Is it possible that the Cadillac Tax will be a major health spending cost ‘deflator’?
Some large and small employers have considered sending full-time employees to the exchanges for individual coverage rather than offering group medical insurance. Companies such as Zane Benefits and some brokers are telling companies that they may do this and still take advantage of pre-tax medical insurance premium treatment by reimbursing employees’ individual medical insurance premiums through a Health Reimbursement Arrangement (HRA).
Please take note that this is not allowed and the IRS has clarified this on multiple occasions. There are several issues with this strategy discussed in the article below. In some cases, it may be a good strategy to utilize an HRA without a group medical insurance plan; but subsidized plans through the exchange cannot be reimbursed pre-tax. The IRS considers that strategy ‘double-dipping’ and the reimbursement is considered additional taxable income for the employee and subject to payroll taxes for the employer.
In some cases, it makes sense for small employers to consider eliminating group coverage. Bestefits helps employers to evaluate that practice and facilitate the education of employees to understand their exchange coverage options and other coverage that fills the gaps in medical insurance plans. We also work with the employer client to determine whether an after-tax HRA, payroll increase or other strategy is the right fit for that organization and its employee population. Small employers under 50 full-time equivalent employees will not face an Employer Mandate penalty for not offering employer-sponsored group medical insurance. However, small employers still have the ability to ensure employee satisfaction by bringing in a consultant to answer many of their complicated questions.
For large employers, there are various strategies that make sense based on the unique employee environment, average income and company objectives. Since large employers (50 or more full-time equivalent employees) face the Employer Mandate penalty for not offering coverage to full-time employees (30 hours or more averaged per week), modeling of cost implications, employee impact and administrative resources means that different companies will want to adopt different practices. We work with our employer clients to model the implications of all relevant strategies to determine the best direction for your organization while providing personalized support for your employees.
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