Today CPAs and tax professionals are being asked to explain intricate health insurance markets and regulations, and make decisions about what is best financially for small businesses and individual taxpayers. This role has expanded in recent years since the Affordable Care Act (ACA) created new tax opportunities for U.S. businesses and individuals.
If you currently use or are considering a reimbursement-based health benefit, that's great! It is a cost-effective, customizable, sustainable employee benefit that gives the power of coverage selection to the employee. This post covers what your CPA should know about healthcare reimbursement.
Individual Health Insurance Reimbursement
The general concept of an individual health insurance reimbursement plan is that a company gives each employee a fixed dollar allowance. Employees are allowed to use that allowance to reimburse themselves for their individual health insurance - policies that they can select and buy based on their individual and family needs.
Because of the shift toward healthcare reimbursement, CPA's should be familiar with how individual health insurance reimbursement plans are set up, administered, and reported. CPA's should also be knowledgeable about comparing the tax (and financial) advantages of healthcare reimbursement vs. traditional employer-sponsored health insurance.
Healthcare Reimbursement Market Reform Compliance
It is of utmost importance that CPAs understand how individual health insurance plans are structured so that they can advise their clients about which plans are compliant with current regulations. While there have been no recent changes to the tax code with regard to Section 105 Medical Reimbursement plans, the ACA has clarified that these benefit plans are group health plans and subject to Market Reforms. Not all plans, such as stand-alone HRAs for 2+ employees, meet these Market Reforms, so it's key that CPAs be able to articulate how plans are regulated.
Regulations for Different Size Businesses
The ACA does not apply equally to every business, and the specific regulations that apply to each business depend on the size (how many full-time-equivalent or FTE employees work there) as well as annual revenue. For some businesses the cost of providing group health plans is more than the penalty for not providing it (or the penalty plus the cost of reimbursing employees' premiums!), so companies are asking their CPAs to help them make this calculation.
Tax-Related Provisions for Healthcare Reimbursement
The ACA includes many different provisions that can impact the taxable income of individuals and businesses, and a CPA needs to know all of them, including:
- New W-2 reporting requirements for employees covered under a group plan through their employer
- Change in the threshold of medical expense deduction to 10% of adjusted gross income for anyone who wants to deduct unreimbursed medical expenses
- New Form 720 which is used for reporting requirements and fees for plan administrators of some self-insured health plans such as health reimbursement plans (HRPs)
- Tax deductions for individuals who purchase individual plans and have income below 400% of the federal poverty line (FPL) or Medicaid expansion for families under 133% of the FPL in applicable states
- Tax penalties for employers that meet FTE employee minimums and don’t provide group health insurance
- Penalties for individuals not covered under a group plan and who choose not to purchase insurance
Your CPA or tax professional needs to know more about health insurance than ever, and with new regulations coming from the ACA each year, it’s critical that they stay up to date to protect you from unnecessary fines and fees.
Are you a CPA? What questions do you have about healthcare reimbursement? Leave us a comment below, and we'll get back to you with an answer!