* Updated with 2021 rates. As an accountant, you are a valuable resource for your clients, especially when it comes to making financially savvy choices for their company. For the small businesses you work with (and even for your own team), there's a tax advantage that often gets overlooked when it comes to providing health insurance for employees. It's called a QSEHRA (Qualified Small Entity Health Reimbursement Arrangement) and thanks to a relatively new bipartisan law called the 21st Century Cures Act, it's a flexible, customizable, affordable, and financially predictable way to reimburse employees tax-free for premiums and qualified medical expenses.
Here's why it's worth talking to your clients about the small business HRA (and how we can help).
What QSEHRA can do for your clients
With traditional group insurance health plans, small businesses are faced with fluctuating costs for pricey plans and employees are subject to a one-size-fits-all plan that isn't tailored to their needs. That type of set up isn't exactly doing anyone any favors.
By contrast, with a small business HRA, tax-free reimbursements allow small companies the same tax benefits that large corporations enjoy. There's other benefits as well, including:
Flexible: Small business HRA plans can be customized based on a company's needs. You can choose to reimburse premiums only, or reimburse qualified medical expenses as well. You can also choose who to offer the HRA to as long as everyone is treated the same under the criteria (i.e., age, part time). For employees, they can choose a plan that works best for their family and their needs.
Affordable: The small business chooses an amount each month that works with their budget.
Predictable: Monthly costs are fixed based on an amount a business owner can afford. Unlike traditional group plans, this amount will hold steady.
Saves time: You don’t have to deal with the administrative tasks and man-hours it takes to set up a group plan with health insurers.
A majority of medical, dental, and vision expenses are eligible to be reimbursed for employees, their spouses, and their dependents, whether the plan is under their name or their spouse’s coverage, as long as they were covered by health insurance at the time they incurred the expense.
The business owner can choose whether to just reimburse premiums or also qualified medical expenses.
Here are a few examples:
- Monthly premiums for medical, dental or vision policies
- Over the counter drugs
Rules to remember
It's important to keep track of compliance issues for your clients. Here are a few rules to remember to keep them out of trouble.
For the Employer
- Must have fewer than 50 full-time employees. There are specific rules to keep in mind for companies set up as partnerships or S Corporations.
- Must not offer a group health plan to employees
- The 2021 annual maximum individual amount is $5,300 and the maximum contribution for an employee with family costs is $10,700.
- Full time staff (over 30 hours a week) are eligible
- Small business HRAs can exclude employees who have not completed 90 days of work, are under 25 years of age, part-time or seasonal employees
- Employees must provide proof of coverage of their health insurance plan that meets the standards for Minimum Essential Coverage (MEC).
- Health insurance that meets MEC must be maintained in order to receive reimbursements tax-free.
- If employees receive a premium tax credit for their insurance premiums from the marketplace they must notify HealthCare.Gov or their marketplace of the small business HRA benefit. The benefit will reduce the premium tax credit of the employee dollar for dollar.
Take Command is here to help
Specifically, here's how we help make things easier.
- We offer a data-driven platform to help them pick the best on- or off-exchange plan based on their preferred doctors, unique needs and prescriptions.
- Our customized portal allows them to enroll in the small business HRA online, view their HRA documents, submit medical expenses (if allowed), access their membership benefits, and upload their proof of coverage for compliance checks
For business owners:
- We handle all the legal work and make tax season easy and painless
- Employee onboarding
- An easy and quick online signup process
- A customized admin portal for your business allows you to review and approve HRA documents, view monthly reimbursement reports, add/remove employees, manage subscriptions, update payment information, and see overview information about HRAs.
If you want to explore what types of small business HRAs are right for your clients, our Small Business HRA Strategy Guide is another great place to start for optimizing tax savings.
Still have questions? Our small business experts are here to help.
I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!