As a small to medium sized group benefits broker we see a lot of difference cost savings techniques in benefits packages. This is specifically true in the under 50 employee market. Our account and sales team analyze hundreds of plans a year and have pinpointed that an employer who isn’t overly thrilled with the cost of employer-sponsored health coverage will drill down in unique approaches to say the “offer” health coverage. We can say this is especially true with the advent of rate changes that have taken place due to Healthcare Reform. One of the cost conservation techniques Omega Benefit Group has seen is utilizing individual health insurance plans that are implemented with an employer contribution in the form of reimbursement. Employers are reaping the reward of the lower costing premiums in the individual market to still give employees coverage. The employer will give the employee a certain dollar amount reimbursement that is outside of their salary. Although this setup can be wrought with discrimination and operational issues up until a month ago this plan was considered perfectly legal in the eyes of the IRS and the DOL (Department of Labor). Unfortunately, the IRS has just changed that model just recently that now has taken effect on all of these individual plan designs.
Effective July 1, 2015, the IRS has re-interpreted the ACA (Affordable Care Act) law for small businesses with under 50 FTEs (Full-time equivalents). They have changed the way that small businesses can assist their employees with health insurance costs moving forward. Up until July 1, 2015, employers with less than 50 FTEs were allowed to assist their employees by reimbursing their health insurance costs as long as the payment was considered taxable income to the employee. However, based on the IRS’ new interpretation of the law, providing this reimbursement is no longer legal as it does not comply with the ACA and this includes reimbursing for individual health insurance plans. There are really only two options a group can move toward: 1:) Don’t provide coverage reimbursement for any employee (including highly compensated) or 2.) Go out and purchase a group health insurance plan. If a group under 50 FTE’s determines they do not want to fall under #1 or #2 they will face the prospect of a fine from the IRS. Failure to comply with the will result in a $100 per day per employee fine!
There is a great article to continue reading more about how the IRS will be handling groups who are out of compliance. Check out the Forbes article continued here.