A range of new federal regulations open the door for resurgence of small business Health Reimbursement Arrangements (HRAs) for 2020. These low cost, high efficiency health plans have been mostly dormant since the passage of the Affordable Care Act. The new plans offer the potential of lower costs, lower taxes and increased employee satisfaction. But they also bring legal risks and privacy concerns for the employees of small businesses.
HRAs vary from one employer to the next and are highly customizable. That makes it difficult to make blanket statements about their effectiveness in all small business situations. It is best to consider the options and benefits on a case by case basis. Freedom Benefits founder Tony Novak CPA explains more in this short video:
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Three major changes in federal law are rocking the boat on small business health plans. This blog posts summarizes the three most significant changes this past year.
CHANGE #1: No more individual mandate penalty in most states.
WHAT IT MEANS: Without a steep tax penalty for not having a specific type of health insurance, some people are free to consider a wider range of options. Some of these options will save money and expand choices.
WHAT FREEDOM BENEFITS IS DOING: Our financial planning conversations with clients include a wider range of options.
CHANGE #2: Expansion of short term health insurance.
WHAT IT MEANS: This adds a simple, fast, cheap coverage option for healthy people who are in life transitions.
WHAT FREEDOM BENEFITS IS DOING: Building relationships with insurance companies that offer these short term medical insurance products, reviewing specific products, expanding online enrollment
CHANGE #3: Health Reimbursement Arrangements may pay for individual insurance.
WHAT IT MEANS: Small employers are no longer persuaded to offer a group health plan. The same advantages or more
WHAT FREEDOM BENEFITS IS DOING: Emphasizing the HRA’s ability to control health costs for the employer, the ability to increase choice and value to the employee and a new tax advantage. For 2020 employee benefit plans, we include an HRA option at no additional cost in all small business benefit plans and all small business clients where we handle payroll processing.
New cost saving options for some small business health plans.
This blog title is a slogan used by the world’s most popular personal and small business software maker. For my purposes as an adviser, I’m using it here to refer to the accounting for essential financial transactions between an employer and employee: payroll, taxes and employee benefits.
Small businesses have wide latitude in some areas of their financial operations (offering employee health insurance, for example) and little margin for variance in others (like employee wage taxes) . Yet the goal is the same for all: accomplish these transactions and reporting requirements timely and accurately at minimal time and expense.
The best practice
Today’s small businesses have enormously powerful tools available at minimal cost. To make the most of these technologies it almost always makes sense to integrate the small business banking, payroll, taxes and employee benefits under one platform with one internal person (often the small business owner) and one outside person (usually the accountant) in charge of these systems. Have a clear written agreement on who is responsible for specific tasks, a timeline and provisions to handle unexpected events. (A copy of my small business engagement agreements are available at tonynovak.com). Integration of services using the latest AI driven technology almost always saves time and money.
What can go wrong?
Of course, very few small business owners deliberately choose to fail on these essential accounting areas. Yet available data indicates that a high percentage have run into trouble in the past. Limited data using newer technology is far more favorable. As an anecdotal observation, the percentage of employers with a wage tax violation is somewhere around 25%. The percentage of clients with a violation using current wage tax platform is 0%. The technology works! The most common problem issue is lack of appropriate budget to accounting functions. A typical small business devotes 2% to 4% of its gross revenues on these requirements. These are benchmarks and certainly some fall outside that range. But businesses that go much below are typically the ones that run into tax, accounting or financial management trouble.
How to look for savings
The easiest way to is to request an initial analysis of your current financial accounting operations. An experienced adviser can compare this to the norms among similar small businesses and recommend approaches that are working better lately. This service is available for a small fee that is likely only pennies on the dollar of savings available. The analysis process from beginning to end likely takes a few discussions totaling an hour or two. When I handle these engagements I prepare a one page report for the business owner in checklist format so that we can discuss and easily prioritize the areas of potential gains. In today’s rapidly evolving technology environment, it makes sense to re-evaluate every two years or so. In most cases, business owners tell me they were not even aware of the existence of the most common cost-saving and time-saving tools.
My question to other small business owners: How do you plan to simplify the business of life? I would be pleased to hear your thoughts. Reach me online or call/text 302-404-3263.
Your employees already have health insurance. Chances are they found coverage though the Health Insurance Marketplace with a premium subsidy that gives then a lower net cost than anything your business could provide.
But the benefits are lacking. The large deductible leaves them scared. Nobody has an extra $5,000 or more just sitting around in case of an accident or illness! And what about lost wages during time off from work? What can you do to help?
The employer can offer inexpensive supplemental gap insurance that pays cash benefits in addition to the primary insurance. The cost can be as little as $20 per month. And because it is provided through an insurance plan, your employee does not risk losing their premium subsidy.