Samuel R Baker CPA, CFP®

1-847-478-9901 Serving Northern Illinois

 318 Half Day Rd #288, Buffalo Grove IL 60089

Important Information for Business Health Benefits for 2017
By Samuel R Baker CPA CFP Copyright 11/2/2017©

            There is new law for 2017 affecting how businesses handle Health Care Reimbursements (HRA's). Code section 105 medical reimbursement plans are repealed after 12/31/16 and to a large extent will impact "stand alone" health reimbursement plans for a single owner c-corporations, s-corporations, and some partnerships.

 
            Under old law c-corporations could deduct all medical expenses (premiums and other costs) of their owner and the owner's family whether or not they were reimbursed to the shareholder. S-Corporations could pay for the entire cost of health insurance premiums.

 
            The new QSEHRA[1] (Qualified Self Employed Health Reimbursement Plans) plans limit a single owner's reimbursements from their business to $4,950 for a single person and $10,000 for a family beginning in 1/1/17. These reimbursement limits can be used to pay for health insurance or other qualified medical expenses for a c-corporation and health insurance premiums only for an s-corporation. However, these low limits don't even come close to paying for the health insurance alone let alone other medical costs. There are new notification requirements however it is not yet clear whether the new QSEHRA plans requires a written document. There can't be any payroll reductions for this similar to the way a 401K is handled.

 
            This changes the whole planning scenario when deciding which insurance to purchase and possibly adding an HSA or 125 cafetaria plan. HSA contribution limits are also low in my opinion- ~$6900 for a family.

 
            The real problem is when corporations can't qualify for group health coverage they end up buying on the individual market. Furthermore, because buying individual policies for one's family is much less expensive than one family policy, the QSEHRA rules and limits come into play. When unqualified reimbursements are paid to a shareholder, the transactions need to be charged to payroll and will increase taxable wages. But a potentially scary scenario has presented itself by way of a Blue Cross Blue Shield notice I received.

 
            Blue Cross has stated based on guidance it received from the Federal Government it will not accept premium payments from any policy owner other than the named employee (the sole employee). They might return the premiums and may pass on their determination to state and federal regulators potentially causing IRS notices and penalties. Therefore, it is important we implement these new rules and handle all medical payments properly. In some cases, clients have already reimbursed amounts that are not allowed under the rules. A copy of this Blue Cross Blue Shield letter is attached to this client alert.

 
            Our clients have a very tight timetable to figure this out because open enrollment started on 11/01/2017. Its a shortened enrollment period since Trump cut funding to run the exchanges (for those purchasing on the exchange). Most clients don't buy on the exchange and purchase directly from a health insurance company such as Blue Cross[2]. Remember, this affects clients who can't qualify for group coverage (SHOP)[3]. It is very important to compare features, coverages and prices to match the best options to your particular health situation or your family's particular health situation. Blue Cross has a tool on their website that allows you to do a side by side comparison of various policies.

            These new rules will cost some clients more tax because there will be limits on deductibility.The industry is still figuring out the new law and I will keep your posted as I learn more.

 

                                                                        Sincerely,

                                                                        Sam Baker     

 

[1] IRS Notice 2017-67; https://www.irs.gov/pub/irs-drop/n-17-67.pdf

[2] https://retailweb.hcsc.net/retailshoppingcart/IL/census?ExpressLinkedAgentId=253897

[3] https://www.healthcare.gov/small-businesses/employers/Type your paragraph here.