How Health Care Reform Affects Small Employers

By Alexandra Jesse, Read/Post Comments

If you are a small business owner with less than 50 employees, providing a group medical plan, you may think you are offering a valuable employee benefit. 

If you regularly reduce your medical plan benefits and increase the employee contribution, are you doing your business and your employees a favor by renewing your group plan every year? 

Did you know that there may be a better option for your company and employees with the Affordable Care Act?  Your employees may be better off purchasing a medical plan that fits their needs and budget.  The ACA rules state that no one can be denied or pay more for a plan due to their health. 

If any of your employees qualify for a premium tax credit (subsidy) and you gross-up their W2 earnings, the cost to them for their medical plan will be very affordable. 

Small business owners usually face double digit increases in their medical  premiums every year.  It is likely this trend will continue.  With the ACA, small business owners should reassess whether they need to continue offering a group medical plan as an employment benefit.  There are excellent alternatives with equivalent benefits to an employer-sponsored plan. 

If you choose to forgo a group plan, your employees can easily transition to an individual/family plan; we can help.  As the employer, you have the option to increase (gross-up) W2 earnings to help offset their cost. 

We recommend using this health insurance calculator.  People can shop anonymously.  They can also work with us and the cost of their plan will not change.  Contact Us

Health Insurance Calculator

Premium Tax Credit and Your Employees
If any of your employees earn less than $45,960 they may qualify for a premium tax credit.

Generally, if you offer a group medical plan, then none of your eligible employees can have a premium tax credit, even if they qualify. 

The credit is a subsidy from the federal government and is based on household income and size in accordance with the federal poverty guidelines.

This credit applies to individual/family medical plans, not group plans. 

See footnote (1) for details.

Employer Savings Illustration
There are no penalties when a small employer discontinues their group medical plan.  The following chart shows a law firm with four employees. 

Group-Medical-Plan-Table-1.jpg

See footnote (2) for details.

Individual/Family Medical Plans, Where and How to Purchase
There are many individual/family plans for people to choose.  But which one? 

Health Insurance Calculator

This calculator shows all the plans in the Washington State exchange and direct market. The provider networks in the exchange are smaller.

The cost of a plan is calculated minus any applicable premium tax credit.  You can automatically connect to the Healthplanfinder website or directly to an insurance company and purchase a plan.

  • Exchange Plans, Washington State Healthplanfinder
    The exchange is a marketplace where you can use your premium tax credit, if applicable.  These plans are only on the Healthplanfinder website.

  • Direct Plans
    These plans are available directly from insurance companies.  If you do not qualify for a premium tax credit we recommend a direct plan.  These plans are not on the Washington State Healthplanfinder website.

Deductible Credit
Deductibles, satisfied in part or whole, usually are credited from group to group plans.

Deductibles are not credited between group and individual plans and vice versa, nor are they credited from individual to individual plans.

Timeline
Employers with new or renewing group plans are advised to submit their applications by the 15th of the month for an effective date, the first day of the following month.  The deadlines vary by insurance company; a group plan effective July 1st should be submitted by June 15th.

Individual plan applications must be submitted by the 15th of the month for an effective date, the first day of the following month.  The deadlines vary by insurance company; an individual plan effective July 1st should be submitted no later June 15th.

Open Enrollment and Qualifying Events, 2014
The open enrollment for individual/family plans ended March 31, 2014.  The next open enrollment is November 15th for an effective date of January 1, 2015.

Qualifying events allow people to apply outside of open enrollment for exchange and direct plans.  One of the most common events is loss of an employer group medical plan.  For a complete list, visit:

http://www.insurance.wa.gov/about-oic/news-media/news-releases/2014/3-13-14.html

Taxes
Group plan premium can be deducted pre-tax from employee paychecks for their portion of the premium.  Employers can deduct the cost of their premium.

Individual plan premium is paid with post tax dollars.  Employee W2 income is subject to payroll taxes including any “gross up” amounts.

Summary
Some employers may cancel their group plan and let their employees purchase individual plans.  Other employers may decide their employees are better served by a group medical plan.  All employers can offer dental, vision, life, disability benefits on a group or voluntary basis.

We have been working with employers of all sizes for over 20 years.  We guide employers through health care reform changes and challenges.

If you work with a broker, including our firm, the cost of your group plan or the individual plans will not change.

We look forward to hearing from you, feel free to contact us:

206-985-8820
Consultants@jesseconsulting.com
www.jesseconsulting.com 

Disclaimer
This is general information and is not intended as legal and/or tax advice.

Footnote (1)

FPL-Guidelines-AppleHealth

More information
www.hhs.gov
Federal Register, Vol. 78, No. 16, Jan 24, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-01422.pdf

 Footnote (2)

 Employer Group Medical Plan and Individual Plans with Subsidy and No Subsidy Annual Cost

Employer-Group-Medical-Plan
Individual-Plans-with-Subsidy
Individual-Plans-No-Subsidy