The new health plan rules for small businesses

by Tony Novak, CPA, MBA, MT     February 4, 2015

By now most small business owners are at least vaguely aware of the basic rules for complying with the Affordable Care Act. Accountants and advisers are now playing "catch up" on communications in this area¹. The remaining problem is that an estimated one million small businesses still have not taken action to address the issue and eliminate their tax liabilities.

There are not many industry resources available for small businesses and their advisers in this specific field. This is partly because the new tax rules, so far, are not inducive for the sale of commissioned insurance products. Insurance commissions have historically been the economic driver of services in the small business employee benefit field. It seems that few, if any, local providers offer expertice in health plan compliance. Since I have a long track record of working remotely through the OnlineAdvsier service with small businesses and their accountants nationwide in the niche of small business employee benefit plan design and compliance, this type of ACA compliance help is a natural fit for my practice. An effective plan review service must be focused on making it practical for small businesses to take immediate corrective action that will bring their health plans into compliance with current law².

First we should start with a review of the simple five point checklist for a small business employer³ with common law employees⁴:

1) Do not include health insurance as taxable wages.

2) Do not pay, reimburse or "bonus up" for the cost of individual health insurance.

3) Do not reimburse employee out-of-pocket medical expenses except as part of an integrated and written Health Reimbursement Arrangement.

4) Update your written health plan documents to comply with ACA limitations and integration requirements.

5) Address the risk of tax penalties for improper use of insurance in 2014 and 2015, especially the potential for excise taxes under IRC 4980D discussed in my blog post last month.

These five points can be most easily covered in a health plan review that typically includes an interview of the business owner or office manager and a review of the applicable documents⁵.

I offer a simple flat-fee review service that includes a review of the insurance, the plan documents, a brief interview and samples from my library of prototype small business health plan documents that may be used by your attorney to update your legal documents.

Footnotes

¹ Recent IRS and DOL publications include mention of the fact that the Service is aware that some advisers have promoted incorrect guidance earlier in the ACA implementation process. Commonly misused schemes involved the terms "Section 105 Plan", "Premium Reimbursement Arrangement" or some similar term.

² These provisions affecting small business health plans became effective January 1, 2014. Since most small business health plans run on a calendar year, we are now already into the second tax year of compliance concerns. Some advisers anticipate further changes to the regulations and enforcement of these provisions of PPACA but the review services are based on current law.

³ This article is meant only for businesses with less than 50 Full Time Equivalent employees. Larger employers face more onerous requirements including shared responsibility payments also sometimes referred to as "play or pay" or "employer mandate".

⁴ Common law employees do not include owner/employees of pass through entities like partnerships, LLCs and S corporations. The tax treatment of owner/employees is not discussed in this article but would be considered in a review engagement.

⁵ The review does not include a legal opinion, which can only be offered by an attorney.