Legal Alert: Small Business Healthcare Relief Act
Last year, we informed our readers and clients that small employers and churches that engaged in the popular practice of offering reimbursements for healthcare costs would face a steep penalty for doing so. These are employers that fall below the large employer threshold of 50 employees and therefore are not required to offer health insurance at all. Nevertheless, these employers wish to help their employees carry the burden of healthcare costs. The penalty for doing so and failing to comply with the Patient Protection and Affordable Care Act (“Obamacare” or “ACA”) was harsh.
Thanks to Congress, however, that is no longer the case.
On December 13, 2016, President Obama signed into law the 21st Century Cures Act, a law containing a host of healthcare-related provisions, including a narrow exemption for small businesses, including nonprofits and churches, from some of the harsh penalties. Now under the new provisions outlined below, small employers who qualify can once again reimburse employees for premiums and healthcare costs.
Relevant to small employers is Title 18 of the new law, known as the Small Business Healthcare Relief Act, which exempts qualified small employer health reimbursement arrangements from ACA mandates.
Currently, under IRS regulations to the ACA, a “group health plan,” which is subject to a laundry list of requirements, is not limited to group health insurance plans. Instead, the interpretation of “group health plan” was stretched to include a wide variety of employee benefit programs that are related to health. For example, health reimbursement accounts, flexible savings accounts, and even a policy in which an employer agrees to reimburse an employee for direct health costs or the cost of insurance premiums were deemed “group health plans” that must comply with ACA requirements, such as minimum coverage and affordability. This means that a stand-alone plan in which an employer reimburses insurance premium costs would have to satisfy the minimum coverage mandates and provide annual physicals and ambulatory services, for example. Certainly, such a plan would not meet those requirements, and thus the employer would be subject to a penalty of $100 a day per employee.
Recognizing the difficulties of small employers who face crushing penalties for simply voluntarily providing a benefit to their employees, Congress enacted the Small Business Healthcare Relief Act, protecting small business employers.
The new law amends the Internal Revenue Code and the ACA to expressly exclude qualified small employer health reimbursement arrangements from the definition of “group health plan.” To qualify for the small employer health reimbursement arrangement, a small employer must abide by the following rules (among others):
- Employer does not offer a group health plan to any of its employees (that means if you already offer a health insurance plan, you wouldn’t qualify for an exemption).
- The permitted benefit is offered on the same terms to all eligible employees.
- It is funded solely by the employer and no salary reduction contributions are made.
- If the arrangement permits reimbursement for medical care expenses, the employee must provide proof of insurance coverage.
- The benefit cannot exceed $4,950 (or $10,000 if the plan includes family members).
- Employer must provide certain written notices to all eligible employees no later than three months before the start of the year.
The Small Business Healthcare Relief Act is a boon to small employers who faced steep penalties under previous ACA regulations for providing health reimbursement plans. Now, provided an employer abides by the rules set out in the new law, small employers can once again reimburse employees for premiums and healthcare costs.
To avoid confusion and penalties, call Simms Showers today to find out if the health benefit program your church or business offers meets the narrow exemption for a qualified health reimbursement arrangement under the Small Business Healthcare Relief Act.
Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum.