Recent reports indicate 0 percent of employers see increases in their health insurance renewals this year. Not surprising, but the figure is more embarrassing than 25 percent of these increases were in the double digits.
For Obviously, companies need an alternative to meet the growing costs and restrictive participation requirements that make traditional insurance group health out reach for most small businesses.
A common sense solution is to reimburse employees for individual health insurance. Employees have already purchased an individual health plan, they like their coverage, and the employer's contribution would be greatly appreciated.
Someone you respect - your CPA, your weekend golfing buddy, or knowledge in your professional network - has advised you to give employees money to their individual insurance.
"Your company will be fined up to $ 36,500 per employee ..." they say.
This figure is chump change. It is a large sum of money for any business, let alone a company unable or unwilling to take the financial plunge by traditional group insurance.
The purpose of this article is to provide a perspective on what $ 36.500 figure, and provide more information about the reality of the fee than what has been published to date .
The Core Edition
the central issue is really a financial problem with roots that extend far deeper than the IRS excise tax - it is to challenge the status quo of traditional group health insurance. A status quo that has dominated the insurance industry disease since World War II. We speak roots giant sequoia trees in Redwood National Park, not the maple tree sapling you just bought from Home Depot and stuck in your front yard.
It is likely, almost certain that we will return to this article and soon find the thought of employer fines to help employees health insurance to be ridiculous (not need to look back for me).
But before we get there, we'll dive into this seemingly daunting figure $ 36.500 a little deeper.
group health plans are not new ... and neither is the tax
The term "group health plan" is wide; it includes many types of benefit plans offered by employers such as traditional insurance group health, self-insured plans, and any other plan that provides medical care to participants or their beneficiaries or directly through insurance or reimbursement.
most industry groups health plans are covered by the security Employees Retirement Income Act (ERISA). Among other things, ERISA provides protections for participants and beneficiaries in the plans of benefits, including access plan information. In addition, the people who manage these plans must meet certain requirements standards of conduct and plan. Many of these requirements are documented in 26 US Code Section 100. Failure to comply with these requirements could lead to sanctions of the excise tax that could be assessed according to " 26 US Code § 4980D - Failure certain group health plan requirements ".
employer's plan give employees money to individual health insurance (whether taxable or the tax -free) is considered a group health plan. As this plan is a group health plan, it must meet the requirements of Section 100. If it does not, the plan could be subject to sanctions on verification.
ISN Code 4980D 't new - it was there before the Affordable Care Act (ACA) - and employers providing these types of group health plans (money to the individual insurance and / or pocket medical expenses) must then comply. These employer plans must comply now. one in the industry spoke worth $ 36,500 before ACA? Of course not. He has not made headlines because employers were not fined. Have they been audited? Odds say yes. There were no submittals audited pre-ACA? The odds say almost certainly yes. there were fines levied on companies for these non-compliant systems checked? Not that I'm aware.
So why the big deal now?
Because we are in a period of change. The ACA has added new requirements in Chapter 100, sometimes called the "market reforms" which are covered in detail here . Those requirements were effective for all plans as of January 1, 2014 or later.
$ 36,500 ... The reality
So let's say you are a business owner who provides or reimburses 10 employees $ 304 / month for their individual insurance (we do our calculations easily later). To receive the money, employees are required to provide proof of insurance coverage - as a declaration of the invoice or billing. For our example, this can all be done formally or informally, but it should be noted that the informal reimbursement / payment of employee personal insurance is not recommended.
This example business, whether intentional or not, has a group health plan for its employees. The company is at risk of being sentenced to a fine of $ 36,500 per employee? May be.
Take a minute to go through the "what-if"
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Your plan is checked - There are approximately 30 million small businesses in the US and yours could certainly be one of the few selected for audit by the Department of Labor (DOL) ACA reports and new compliance requirements are. . led to much DOL review of ERISA plans in years past
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Your plan is deemed unacceptable - A plan could be improper for a variety of reasons: the requirements for portability and access, benefit related standards for mothers and newborns, and now those pesky "market reforms." So let's say it was out of compliance for some reason.
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failure of compliance is due to reasonable cause and / or your business / regime has not practiced willful neglect - Basically, you try not intentionally circumvent the law and exerciez due diligence. The definition of due diligence One legal dictionary:
A degree, good, and because of the care and activity, measured by reference to special circumstances; such diligence, care, or attention that could be expected of a man of ordinary prudence and activity.
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You get a correction period and does not correct the error within 30 days - There is a period of correction 30 days starts from the moment the person liable to pay the tax was notified of the failure. But let's say you choose to ignore the warnings and do not correct your plan.
So to summarize, your business plan was audited, was found to be about respect, you acted reasonably, you have not willful neglect exercise, and you decided not to correct the error within 30 days of the notice of failure (we are deep in the theoretical way here). You'd be forking over $ 365,000 ($ 36,500 multiplied by 10 employees) to Uncle Sam, right? Probably not.
Ready for another warning? In our hypothetical example, actual excise tax of the company would be equivalent to any of
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ten (10) percent of the total amount paid by the employer during the preceding taxation year for the plan, or
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$ 500,000
I do not do that. Our example company self-declare an excise tax of $ 3.650 ([10 employees x $304/employee/month x 12 months] x 10%). Yes, one less zero than our friend scary $ 36,500.
Let's be clear. If the failure of the plan was not due to reasonable cause or business / regime exercised voluntary negligence, you may be subject to daunting $ 36.500 excise tax.
But also be realistic. The existing "limitations amount of tax" in 4980D for a reason. The companies are not, in most circumstances, by helping their employees to individual insurance and willfully neglect the requirements of the plan. Most companies are doing in their power to stay consistent and follow the rules.
the companies that find themselves here should know there are consistent plans that allow an employer to reimburse employees for insurance individual health (cover preventive care is also necessary to satisfy one of these market reforms). for example, a scheme for reimbursement of health care (HRP) is designed specifically to meet the demands of market reforms will stand up to verification.
real against perceived risk
Article after article has been written, many by renowned authors on the $ 36,500 fine small businesses may face to make individual health insurance reimbursement / payment out of compliance. This is a huge perceived risk to a small business with a tight budget.
What has not been written about, though, is the real risk. If a small business is audited, and if their level is found not to comply, it is likely that no fine will be imposed at all (because of the grace period of 30 days for companies that did not work willful neglect) . While the grace period was ignored, the actual fine would probably only a fraction of the $ 36,500 per employee advertising.
In addition, the small business owners who want to reduce their risk (business owner does not?) Might simply adopt a plan that will avoid charges quite like a HRP.
What questions do you have about the reimbursement of employees for individual health insurance and Excise Tax $ 36,500? Leave a question or comment below.
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