Keeping up with the changes surrounding Obamacare is tough. The law has been changed more than 70 times since its inception (according to the Galen Institute, a nonprofit health and tax policy research organization). All branches of government have been involved in those changes; 43 have been made by the administration unilaterally, 24 have been passed by Congress, and three were issued by Supreme Court ruling. It’s incredible, really, considering the law has only been with us six years and many of its provisions have not yet been enacted. Expecting the unexpected is something we’ve...well, learned to expect from Obamacare. But that doesn’t make it easy.
Don’t get lost in the multitude of opinions and information pieces out there (including the 20+ blogs we’ve written here on Obamacare). No major changes should come to the ACA prior to the election in November, so let’s act on what we know for sure. Here are 5 simple action steps every small business owner needs to take now.
1. Cancel Employer Payment Plans
Employer payment plans (EPPs) were once a popular way for small businesses to help employees obtain health coverage without the difficulties and expense involved in furnishing a full-fledged company health insurance plan. Under these plans, the employer would pay the premiums directly on behalf of participating employees. They weren’t technically providing the coverage, but it sure felt like it.
With a few limited exceptions, such plans fail to meet ACA requirements, and you’ll risk some pretty stiff penalties ($100/day per employee) if you continue them. Cancel all EPPs plans immediately.
If you’re intent on compensating employees for these lost dollars you can do it, but you’ll have to show that you’ve “completely abandoned” your employer payment plan. To that end,
- don’t recommend employees use the extra money you’ve provided to buy health insurance.
- don’t recommend any particular health insurance plan to purchase.
- don’t give the extra part of the paycheck any special tax treatment when you enter it in your payroll software.
In other words, don’t even look like you’re still providing an EPP. Not even a little.
2. Cancel Healthcare Reimbursement Arrangements
Similarly, you also need to cancel any healthcare reimbursement arrangements (sometimes also known as Sec. 105(b) plans) unless you’ve paired them with a true small-group health plan. In the past, you could sometimes get these arrangements to work as a way to provide for health insurance premiums and, more commonly, to pay for uncovered out-of-pocket and copay expenditures. But you can’t anymore (except in very limited circumstances -- ask your tax advisor).
The same penalty ($100/day per employee) applies here, too. It’s shockingly high when you think about it Five employees each day getting hit with the penalty totals about $182,500 in a year. Yikes! Get yourself straight before it’s too late.
3. S Corporation? Don’t Worry...Yet
If your business is an S corporation, and you were correctly handling your shareholder-employee health insurance before, you don’t need to change anything right now. The pre-Obamacare accounting still works the same way. Just stay alert and be prepared to change the accounting for your situation if a change becomes necessary.
4. Prepare For SHOPs To Go Out of Business
When the IRS and Department of Labor effectively banned EPPs, many small business employers provided health insurance through the state’s small business exchange, or SHOP. Basically, all an employer had to do was pick the level of coverage (bronze, silver, gold, platinum) it wanted to pay for, and then let employees sign up.
However, with recent pull-outs of major insurers (Aetna most recently), many SHOP exchanges don’t appear to be stable. In North Carolina, for example, just one insurer on the SHOP exchange remains -- Blue Cross/Blue Shield. It’s a very real possibility that your state’s SHOP exchange might not be unavailable in the future, which leads us to number 5...
5. Start Thinking About What You’ll Ultimately Do
Obamacare requires that employers provide for their employees’ health care. If the ACA withstands this election, the employer mandate will remain intact, regardless of whether your state has a SHOP exchange anymore. What will you do then?
Setting up a non-SHOP-exchange small group brings with it a host of administrative burdens that small businesses, particularly super small businesses, often cannot work. Begin talking now with your health insurance advisor, your business advisor, and even your tax advisor about your best approach to answering the healthcare question for your company.
It’s always going to be a difficult piece of legislation to follow. Whenever you can, sift through the noise and take the steps that you can to stay in compliance with it. These tips should get you through 2016.
