Well – we won’t say “Told You So” – but hope you heard us say “Don’t Do It!” Update: Well – we won’t say “Told You So” – but hope you heard us say “Don’t Do It!” It is now official. The IRS will slap a $36,500 per employee penalty for any employer dumping their sick employees into the health exchanges, whether or not the employer is paying the premium. The Obama administration has just squelched the idea, stating that such arrangements do not satisfy the health care law. Under a central provision of the health care law, larger employers are required to offer health coverage to full-time workers, or be subject to penalties. “I don’t think that an employer-based system is going to be, or should be, replaced anytime soon,” President Obama said recently, when asked if the law might speed the erosion of employer-sponsored insurance. The Affordable Care Act is designed to build upon the current system of employer-based health insurance. The administration, like many in Congress, wants employers to continue to provide coverage for workers and their families. Many Employers – some that now offer coverage and some that do not – had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly. And in our previous post, we highlighted the fact that many employers were also eyeing dumping their sickest employees into the exchanges to reduce their healthcare costs. Employer contributions for employee coverage, averaging more than $5,000 a year per employee, are not counted as taxable income to workers. But the IRS said employers could not meet their obligations under the new health care law by simply reimbursing employees for some or all of their health premium costs. Christopher E Condeluci, a former tax and benefits counsel to the Senate Finance Committee, said the ruling was significant because it made clear that “an employee cannot use tax-free contributions from an employer to purchase an insurance policy sold in the individual health insurance market, inside or outside an exchange.” | “The IRS is going out of its way to keep employers in the group insurance market and to reduce the incentives for them to drop coverage.” Mr. Condeluci pointed out that if an employer wants to help employees buy insurance on their own, they would need to give them higher pay in the form of taxable wages. But then the employer and the employee would owe payroll taxes on those wages, and workers could view the change as reducing a valuable benefit. Andrew R Biebl, a tax partner at CliftonLarsonAllen, a large accounting firm based in Minneapolis, said the ruling could disrupt a long-standing arrangement in many industries. “For decades,” Mr Biebl said, “employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs. The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty.” The IRS has deemed these arrangements as “employer payment plans,” saying “These employer payment plans are considered to be group health plans,” but they do not satisfy requirements of the Affordable Care Act. Under the law, insurers may not impose annual limits on the dollar amount of benefits for any individual, and they must provide certain preventive services, like mammograms and colon cancer screenings, without co-payments or other charges. The administration points out that employer payment plans do not meet these requirements. Richard K Lindquist, the president of Zane Benefits in Park City, Utah, a software company that helps employers reimburse workers for health insurance costs, said, “The IRS is going out of its way to keep employers in the group insurance market and to reduce the incentives for them to drop coverage.” See the Q&A or dig into the details of IRS Notice-2013-54, click here. Source: Pear, Robert. New York Times, “I.R.S. Bars Employers From Dumping Workers Into Health Exchanges,” May 25, 2014 http://www.nytimes.com/2014/05/26/us/irs-bars-employers-from-dumping-workers-into-health-exchanges.html |
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