Things Small Employers Should Know about Health Insurance
Robert Smith, Licensed Insurance Agent, HealthMarkets Insurance Agency
The Wall Street Journal recently reported that insurance carriers dropped several thousand small business owners from their small-business plans earlier this year. HealthMarkets Insurance Agent Bob Smith, a GABB affiliate, offers this information about health insurance mandates.
- Companies with fewer than 50 FTE are not required to offer health insurance to employees.
The so-called “employer mandate” only impacts companies with 50 FTE (full time equivalents) or more. Note that this is 50 FTE, not 50 employees. The law specifies the calculations for converting part-time employees to FTEs. Note also that companies under common control have their employee counts added together for the purposes of qualifying for the employer mandate.
The potential penalties take effect in 2015 for companies with 100 or more FTE and in 2016 for companies with 50-99 FTEs who didn’t take certain actions with regards to their workforce (for those who took those actions, such as workforce reductions, the potential penalties take effect in 2015). Penalties are assessed if an employer either does not offer coverage to 95% of its fulltime employees and their child dependents, if the plan is considered unaffordable, or if the plan does not meet a minimum value test.
- Companies with fewer than 25 FTE could be eligible for tax incentives for offering health insurance.
The tax incentive is available for employers with fewer than 25 FTE, average annual wages less than $50,000, and who contribute at least 50% of the cost of the group health premium. For those companies who qualify, the tax credit is available for two consecutive years. The amount of the credit ranges from 3-50% of the employer contribution (to a max of 50% of the premium) and varies according to average wages and number of employees. The maximum credit is available for those with 10 or fewer employees and average wages of $25,000 or less. The credit declines as either of those variables increase. Health insurance must be purchased through the government SHOP (Small Business Health Options Program) exchange in order to qualify for the credit.
- Your employees may be better off if you don’t offer a plan.
In many cases, the net cost of individual health coverage to employees after federal subsidies is less than the cost of a group plan to employees. Subsidy levels for individual employees vary with family composition and household income. Every company must evaluate their specific situation. The United States Department of Health and Human Services has announced that on average, enrollees through the exchanges are receiving subsidies totaling 76% of the insurance premium. However, employees are precluded from pursuing that option if they are offered insurance through their employer (even if they do not participate in that plan). Note also that the elimination of an employer-sponsored plan is a qualifying event that creates a Special Enrollment Period for the employees, allowing the employees to enroll in an individual market plan without a break in coverage.
- Companies cannot contribute to employees’ individual health insurance premiums on a pre-tax basis.
There are two common sources of misinformation on this topic. The first source is headlines trumpeting that employers cannot “dump” employees to the exchanges. These articles were triggered by guidance from the IRS Notice 2013-54.
The key point is that employees may not use Section 125 “Cafeteria Plans” or HRAs to reimburse employees’ premiums for insurance purchased through the Health Insurance Marketplaces (or exchanges).
Working the other way, some advisors are suggesting that they have a plan design that allows for pre-tax contribution to individual health insurance premiums. Referring again to the IRS notice described above, it is clear that the intent of the regulation is to prevent such arrangements. The potential fines for non-compliance are $100/employee/day.
- Options exist for contributing to employees’ health care and insurance costs on a post-tax basis.
HealthMarkets has partnered with HealthEquity to provide a platform for Health Savings Accounts (HSAs) that covers qualified medical expenses to which employers can contribute on a pre-tax basis. In addition, our partner BASE offers a plan for administering defined contribution to individual premiums on a post-tax basis (conditional wage increases) to allow a method for reducing an employee’s individual health insurance premiums.
This article was prepared by HealthMarkets Insurance Agency, of which GABB Affiliate Bob Smith is a licensed agent. The HealthMarkets Benefits Optimizer can develop a customized solution for your company and your employees. HealthMarkets agents are neither tax nor legal professionals. For guidance regarding legal and tax matters specific to your business, please consult a qualified advisor in those fields. HealthMarkets Insurance Agency is the d/b/a or assumed name of Insphere Insurance Solutions, Inc. which is licensed as an insurance agency in all 50 states and the District of Columbia.
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