So, you’re planning for a successful 2015 at your business and one priority is to improve profit margins and keep a lid on costs. But how? If you’re like many CEOs, especially those in the small business community, one thing you may have considered is to reverse direction on health insurance.
After all, now that the Affordable Care Act is in full swing, you could ask employees to buy insurance directly on an Obamacare exchange and leave the company health plan. You know they’ll get coverage (because it’s guaranteed by law now), so what’s the downside if it saves you money and the employee still has insurance?
A year ago, lots of companies were making this exact move – especially with employees who had chronic conditions or other major health problems. In essence, they were paying these workers a cash subsidy to leave the company’s health plan. Others were planning to cancel coverage entirely and just get out of the business of providing insurance to employees at all, which actually looked attractive even to the employees – if the employees were eligible for ACA subsidies and the employers were willing to pay cash bonuses to employees to assist with the switch.
Well, the federal government got wise to the game and in November 2014, the U.S. Department of Labor released new guidelines that specifically forbid employers from doing this. It’s probably just as well, since employers were always at risk of exposure to employee discrimination suits or to potential IRS penalties, even before the clarification was provided.
Just to be clear, all of the following are formally prohibited:
- Providing cash reimbursements to employees so that they can purchase individual policies on their own.
- Providing employees with high claims risks the option of receiving cash in lieu of joining the company’s health plan.
- Canceling a group insurance policy and then establishing a Section 105 reimbursement plan while allowing eligible employees to access premium tax credits in an ACA marketplace.
It’s also important to note that employers with 100 or more FTEs (including those who possess “the equivalent” in part-time employees) must offer health insurance as of…now. That’s right, from January 1, 2015 forward, the law requires you to provide company-sponsored health coverage if you are at or above the threshold. And the next group – employers with 50 to 99 FTEs – will be required to do the same as of January 1, 2016.
Small businesses (those with fewer than 50 FTEs) are not required to offer employer-sponsored health insurance, but do keep in mind that your company may be eligible for tax credits through the Small Business Health Options Program (SHOP) if:
- You have fewer than 25 full-time equivalent (FTE) employees
- Your average employee salary is about $50,000 per year or less
- You pay at least 50% of your full-time employees’ premium costs
- You offer coverage to your full-time employees through the SHOP Marketplace
And, the credits can be worth up to 50% of your contribution to the employees’ premium costs.
Bottom Line: Dumping employees from company-sponsored health insurance is not only a bad idea practically…it could also be illegal if not done completely. Instead, examine other creative options for reducing healthcare costs or managing them effectively, including the possibility of moving your program to an ACA exchange if you run a small business.
Selected Sources:
Small Businesses Weigh Sending Sick Workers to Obamacare Exchanges
http://www.businessweek.com/articles/2014-01-07/small-businesses-weigh-sending-sick-workers-to-obamacare-exchanges
Feds to Employers: You Can’t Dump Sick Workers Onto Obamacare
http://www.businessweek.com/articles/2014-12-05/obamacare-feds-tell-employers-not-to-dump-sick-workers
FAQs about Affordable Care Act Implementation (Part XXII)
http://www.dol.gov/ebsa/faqs/faq-aca22.html
SHOP and Small Business Health Care Tax Credits
https://www.healthcare.gov/small-businesses/provide-shop-coverage/small-business-tax-credits/
