ACA Health Insurance - Discrimination penalty

[Mike Preston]

Got into an interesting conversation with a small business (4 employees) owner who currently has a small group plan. The small group plan has raised their premiums to the point where the state exchange policies are MUCH cheaper. So the owner will drop the group health plan for all employees and give them all a raise from which the employees can pay for the state exchange policy and the taxes on the increased compensation and still come out ahead. Sounds like a win-win. The employees have the same insurance coverage and a few more bucks to spend. The employer's expense is dramatically reduced.

One glitch: the insurance for the owner herself. Before the ACA the employer *could* have provided employer paid health insurance just for herself (of course, she didn't *want* to restrict coverage in that way, but she could have, unless it was self-insured, of course). Now, with the ACA $100/day penalty for providing what the law apparently refers to as discriminatory coverage, she is a bit concerned about what her options are.

Poking around on the internet I found a page or two referencing an announcement from the IRS that the penalties for providing discriminatory coverage will not be enforced until the IRS issues regulations in that area.

Have those regulations been published? Is there any chance that, if they haven't been published to date, they will be finalized in 2015 with a 1/1/2015 effective date, thereby ensnaring those that do so?

A $36,500 penalty is something that most small business owners would prefer to avoid, eh?

Assuming the penalty is off the table for 2015 and assuming all of the employees get individual coverage from the state, can the small business owner continue the coverage she has always enjoyed, have the company pay for it and have the company deduct the premiums?

For reasons I don't understand, the policies for everybody other than the owner are significantly less expensive through the exchange.

Thanks

mike

[Flyboyjohn]

The 4980D $100/day penalty is already in effect for plans that violate the Notice 2013-54 "no reimbursement of premiums" position that such programs violate a couple of mandated reforms.

The expansion of 105(h) non-discrimination rules to encompass fully insured plans is what's been delayed until IRS issues regs.

[Mike Preston]

Thanks. I think. I'm not entirely sure what "plans that violate the Notice 2013-54 "no reimbursement of premiums" position that such programs violate a couple of mandated reforms." means. Can you expand on that a bit?

I didn't see anything in 2013-54 that addresses 105(h). Certainly nothing that explicitly says that the $100/day penalty would NOT apply until specific regs are issued. Did I just miss it?

[Flyboyjohn]

Sorry if I wasn't clear.

In response to your question about a business owner not offering coverage to any employees except herself:

1. She probably won't be able to buy a group policy covering just herself so her only option is to purchase (or have the company purchase or reimburse) an individual policy which possibly triggers the issues under 2013-54 and possibly invokes 4980D penalties.

2. If there's some way she's able to purchase a group policy and not offer it to any other employees then currently here's no 105(h) discrimination and no 4980D penalties since IRS hasn't issued regs.

Did that help or just further muddy the waters?

[Mike Preston]

Thanks. The helped a lot.

I suppose there is no answer to the question as to whether there is any chance the 4980D penalties would be enforced against 2015 policies if the 4980D regs are issued sometime in 2015?

She is perfectly willing to give her employees the option as to whether or not they enroll in the group plan because the employees are sophisticated enough to understand that if the employer pays less for benefits there is more money available for salaries. I suppose it is unwise to have a form signed by the employees opting to forgo health insurance coverage in return for a specific dollar bump in salary, right?

[Bill Presson]

We've had lots of employers in this situation with perhaps one difference. Most of them have had a POP cafeteria plan that allowed the employees premium to be pre tax when it was part of the group plan. When they move to the exchange individual coverage, there's no way to do it pre tax or reimburse it pre tax (as @flyboyjohn points out), so the cost differential may be bigger for our clients.