2014 Small Employer Health Insurance Credit

Recently, one of our Health Care Reform Specialists was asked to discuss how employers with fiscal year plans will calculate their small employer health insurance credit in 2014.

On August 26, 2013, proposed regulations were released detailing how to determine if a small business is eligible for the credit and how to properly calculate and make a claim as well a transition rule for plans that have a starting year that differs from the employer’s taxable year These regulations state that coverage must be:

  • As of August 26, 2013, is offered beginning on a date other than the first of the taxable year
  • Offered before the beginning of the 2014 plan year that would have qualified for credit under the previous rules (before January 1, 2014) and
  • Offered through a SHOP exchange at the beginning of the 2014 plan year which will be treated as being offered for the entire 2014 taxable year for credit purposes.

If these criteria are met, the regulations state that the credit is to be calculated at the 50 percent rate, or 35 percent for small employers who are tax-exempt. This will cover the entire 2014 taxable year, which will be the beginning of the two consecutive taxable year credit period.  Read IRS Notice 2014-6 Section 45R or contact our Health Care Reform team for additional information.

Impact of the ACA on HRA’s and Cafeteria Plans for 2014

Health Reimbursement Arrangements (HRAs) are, in general, considered group health plans as defined in the Affordable Care Act (ACA) and are subject to coverage mandates on such plans. The Internal Revenue Service (IRS) and Department of Labor (DOL) recently issued guidance that addresses the application of two particular ACA mandates to HRAs and health flexible spending accounts (FSAs). Both the IRS and DOL concluded that an HRA that is subject to the annual limit prohibition and preventive care requirement will not be able to comply with these mandates. Accordingly, an HRA either needs to be designed to be exempt from the ACA mandates or must be amended to not allow current funding, but allow prior funding to be used for appropriate expenses.

Although an HRA cannot comply with the annual limit prohibition and the preventive care requirement, it might be possible to design an alternative, such as a Section 105 medical expense reimbursement plan. Such a plan would likely need to do two things: cover all preventive care without cost sharing and without any annual limits; and impose no annual limits on any other “essential health benefits” covered under the plan.

The recent guidance addressed the impact of the ACA on health FSAs offered through a Section 125 cafeteria plan. As with HRAs, health FSAs are, in general, considered group health plans for purposes of the ACA, particularly the preventive care requirement. The IRS and DOL concluded that a health FSA that is subject to the preventive care mandate will not be able to comply with it. Accordingly, a health FSA either needs to be designed to be exempt from the ACA mandates or must be terminated.

Click here to read more about the effective date, exempt HRAs, Frozen HRAs, HRAs and Individual Medical Insurance Policies, Exempt Health FSAs, and other types of individual policy arrangements.