We have been working with many local businesses that are evaluating the pros and cons of offering group health insurance in the wake of the individual mandate of health care reform. Let’s go through some of the options, concerns and opportunities the new law has raised.
For many businesses, offering health insurance was a competitive employee retention strategy. For some, group health insurance was a key access point to health insurance – often, for the managers and owners. Whatever the core reason, the new law changes everything.
Today, it is required that nearly all Americans have minimum value insurance. There are few barriers, aside from cost, from obtaining it. Businesses are reevaluating the time, administration and costs involved with group health plans. They are asking, “Wouldn’t it be easier” if I just increased wages to make up the difference? Let’s look more closely at the choice. Let’s say a business is currently paying $300 per employee per month toward the cost of group health insurance.
One option would be to simply tell all employees that they will be getting a $300 month raise to help cover the cost of health insurance. As soon as the employer increases the wages of its employees, it would also increase taxes for both the employer and the employees. Secondly, by the time the taxes are removed from wages, that $300 increase is more like $225 in actual purchasing power. While still a nice stipend, this may still be very low for more seasoned employees whose actual health insurance premiums are quite high. Also, there is the opportunity for employees to forget that part of their wages includes this stipend, and to seek employment that “offers” health insurance.
Many have asked us if the business could just pay the cost of each individual’s health insurance premiums. This is not allowed! There have been recent IRS and DOL guidelines released that make this all but illegal. If you wish to see more about this topic, just call our office and we will send you a short explanation.
So, there you have it. If you are determined to provide assistance for individual health insurance, you must provide it in increased wages. What about the arguments for group health insurance?
Well, first, the premiums for health insurance are tax deductible to the business (as are wages). If an employer has the employees contribute toward the cost of the insurance, this can be run through a cafeteria plan and the employee’s portion can be made tax-free. Now, we are maintaining the buying power of the wages! While health insurance premiums have increased across the board, there is a Small Business Health Credit available to small businesses with fewer than 25 employees and average wages below $50,000 (excluding owners). Contact our office, or your accountant, for details.
Did you know about the Arizona health insurance premium tax credit? There is currently approximately $600,000 available for individuals and small businesses that have not had health insurance in the preceding six months. The amount of the tax credit is up to $1,000 for single coverage and $3,000 for family coverage or 50 percent of the annual health insurance premium, whichever is less. Want an application or more information? Just give us a call! FBN
By Ed Gussio
Benefit Logic, Flagstaff