Small businesses face challenges each day and more of the major challenges is employer provided health insurance. Because of Obamacare employers with 50 or fewer employees are not required to provide employer provided health coverage. In the past they were allowed to reimburse their employees for the cost of the health insurance they paid for an individual plan. Now that Obamacare has come into place, there are changes employers need to know.
First, the tax code itself did not change. The current code and regulations allow employers to reimburse employees under a Section 105 medical reimbursement plan. This tax-free reimbursement of the individual health insurance is allowed under Internal Revenue Code Section 105. But with this in mind, the plan must be designed to comply with the Affordable Care Act (ACA) as well as other Federal Regulations under ERISA, HIPAA, COBRA, and the IRS.
The employers may set up a Section 105 plan to reimburse for:
- Health insurance premiums up to a specified amount and
- Basic preventive care as required by PHS Act Section 2713
Employers in the past were paying directly for an employee’s individual health insurance plan. Doing so will put the business out of compliance with the ACA regulations and lead to costly fines. The fines are $100 per day per employee!
There is transition relief for employer payment plans. They realized that employers needed additional time to obtain group health coverage or another suitable alternative. The transition relief applies to the small employers. In addition the penalty relief expired June 30, 2015!
So what should the small employer do?
- Increase the employee compensation-the employer can increase the employee’s compensation and provide the employee with information about the marketplace.
- Find a business insurance policy through the marketplace that is cost effective for the company.
For further information please contact our staff here at Wamhoff Financial Planning and Accounting Services.