Five practical steps in setting up a Tax Free Small Business Section 139 Qualified Disaster Relief Payment Program

A Small Business Section 139 Qualified Disaster Relief Payment Program can be used to get tax free payments to employees without the burden of income taxes, social security and wage taxes, and other expenses. This post entirely skips the explanation, legal background and strategy and jumps right into the practical steps in setting up a tax free benefit plan plan within a small business employer.

1) Use a written plan document. This is not a legal requirement but just a good business practice.

2) Use a third party administrator. It’s creepy and inappropriate for the employer to ask about employee personal expenses. Yet the IRS wants appropriate verification. An outside benefits administrator is best.

3) Piggyback off the payroll system. Even though this is not taxed as payroll, we can use the same financial infrastructure to make the payments and keep records.

4) Communication is key. Since employees are not at work, email and text message announcements are the key, combined with live real time support professional to answer employee questions.

5) K.I.S.S. – Act sooner rather than later. Employees and firm owners face growing stress daily. An independent small business benefits firm like Freedom Benefits can launch this plan in just a day. Keeping a simple approach will also keep administrative costs to a minimum. When designed as proposed and combined with the payroll service, this plan should only cost a few dollars per employee per month.

If you have questions, please reach out to @tonynovak, by phone (856) 265-0306, or email tnovak@freedombenefits.org for a free no-obligation discussion of this plan for your business.

attorney tax

Status quo is good news for big insurance

The largest companies skimming $Billions every year from the huge pool of money we pay for year health care saw their stocks skyrocket more than 10% in a single day yesterday on the belief that they will not be held accountable by the next president. Yes, status quo is good for them.

health care stocks

Freedom Benefits wants you to know that you do not need to be at the mercy of profit hungry insurance companies. You can design your health benefits to serve YOU, not THEM.

Send a message to discuss your options with a professional with more than 30 years saving small businesses money with their employee benefit plans.

Good news for small business HRAs

Recently released industry data shows that qualified small employer HRAs fared well in their first year of operation under liberalized tax laws. The new plans are called “Qualified Small Employer Health Reimbursement Arrangements” or “QSEHRAs”. It appears that HRAs enable small businesses to effectively compete with larger businesses offering group health insurance. Additionally, it appears that smallest firms with 1 to 4 employees have used HRAs most effectively to complete favorably with larger firms that offer group health insurance.

  1. The maximum legal allowance increased slightly for HRAs for 2020 to $5,250 for individuals, $10,600 for families. One of the primary benefits of HRAs is that they allow employers to control their costs. Most employers that offer HRAs, especially those with more than 4 employees, offer benefits less than this amount in their HRAs (see #3 below).
  2. Less than 1 in 5 employees eligible for HRA benefits use their annual total maximum allowance. This is important because it shows that for most employees, the HRA offers full coverage despite its limits on maximum benefits.
  3. In 2019, the average maximum allowance for benefits is amounts for single employees was $280/month (81% of the legally allowable maximum benefit) and $514/month for employees with a family (59% of the legally allowable maximum benefit).
  4. Despite insurance costs increasing, claims to HRAs decreased over the past year. Since there is some evidence that
  5. Employees participating in a HRA submit an average of 12 claims per year.
  6. The six most common non-premium reimbursements employees submitted include: insurance premiums (typically either 100% or 0% of employees depending on plan design), prescription drugs (55% of employees), medical office visits (45% of employees), chiropractic care, dental care and mental health counseling.
  7. The smaller the company, the higher the average monthly allowance. This may reflect nepotism is small firms. For example, some HRAs are set up to cover the spouse as the only employee.
  8. HRA allowances mirror the cost of health insurance. The states with the highest average health insurance premiums typically have higher HRA plan allowances to cover the higher premiums. Examples are Connecticut, Rhode Island, and North Dakota. Conversely, the states with lover average insurance premiums tend to have lower HRA allowances. Examples are Nebraska, Arkansas and New Hampshire. Increases in HRA allowances correlate with increases in health insurance premiums.

Taken collectively this dats provides evidence that HRAs are working for small businesses, are saving money, . I offer several types of HRA plans at no additional charge to small business accounting clients. For more information, see www.FreedomBenefits.org.

Interim major medical insurance

At some point in the middle of the year we may find ourselves without medical insurance. Regular major medical insurance is normally not available until the following January 1. Insurers and federal regulators are tightening the rules for mid-year enrollments, called a special enrollment period, to make it even tougher to get coverage outside of the annual enrollment period,

Fortunately several types of alternate coverage plans are available to most people. You must pay the whole cost because government subsidies are not available for this type of coverage. An employer can pay part or all of the cost because these alternate plans are not subject to market reforms as explained in IRS Notice 2015-17.

