Those of you that have read my posts know that I try very hard to not be political in my analysis. Such is the case with this, but I’ve got to tell you some provisions of the ACA (Obamacare) are just down right stupid, counterproductive, and harmful to small business.
Health Reimbursement Arrangements (HRAs)
Prior to Obamacare, a common thing for small business was to reimburse their employees a certain amount to purchase their own insurance (AKA Section 105 reimbursement plans). Generally, the individual could purchase cheaper coverage than the small group employer, and the reimbursement was a tax-free benefit. There was a problem when someone couldn’t get insurance individually because of a pre-existing condition, which was eliminated by Obamacare. So now it should be even better, right? Wrong! ACA imposes $100 per day per employee penalty on these arrangements. This penalty was to go into effect January 1, 2015, but the IRS has provided penalty relieve until July of this year.
Obviously, this penalty was designed to discourage this behavior, but why? These HRA’s are now subject to the group plans rules, and they don’t measure up according to the government. Of course, the employee is the one getting screwed here. The employer is not going to pay the penalty, they just will stop the reimbursement. So the employee goes to the exchange and purchases a policy, and rather than the employer subsidizing the premium, the Federal government (aka You and Me) pays for it via tax credits.
When would this actually come up you ask? We had a client that ran into it just last week. This company provides very substantial benefits including medical insurance (I refuse to call it health insurance because one cannot insure someone’s health, but that’s another story). When one of their employees was eligible for Medicare, they would reimburse the cost of their Medicare supplement policy. Very nice you say, but they won’t be continuing because they would pay $36,500 per year for the privilege. How does this make any sense when it comes to public policy? It doesn’t. Assuming that the employee will still purchase the policy, it will be in after-tax dollars, costing them up to 50% more, depending on where they live.
Employers can still use HRA’s to reimburse for actual expenses (not insurance premiums), but that has to be done in conjunction with a qualified group medical plan. But here’s the real rub of thing. Small employers (fewer than 50 employees) don’t have to provide group plans. They’re given a limited credit for providing the coverage, but there is no requirement. Except if you want to offer an HRA! So we’ve taken a simple, straight forward way to help employees obtain medical coverage and made it difficult and in most cases cost prohibitive.
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