DTN Tax Columnist Andy Biebl is a CPA and principal with the accounting firm of CliftonLarsonAllen LLP in New Ulm and Minneapolis, Minn., and a national authority on agricultural taxation. His Dec. 31 column on the Affordable Care Act’s new restrictions on reimbursing employees for health insurance purchased off the farm triggered an avalanche of mail, in part because most small business violators were unaware they are subject to $100-per-day-per-employee penalties.
In your January column, “More Affordable Care Act Surprises,” you indicated that employer-provided health reimbursement arrangements (HRAs) were permitted only in three very limited circumstances when the business doesn’t provide group insurance: (1) One employee participating plans; (2) Reimbursements limited to ancillary benefits such as dental and vision; or (3) Retiree-only reimbursement arrangements.
If a husband employs only his wife as a full-time employee, can she be reimbursed for their insurance plan and also have a Section 105 medical reimbursement plan for other doctor bills, prescriptions, etc.? The only other employee is part-time. Also, the three permitted exceptions are all separate alternatives, correct?
Yes, the “or” word in those three exceptions is critical and more than one may apply in a given circumstance. The one employee exception is not limited to ancillary benefits or to retiree-only arrangements.
In your case, if the part-time employee is less than 25 hours per week or annually works less than seven months, that person can be excluded from the medical reimbursement plan without violating the Section 105 discrimination rules. Thus, the premium reimbursement and the medical reimbursement plan for the only full-time employee, the spouse, are permitted under the one-employee exception to the ACA market reform rules.
I want to clarify some reporting around our Health Reimbursement Arrangement (HRA). We provide an HRA (i.e., a Section 105 plan) with only one participating employee. Is that plan in compliance with the ACA, and do we need to file more paperwork than the annual Form 720 to pay the $2 PCOR fee? We read about a new Affordable Care Act fee for reinsurance and health insurers administered by Health and Human Services, and are concerned that this HHS fee could also be required for our little HRA plan.
Your one participant HRA is exempt from the ACA market reforms. And you are properly reporting the small excise tax for Section 105 plans known as the PCOR fee (reported in Part II of the Form 720, at code 133). However, good news on the reinsurance fee: This reporting to HHS, with a more expensive $63-per-participant fee, is only required for plans that constitute major medical coverage. The typical small business HRA that has caps and limits on its reimbursements is not a major medical plan and is not subject to this HHS reinsurance program fee.
In your recent article, you listed three circumstances under which stand-alone HRA reimbursement arrangements are permitted (see Q.1 above). We have three employees and it looks like we would not meet the one-employee exception for insurance and medical expense reimbursement, but would like to provide reimbursement for vision and dental. Can you clarify that this is acceptable?
Yes, the one employee exception and the ancillary benefit exception are two separate and distinct rules. Thus, with three employees, you are very restricted on what reimbursements can be provided. But, a Section 105 medical reimbursement plan or HRA that, by its terms, is limited to reimbursing out-of-pocket vision and dental costs would be an acceptable arrangement that did not violate the ACA market reforms. Of course, most employees do not have substantial annual out-of-pocket vision and dental costs. But whatever you provide under this plan will provide value to the employees in a tax-efficient manner. As you probably understand, these arrangements are tax deductible to the employer and tax-free for both income tax and payroll tax purposes to the employee.