The Section 105 medical reimbursement plan was a great option for small businesses that wanted to provide health care coverage to their employees—until a change destroyed much of the benefit by requiring the plans to provide the Affordable Care Act (ACA)-compliant minimum essential coverage.
Given the choice of offering non-compliant coverage and being subjected to a $100 penalty per day per employee, or offering no health coverage (an option for employers with 49 or fewer full-time employees), most small employers chose the latter.
The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) was introduced in 2017. It took some of the stings out by allowing employers with fewer than 50 employees to reimburse certain health care costs, up to a set dollar limit, without fear of the $100-per-day-per-employee penalty.
And while the QSEHRA option remains on the table for small employers, there’s now an even better option available to employers of all sizes.
Starting January 1, 2020, employers can offer a new type of HRA called the Individual Coverage HRA or ICHRA.5
The ICHRA allows you to:
Reimburse (free of payroll and income tax) employees’ individual health care premiums and other permitted medical expenses,6 up to a dollar limit you choose—not one imposed by the government;
Offer a regular group health plan (or not—it’s your choice) to certain employees and ICHRAs to other employees;
Let employees pay for coverage, beyond the amount you reimburse, via a cafeteria plan if those employees have off-Exchange7 individual insurance coverage;
Offer higher reimbursement levels to older workers and workers with more dependents;
Allow employees to roll over excess ICHRA funds from year to year, without limitation; and
Help employees out with their health care costs without fear of running afoul of the ACA and its dreaded $100 per-employee-per-day penalty.
To schedule a free consultation and discuss additional business tax strategies contact Contact Meese Khan, LLP today!
Phone: 623 935 1005