The Small Business Healthcare Relief Act (SBHRA) is pending legislation that would expand small business healthcare options. If passed, the SBHRA would allow small businesses to once again use a Health Reimbursement Arrangement (HRA) to assist employees with out-of-pocket health insurance and medical costs.
A common question from small businesses and advisors is, "how would the Small Business HRA compare to reimbursement plans available today?"
Here's how the Small Business HRA would stack up.
Note: This article is an excerpt from our new eBook, "The Small Business Healthcare Relief Act - Everything You Need to Know About the HRA Legislation." To download the free resource, click here.
Small Business HRA vs. Health Reimbursement Plans
Currently, the primary way for employers to offer tax-free health insurance reimbursement is using a Healthcare Reimbursement Plan, or HRP. (For background on HRPs, read this article.)
The Small Business HRA will be similar to the HRP, but there are key differences in plan design and functionality. Here's a chart outlining the key similarities and differences.
Small Business HRA
(If SBHRA is passed, available 1/1/2017)
|Who can contribute?||Employer only.||Employer only.|
|What types of expenses are reimbursable?||Health insurance premiums and basic preventive care.||Health insurance premiums and out-of-pocket medical expenses.|
|Limits on employer size?||No. Available to employers of all sizes.||Yes. Only available to employers with fewer than 50 full-time equivalent employees.|
|Eligibility restrictions allowed?||Yes. Employers may restrict eligibility based on bona-fide job criteria.||No. Generally, all employees are eligible for the HRA. Employers may exclude employees who are part-time or seasonal employees.|
|Different contribution amounts allowed?||Yes. Employers may set contribution amounts based on bona-fide job criteria and/or family status.||Yes, but limited. Generally, an employer must make the same HRA contributions for all eligible employees. However, amounts may be varied based on family status.|
|Annual employer contribution limits?||No.||Yes. HRA annual employer contributions will be capped at $5,130 for a single employee and $10,260 for an employee with a family.|
|Employees allowed to access premium tax credits?||Yes. Employees with an HRP may access premium tax credits.||Yes, however the monthly HRA contributions will be included in an employee's income calculations for determining his or her tax credit eligibility and amount. Additionally, if an employee is eligible for a premium tax credit, the amount of the credit will be reduced dollar-for-dollar by the monthly HRA amount.|
|Employees required to have insurance?||No.||Yes. Employees are required to be covered by "minimum essential coverage," else HRA reimbursements will be subject to income tax.|
|W-2 reporting required for the employer?||No. The employer is not required to report HRP contributions on each employee’s W-2.||Yes. The employer must report HRA contributions on each employee’s W-2.|
|Special notification requirements for the employer?||No.||Yes. Employees are required to be notified about available HRA amount, certain reporting requirements to the health insurance marketplace, and the requirement to be covered by minimum essential coverage. Notification must given 90 days in advance of the HRA start date, or the employee’s first day of HRA eligibility.|
|Exempt from ACA “Market Reform” regulations?||No. An HRP must be designed to comply with applicable “Market Reforms.”||Yes. The HRA would be exempt from certain “Market Reform” regulations.|
How does the legislation affect an employer’s HRP?
While the SBHRA would provide small employers with additional healthcare options, it does not prevent or impact an employer’s ability to offer a Healthcare Reimbursement Plan (HRP). Small businesses may simply prefer an HRP or the Small Business HRA depending on benefit goals and workforce.
That being said, an employer could not offer both an HRP and a Small Business HRA at the same time.
If passed, the SBHRA would expand small business healthcare options - especially to the millions of small businesses in the U.S. who do not currently offer traditional health insurance coverage to employees.
While the Small Business HRA has similarities to reimbursement plans used today, there are key differences in regards to annual contribution limits, types of reimbursable expenses, plan design flexibility, eligibility, and coordination with the premium tax credits.
What questions do you have about the pending Small Business HRA and how it compares to reimbursement plans today? Download the free eBook to learn more, or leave a comment below and we'll help answer!