Regulations governing medical expense reimbursement plans have evolved over recent years. The successive changes had made knowing what type of plan is appropriate for your business less certain. To assist, we have broken down the different plan structures and how they are applied to comply with current regulations.
Single Participant HRA
Our most popular plan since 2014, the Single Participant HRA or, one-person HRA is a traditional Section 105 plan. This arrangement allows for the tax-free reimbursement of all qualified medical expenses, including health insurance premiums. There is no statutory limit on the allowance amount the plan may provide. Defined in Internal Revenue Code 26 CFR 1.105-11 as a Self-Insured Medical Reimbursement Plan, it is only allowable when there are fewer than two eligible participants. The plan allows for job-criteria based eligibility and is a perfect fit for one-owner/employee C-Corporations, Single Member LLC or Sole Proprietorships with a spouse employed as a W-2 wage earner and Partnerships where one partner has a spouse employed as a W-2 wage earner. The plan may also be used by an S-Corp shareholder to satisfy the "establishment" provision explained in IRS Tax Tip 2012-51. See our Single Participant 105 Solution here.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
The passage of the 21st Century Cures Act in December of 2016 minted a new HRA benefit. The law amended IRC Section 9831 by adding section (d), an exemption from federal group health plan regulations for plans structured under 26 U.S. Code § 9831(d).
Contrary to popular belief, the new law does not replace the old Section 105. It is a completely new animal. Other than the acronym HRA being used to refer to both structures, they are completely separate benefits subject to their own regulatory requirements.
The QSEHRA is a perfect fit for employers that need to offer a benefit to multiple participants, regardless of how the employer is structured for tax filing purposes. The plan differs from the LPHRA by allowing for the reimbursement of all qualified medical expenses, including health insurance premiums and requiring participants to have Minimum Essential Coverage (MEC) in order to receive the reimbursements tax-free. The plan has statutory annual allowance limits ($4,950 for self-only and $10,000 for self+ dependents) that must be prorated for abbreviated plan years. The provision requires employers to offer the benefit uniformly to all full-time permanent employees working 30+ hours per week on a consistent basis. Applicable Large Employers (ALE - 50+ full-time equivalent employees) and employers that offer an employer-sponsored group insurance plan are not qualified to offer the QSEHRA. The provision requires employers to report the entire allowance eligibility amount on employees' W-2 not as taxable income but, as a coordination mechanism with the exchanges for premium tax credit accountability.
Qualified Small Employer HRA Premium Only Plan (QSEHRA-POP)
Plan Docs also offers the QSEHRA Premium Only Plan (POP). QSEHRA-POP plans are identical to the full QSEHRA except the plan limits reimbursements to amounts paid for health insurance premiums. They can also be easier to administer because employees are only submitting documentation for insurance premium expenses. Employers have the ability to accept recurring claims for premiums. With recurring claims, mployees can submit one claim and verify MEC at the beginning of the year and unless something in their coverage changes or the employer requests a reverification audit, employees do not have to submit documentation again until the next plan year. See our QSEHRA solution here.
Self administering a reimbursement benefit is easy if you partner with someone that helps establish your plan compliantly and provides a framework for onboarding, processing reimbursement requests and conducting reimbursements.
If you have looked into traditional group benefits and did not find a good fit, the HRA can be a viable strategy to provide formal health
benefits and achieve a significant tax advantage.
In order to take advantage of the tax benefits an HRA offers, federal regulations require businesses to formally establish the plan in writing. We recognized that there were many vendors offering HRA services but many of them were too robust and expensive for the micro-businesses that have the ability to self administer their own plan. So we have brought to market a very simple yet effective DIY solution for micro-business HRAs.
Once your small business establishes the plan to IRS requirements, the administration is straightforward, keep a record of the allowance, the expenses and the reimbursement transactions. We include a myriad of HRA self administration tools that walk employees through initial onboarding, define simple to setup best practices for the administrator and establish a foundation for continued compliant administration. Most self-administered plans take less than an hour a month to administer.
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The Step by Step Guide to setting up AND administering a QSEHRA
Have you been considering establishing an HRA for your business but don't know where to start? Perhaps you have heard about the new HRA rules Congress put in place for 2017. If you are a small business owner, this is the guide you have been waiting for.
Our new eBook will take you step by step through implementing and self-administering a new Qualified Small Employer Health Reimbursement arrangement. From designing your plan to administration, this guide provides a clear overview of how to implement and self-administer a QSEHRA.
Is your business an ALE?
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A small plan with five employees and a $500 allowance can save a business $2,200 in payroll taxes, save employees $12,000 in payroll and income taxes and allow an employer a $30,000 expense deduction for employee benefits.
How much could your business save?