Posts Tagged ‘health care reform’

What You Need To Know About Obamacare Employee Dumping

Thursday, June 5th, 2014

You may have heard some buzz lately about the Obama administration and/or the IRS barring employers from “dumping” employees onto the health care exchanges – with some truly severe cash penalties for doing so. But is this really “new” news? What exactly does this mean? It might surprise you to know that employee dumping is not all it seems.

A recent New York Times article explains that “employee dumping” is the practice where an employer drops health insurance coverage to its employees, the employees go to the health care exchange to buy insurance, and then the employer on a pre-tax basis reimburses its employees for their premiums. This “have-your-cake-and-eat-it-too” approach (with various ways to accomplish it) was one of the leading responses to this legislation that Obamacare consultants developed. The administrating agencies (IRS, HHS, DOL) shut this option down when they issues guidance in September 2013. ANY attempt by an employer to pay an employee a pre-tax benefit for health insurance has since then been a very dangerous approach, although some exceptions exist (e.g. retirees only). This current “news” is simply a clarification that these things are indeed busted.

Can You Still Drop Health Care Insurance Coverage?

What if you want to drop your coverage, send employees to the exchange, and then increase their after-tax pay so that they can pay for exchange insurance? That’s OK, it doesn’t conflict with the rules. It’s only pre-tax benefits you should be concerned with.

What if you increase worker pay as I just described, and then the employee sinks that cash into an HSA that they get from a bank (for free)? That gets them a tax deduction (up to certain limits) … is that OK?  Yes! Remember that what the IRS is looking to prevent is employers trying to give pre-tax benefits without offering insurance – that is the “evil” that these regulations are designed to combat. Once the employer pays taxable wages to an employee, the employee is free to use whatever means they have available to be tax efficient.

A Pit Trap For The Unwary

So is “employee dumping” limited to the situation where employers are trying to push tax-free cash to employees? Actually no, and this is why I refer to this as “a pit trap for the unwary.” Dumping also refers to the practice of employers encouraging workers with high medical bills to go to the exchange.

What exactly does this mean? Think of it this way … As an employer, you have an insurance plan that still takes into account the health and claims of your workforce (they still exist). If you can get an employee to the exchange that has $400,000 of medical costs a year, you could potentially save a large sum of money and your employee is not harmed because they can get quality coverage on the exchange for no more than a healthy individual can.

Some companies throw a cash kicker on top for the employee to voluntarily drop coverage (what’s an extra $10,000 in cash if you are saving $100,000+). Everybody wins, right?  Well, not the Exchange. If it’s discovered that you – the employer – are doing this, there are administrative rules in place that can throw that cost back at you. Insurance companies have a duty to report suspected employee dumping, so be careful!

Obamacare Help

Have you considered “dumping” or are you unsure if you’re heading down this path? If so, contact Rea & Associates. Our team of Ohio tax professionals can help you determine what path is best for you to take, as well as help you stay in compliance with Obamacare rules and avoid any pitfalls along the way.

Author: Joe Popp, JD, LLM (Dublin office)

 

Interested in reading more on how Obamacare will impact you and your business? Check out these posts:

Peeling Back The Onion: Answering 3 Popular Obamacare Questions

Health Insurance Options: SHOP, Drop, Roll, or Self-insure?

How Will ACA Federal Exchange Premiums Affect Ohio Small Businesses and Consumers? 

 

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What Do The Recent IRS Final Regulations for Obamacare Entail?

Wednesday, February 12th, 2014

You’ve probably never received a Valentine’s Day gift from the IRS, but this year you did! On Monday, the IRS issued final regulations on Obamacare’s employer shared responsibility payment provision, otherwise known as the “pay or play” provision. Like many things the IRS announces, there’s quite a bit a fine print. This time is no exception. Check out some of the highlights of the final regulations and learn what you need to know moving forward.  (more…)

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How Will Health Care Reform Impact Small Employers & the Labor Market?

Wednesday, April 10th, 2013

As you have probably heard by now, starting Jan. 1, 2014, you will have to comply with the “pay or play” guidelines of the Affordable Care Act (ACA) if you have more than 50 employees. If you have anywhere near 50 or more employees, hopefully you are looking at the requirements and considering your options. If you have less than 50 employees, you may jump to the conclusion that the ACA will not impact you. Not so fast… (more…)

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How Much Will Health Care Reform Cost Your Business?

Wednesday, March 13th, 2013

If you’re like most business owners, health care reform has you running scared. You’re worried about how much it will cost you – and if your business can survive the burden.

You’ve heard about the employer mandate and the potential fines for not complying with it. But, that’s all in the abstract. No one has told you what it will cost your business – and what you can do to mitigate that cost. (more…)

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