BASE^® Blog

The Section 105 Health Reimbursement Arrangement has been around since 1954.  It has grown in popularity among small business owners and for those in the agriculture business, such as family farms.  It has allowed family farms to hire their spouse/family, offer health benefits, and help offset the hefty cost of health care expenses. 

The Section 105 Health Reimbursement Arrangement is a tax savings plan that allows small business owners to deduct up-to 100% of health care costs, including individual insurance premiums and other qualified out-of-pocket health care expenses as a business expense.

The BASE® Section 105 HRA is for employers with one employee that classify as a Sole Proprietor, Partnership, C Corporation, or S Corporation.  This plan is especially made for self-employed business owners who can legitimately hire their spouse, helping them save, on average, $5,900 in annual tax savings. 

The best way to see how a self-employed business owner can save with the Section 105 HRA is by looking at an example.  In this instance, let’s look at a couple that files as a sole proprietorship, owns a family farm, and saved $6,345 in valuable tax dollars with the Section 105 HRA.  The farmer, in this example, hired his spouse that provides valuable services to the family farm by, helping in the field, running errands, picking up parts, keeping the books, and more.  Listening to his accountant and tax preparer, the farmer formally employed and established a compensation package for his wife and enrolled in the Section 105 HRA.  To pay her the appropriate W-2 wages, the farmer evaluated the role his wife played in the business and decided to compensate her $18,600 a year.  The compensation breakdown follows:

1. Reimbursements for family medical expenses $15,000
   1. ($10,000 health insurance premiums and $5,000 out-of-pocket health care costs)
2. Wages $3,600/year ($300 gross wages per month)
3. TOTAL: $18,600

By enrolling in the Section 105 HRA, the couple in this example can deduct 100% federal, state, and FICA (Social Security/Medicare) taxes on the $15,000 (from above line 1) and received $6,345 in tax dollar savings. 

Colleen E., an actual BASE® Section 105 HRA client since 2014, said, “With drastically increasing health insurance premiums and health care costs, every dollar saved is important.  That is why taking advantage of this benefit is so important…from the guidance offered the very minute we enrolled in the plan, to the necessary documentation, we felt everything was very easy to understand.” 

The best part is when Colleen receives their BASE® HRA Annual Summary Report at the end of each year to provide her tax preparer, they save well over the average $5,900 a year in valuable tax dollars. 

Why should a small business have BASE® administer the Section 105 HRA plan?  BASE® will provide step-by-step instructions on how to successfully make the most of the HRA with a convenient online portal that provides access to reporting and documentation, while providing the ability to track health care expenses electronically with an easy-to-use tool.  A valuable tax savings calculator that gives employers a glimpse of how much could be saved when taking advantage of this tax savings plan.  The necessary plan documents required by the IRS, DOL, ERISA, and the ACA will be created and customized, along with the required year-end reports that will be generated to summarize all deductions needed to provide tax professionals at tax time.  The BASE® Section 105 HRA gives every business a simple, effective solution to help deal with the cost of health care and the tax savings will far outweigh the fee of the plan. 

The Section 105 HRA has opened the door for small businesses to offer health benefits to their employees, help to save thousands of valuable tax dollars each year, and pay for their health insurance premiums and other qualified health care costs.  Contact BASE® at 888.386.9680 or visit www.BASEonline.com to learn more about the Section 105 HRA and other options available to help make health care affordable. 

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It’s an all-too-common scenario:  a business during the Open Enrollment season is faced with two options:  renew their traditional group health insurance plan, at an increased rate, or not offer any health benefits.  Because these businesses don’t know what other options are available, they renew at the increased rate to keep providing their employees with health benefits or simply stop offering health benefits. 

Many employers are not aware, but there are other options out there to help save money, by not offering the traditional group health insurance, and still provide their employees with a health benefits package without reducing the value they are used to receiving. 

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a tax savings plan that allows employers to reimburse employees for their health care costs, offering a more personalized health benefit.  The employers can choose to offer the ICHRA to all employees, or to specific classes, with no contribution caps, to fit any budget. 

Many Business Partners and clients are used to only being able to make changes to their health benefits during Open Enrollment season, but when switching to the ICHRA, at any point in time during the year, creates a Special Enrollment Period (SEP)!  This provides a 60-day period to get things in line and employees to pick the individual coverage plan that fits their lifestyle. 

Casandra Mueller, a BASE® Sales Representative, is trying to educate her Business Partners and clients that there are other options, even after they renewed their traditional group health insurance plan during the open enrollment season.  Recently, she worked with an owner of 3-4 grocery stores that renewed their group health in January but had an increase of 25%! 

“The business owner ended up renewing as they felt like making the decision in January was too tight of a timeframe to explain and get the employees on board with an ICHRA.”  Casandra said.  However, after talking with Casandra, learning that when implementing an ICHRA in their business will trigger a Special Enrollment Period (SEP), this grocery store owner learned that they didn’t have to wait until the NEXT open enrollment season.  This employer saw the potential savings and the value in the ICHRA when it comes to offering this health benefit to his employees.  The employer will be offering the ICHRA in March, which will create a 60-day SEP to allow employees to have time to navigate the marketplace and pick the individual health insurance coverage that best fits their needs.

What is the Special Enrollment Period (SEP)?

• It is a special timeframe that acts like the annual open enrollment season at any point in the year.
• The SEP will allow employees to navigate the marketplace and pick a plan that is right for them.
• It is available regardless of what type of insurance the employee currently has. They can use the 60 days to switch. 
• It applies to employees who have been offered a health benefits plan in the past, either during the employer’s annual enrollment period, or when they first became employed.

The increases in group health insurance premiums are happening across the board in all types of businesses.  In Colorado, a Human Resources director of a sandwich business said, “We previously had a large group plan, and when we were going through renewal, we got a 46% increase in premium, which is not sustainable.”

After seeing the large increase, they knew they needed to find another option for the company’s nearly 100 employees.  The business was introduced to the Individual Coverage HRA.  Of course, with all things new, the business was a little hesitant to enroll, but in the end, it proved to be successful!

The business’ employees weren’t forced to be enrolled into a single group plan, and the business helped their employees pay for their health insurance premiums, while saving money.  The employees had the flexibility to shop for an individual health plan with options that work best for them. 

Casandra wants our Business Partners and clients to know that it is not too late to go a different direction, and poses the question to our BPs and clients, “Do you work with a business, know of a business, or are an employer who could benefit from re-evaluating the current health benefit plan?"

No need to wait for Open Enrollment to make a change.  BASE® can help today!  Especially early in the year before the employer and employees have spend a lot of money towards the traditional group health plan.  Please Contact BASE® at 888.386.9680 or visit www.BASEonline.com. 

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