SHOULD YOUR HEALTHCARE BE TIED TO EMPLOYMENT?

The most recent trend in employer based health coverage has been to cancel the company policy and leave employees to buy individual policies sold through the ACA’s online exchange, so long as the companies pay the relevant taxes and penalties.

Many employers who opt away from employer coverage can give workers raises to go out and buy individual policies on the exchanges, as long as the money is taxed as income. An employer can give additional taxable cash to employees, without regard as to whether the employee used the money to buy coverage on the exchange or not.

The latest restriction from the IRS essentially prohibits employers from giving workers tax-free subsidies to buy policies in the online marketplaces/exchanges. However, the law allows for employers to give pay bumps and higher salaries so long as the increased pay is taxed.

The current law states that if an employer has fewer than 50 workers, there is no penalty under the health law for dropping employer coverage or never offering it.

In order to stay competitive and attract good workers, small employers can offer taxable income in the form of higher salaries and raises. By transferring the insurable risk from the employer to the employee, employers save money and employees receive employment mobility (no longer tied to a job because it has good benefits). In addition, employees, through the individual marketplace, may be able to receive federal aid with monthly premiums.

For example,  a small business of 12 employees may cut its employer coverage and instead offer a 3k taxable raise or one time bump to the employee’s salary.  The employee can now go out and find his or her own individual plan through the marketplace/exchange. Depending on the employee’s income, he or she may be able to obtain coverage with a federal subsidy or government assistance.

For small-business employers this transfers the burden of insurance onto the employee and leaves the employer either paying a base fee for each individual employee or paying nothing per employee, saving the employer thousands annually.  For the employee, he or she is no longer tied to the job since benefits are obtained privately as opposed through the employer. Additionally, the employee is likely to obtain subsidies when purchasing insurance through the individual marketplace.

Larger companies, 50+,  that don’t offer coverage may be liable for fines of $2,000 and $3,000 per worker starting in 2016. Larger companies are more inclined to maintain employer health coverage and benefits since the fine may be as costly as maintaining the employer coverage. Furthermore, larger firms are more inclined to stay as competitive as possible. However, it is worth noting that many large employers are squeezing their benefits forcing employees to cost share- often leaving the employee with higher copays, deductibles, premiums, and or less spousal coverage.

Although companies are reluctant to move employees from employer health coverage/benefits to the individual ACA marketplace/exchange there is no question that some small employers may benefit from the transition. Moving 15 employees into the ACA marketplace exchange may save the employer thousands per employee annually and leave the employee with better health coverage.

If you are a small employer, have high health care costs per employee, and are interested in saving money annually give us a call and we can sit down and go over your current coverage and costs. We will compare your current employer health coverage costs with what it will cost you to move your employees into the individual marketplace.

636.561.5060.