any reimbursement funds left over from the previous year.
The ACA market reform provisions resulted in significant changes, and as a result, many Section 105 medical reimbursement plans and HRAs can't meet the requirements. As pointed out by the IRS notice 2013-54, the two most significant reforms that affected HRAs and Section 105 medical reimbursement plans state that they:
- Cannot impose annual dollar limits on certain health benefits
- Must provide preventative health services at no-cost to the employee
These requirements apply to not only to traditional medical reimbursement plans and HRAs, but also to any employer pretax reimbursement of individual insurance premiums, also known as employer payment plans.
You know what's more unnerving than understanding the new medical reimbursement plan restrictions? The penalties imposed upon business owners if they violate them.
In fact, it'll cost employers $100 per day for each employee in violation. That's $36,500 per year, per employee. With penalties this severe, employers need to seriously consider whether their medical reimbursement plan or HRA violate the new restrictions.
There are only a few limited exceptions to these new requirements. They include:
- Ancillary benefit plans
- One employee plans
- Integrated Section 105 plans
- Retiree-only medical reimbursement plans
The good news for employees is that they are eligible for premium tax credit subsidies if they purchase an individual health insurance plan through the Marketplace. The subsidy will most likely be credited monthly and lower their premium. The subsidies are generally offered to people who file single with a household income of between $11,500 and $46,000, or between $23,500 and $94,000 for a family of four.
However, they're not eligible for the subsidy if they receive any employer-supplied health coverage whatsoever.
With these ACA market reform provisions, a great deal is at stake for employers and employees. As is usually the case with tax law, current rules and regulations are subject to change now and in the future. All employers who offer healthcare options need to verify with their insurance carrier that they meet the new restrictions.