Health Insurance-Do I or Don’t I? Should I or Shouldn’t I?

Health insurance has been a big buzz and probably one of the most confusing issues over the past several years. It seemed that changes were being made daily. Several new acronyms and catch phrases that have been part of health insurance requirements include ACA, FTE, SHOP, Obamacare, pay or play, employer shared responsibility, etc.

With the cost of health insurance over the years, it has often not been affordable for a small employer to offer an employer owned health insurance plan. The employers would often find that the employee could purchase his/her own insurance at a much cheaper rate. The employer might then reimburse the employee for that insurance and that reimbursement would not be taxable. Does this sound familiar?

In the past, these types of arrangements would loosely fall under Sec 105 or 125 plans. This all changed with the enactment of The Affordable Care Act – explained in IRS notice 2013-54. There are some hefty penalties attached to arrangements that do not meet essential coverage, discrimination, etc. These penalties can be as great as $100 per day per employee. This is just one of the penalties. There was some temporary relief of the penalties but that expired as of June 30, 2015.

It is still unclear at this point how shareholder health insurance inside of an S corporation will be handled.

At this point for small employers, there doesn’t appear to be a lot of options. The SHOP Exchange through the state or a policy through an insurance company that meets ACA requirements, are about the only options for offering health insurance. Another option is to not offer health insurance at all.

Small employers just simply can’t keep offering the casual setups of reimbursements that have been offered in the past. It appears with the size of these penalties, it really is – pay or play.

posted by Brian Leedy, CPA