Plans vary from state to state. I recommend the “Smart Insurance Marketplace“, an online insurance exchange run by a private insurance technology company I;ve worked with this company for many years and have sent hundreds, maybe thousands, of satisfied customers to them over more than a decade.

ID cards not issued to dependents

I received this question from a health plan member today regarding ID cards for covered dependents. The information may be worth sharing because this is a common question:

MEMBER QUESTION:  I got two I.D card both have my name, i want to ask where is my daughter’s I.D card

MY RESPONSE: I am responding as the independent adviser and not as a representative of your insurance company.

To the best of my knowledge, ID cards are always issued in the name of the policyholder. I am not aware of any legal authority which allows and insurance company to issue an ID card in the name of a covered dependent. Duplicate ID cards may be issued and these may, include the names of covered dependents. The actual content of printing on the ID card varies among plan administrators.

For more information, you may wish to contact the members services office by telephone as listed on your insurance ID card.


The point is that:

  1. ID cards are typically not issued in the names of dependents.
  2. Some, but not all, health plan administrators list the names of covered dependents of the card.
  3. ID card printing and issuance practices vary between insurers but this practice of issuing cards only to the policyholder is consistent.

Disclosure of VBA Accident ADD Insurance

This content is provided for educational purposes only and is not an offer of coverage and is not intended to represent a communication from an insurer.

This content describes Accidental Death, Disability and Dismembership insurance.

Insurance is underwritten by Federal Insurance Company, a member
insurer of Chubb Group of Insurance Companies.

The coverage described in this literature may not be available in all  jurisdictions. This is descriptive only. Actual coverage is subjective to the language of the policies as issued. Exclusions & Limitations apply. This policy provides ACCIDENT insurance only. It DOES NOT provide basic
hospital, basic medical or major medical insurance as defined by the New
York State Insurance Department. The expected benefit ratio for this policy is 85%. This ratio is the portion of future premiums which the company expects to return as benefits, when averaged over all people with this policy.

IMPORTANT NOTICE — THIS POLICY DOES NOT PROVIDE COVERAGE FOR
SICKNESS.

Chubb, Box 1615, Warren N.J. 07061-1615.

The benefit amount shown is your accidental death benefit amount. The benefit amount for accidental dismemberment is a percentage of the
accidental death amount. The benefit amount for your spouse/domestic
partner is 50% of your amount and for your dependent children is 20% of your amount. If you have no dependent children, your spouse / domestic partner’s
benefit is equal to 60% of your amount. If you have no spouse/domestic
partner your dependent children’s benefit amount is equal to 25% of your
amount.

 

Highlights of coverage of VBA accident insurance are listed here.

A summary of benefits is here.

The source of this content is the product brochure.

Will the Affordable Care Act be repealed in 2017?

At this time it appears that Democrats have the political power to block any attempt to repeal of the Affordable Care Act in the US Senate and are expected to do so, according to policy experts who advise the health insurance industry. However, Republicans do have enough votes for a budget-related bill to remove funding for the cost-sharing federal subsidies and the expansion of Medicaid.

So it appears that coverage for the lowest income individuals is threatened but other parts of the law remain safe for 2017.

Mini-med insurance plans OK per court

This week the Court of Appeals for District of Columbia affirmed a lower court’s earlier decision on litigation affecting the fixed indemnity health insurance. The ruling reaffirms that  the Department of Health and Human Services (HHS) may not require consumers purchasing fixed indemnity health insurance policies to certify that they have other health insurance coverage that qualifies as under the provisions of the Affordable Care Act. The common term for these policies is “mini-med insurance”. While many, like this Consumer Reports writer, predicted the death of this type of insurance, the opposite actually happened. This type of coverage has become more popular since passage of the Affordable Care Act.

While these plans do not help an individual or company avoid penalties for non-compliance with Affordable Care Act, they may be a more attractive option to the millions who are exempt from the health care law’s requirements.

Earlier HHS had proposed that only individuals who have qualified plans (aka “Obamacare”) could buy these policies. The court seems to uphold the rights of individuals who avoid  Obamacare for any reason and want to maintain their non-compliant health plan.

The courts seem to say that consumers can purchase any insurance they want and deal with the consequences later.

Insurance is the business of mirage

“Insurance is the business of mirage” -a theme of my law professor many years ago. Life experience has proven him correct time and again. 

I suppose that most of us involved in the field of advising formerly affluent clients in financial distress have seen more collapses due to not having insurance coverage they thought they had than all other causes combined.