New Law Helps Small Businesses Provide Health Care Coverage

By Mark A. Diaz
As a result of a bipartisan effort, Congress recently approved the “Small Business Health Care Relief Act” or SBHCRA as part of the “21 Century Cures Act.”
The SBHCRA will allow businesses with fewer than 50 full-time equivalent employees to use Health Reimbursement Arrangements or HRAs, when providing health care coverage for their workers. President Barak Obama signed the bill into law on Dec. 13.
Obama said, “I’m hopeful that in the years ahead, Congress keeps working together in a bipartisan fashion to move us forward, rather than backward, in support of the health of our people.”
Previously, owners were allowed to use HRAs, an agreement that an employee would provide his own coverage and the employer reimburse a tax-free portion of the cost. Despite repeated affirmations that the Affordable Care Act (Obamacare) would cause little to no change to the way that small businesses provide insurance for their employees, the IRS determined in 2013 that HRAs would no longer be legal. With the IRS’s decree, small businesses using HRAs faced fines of up to $100 a day for each employee according to the U.S. Tax Code.
Owner Bruce Ekmanian of Ekmanian Tax and Accounting in Arroyo Grande explained one of the many challenges that he faces as a small business owner. “The problem is that there are so many different plans and you’re trying to find the best one,” he said. “It’s ridiculous.”
Imagine taking 20 friends to lunch and they all want something different. A simpler option would be to give them some money and they can find a lunch that fits their needs, this is what HRAs do with health coverage.
Also, big businesses generally have an advantage with more buying power for group policies. To follow the lunch analogy, they can afford to rent a banquet hall and save money on a per person basis. The new law helps level the playing field for small businesses and aids them in competing for hiring and retention with larger companies.
Beginning Jan. 1, the law will allow owners to use “Qualified Small Employer” HRAs which has just two stipulations to become eligible for this new provision. One is the employer must not offer a group policy and must solely rely on QESHERA.
The second requirement is a business may not have more than 50 full time equivalent employees. To calculate the number of employees take the number of full-time employees (working at least 30 hours a week) and add the number of hours worked by all the part-time employs, then divided by 30, to get the number of full time employees. (If this seems daunting, HealthCare.gov offers a calculator, see: www.healthcare.gov/shop-calculators-fte/#).
Once utilizing QSEHRAs, an employer must supply the same terms to all employees without salary reduction contributions. Workers must provide proof of coverage before receiving funds and not receive governmental health care subsidies.
The maximum amount someone can receive is $4,950 a year or $10,000 if the employee has dependents. The worker can use this tax-free money to pay premiums or qualified out-of-pocket expenses.
A recent report by ATTOM Data Solutions put San Luis Obispo as the fifth most unaffordable place to live in the U.S., falling just under New York City. Last year, SLO was rated sixth. In areas where every penny counts, the new law not only has the potential to help small business owners, but employees as well.