You may think that you have the ins and outs of health insurance plans all figured out, but you’d be surprised at the number of insurance-related myths that are still running rampant. Certain decisions may seem feasible for your business while remaining in line with ACA requirements, but read on to learn about issues that people have misinterpreted.
Myth No. 1: Your employees can’t buy their own insurance. You may think that, as the employer, you must buy insurance for every employee working 30 hours or more or you’ll get penalized by the government. This isn’t true, as the IRS explains: As long as you offer qualifying health insurance plans that meet the ACA’s minimum affordable coverage requirements (including offering coverage to dependents), you won’t be charged a pay-to-play fine. Your employees are free to buy their own plan off the marketplace exchange or through a spouse’s employer if they want a different plan than what you’re offering.
Myth No. 2: Only large employers can afford self-funded insurance. Many employers choose self-funded insurance because it allows them to pay only for employees’ actual claims as opposed to paying a premium for total health insurance coverage. A common myth is that smaller firms can’t afford to fund because of the possibility of one employee incurring huge health care costs. The truth is that you can buy stop-loss insurance to protect against this possibility, as detailed by BenefitsPro. Stop-loss insurance caps the total health care expense you are obligated to pay per employee. Comparing the total price of self-funded plans plus stop-loss insurance against a traditional insurance program is the best way to know if you can afford to offer self-funded plans.
Myth No. 3: If I have 50–99 employees who work 30 hours or more, I’ll be subject to the employer mandate penalty in 2015 if I don’t offer qualified insurance. The ACA has added a transitional phase, detailed by the IRS, that gives employers with 50–99 employees until 2016 to get up to speed on health insurance. If you had 50–99 employees who worked 30 hours or more in 2014, you’ll qualify for this transition. However, if you reduced your workforce or cut hours to try to meet the qualification or if you materially reduce your current health care coverage before December 2015, you won’t qualify.
Myth No. 4: I can avoid the employer shared responsibility penalty by employing mostly part-time workers. According to the IRS, the employer shared responsibility penalty of $2,000 per employee per year is based on not just the number of full-time employees you have but also on the number of part-time hours worked. More specifically, the formula, as laid out by the Society for Human Resource Management, for determining if your business is subject to the penalty is the number of full-time workers plus the aggregate number of hours that your part-time employees work in a month divided by 120. For example, a business with 40 full-time employees (those who work 30 hours or more a week) and 20 part-time employees (who only work 15 hours a week each) would still qualify for the employer mandate penalty.
Myth No. 5: If I buy insurance for my employees on the exchange, I’ll get tax credit. Unfortunately, tax credit is very limited, and businesses with 50–99 employees don’t qualify for full tax credit, according to The Washington Post. Small-business exchanges will be available to businesses with up to 100 employees starting in 2016. However, full tax credit only extends to small businesses with 10 or fewer employees. If you have 11 to 25 employees, you’ll qualify for partial tax credit.
Myth No. 6: The employer mandate penalty is the only fine that I need to worry about. Even though employers with 50–99 full-time employees are free of the employer mandate penalty until 2016, you still have to worry about the employer excise tax, detailed by the IRS. This penalty (not to be confused with the upcoming Cadillac excise tax that will be implemented in 2020) applies to all employers, regardless of size. If you offer a group health insurance plan that doesn’t meet certain ACA mandates and restrictions, you could face fines up to $100 per affected individual per day.
Myth No. 7: Rather than offering an insurance plan, I can offer to reimburse my employees’ health premiums. Under the rules of the ACA, per the IRS, reimbursing employees’ health premiums through an employer payment plan cannot substitute for offering qualified health insurance plans to all your employees. You’ll likely get fined the $100/day excise tax if you try to substitute a reimbursement plan for insurance. However, a defined contribution plan can curb the amount that you pay for your employees while avoiding ACA violations.
Stephanie Dwilson has extensive experience providing expertise on topics including health, law and marketing. She’s a science journalist published by Fox News, a marketing expert and an attorney with expertise in personal injury law. She’s also a small business expert featured by Businessweek and Millionaire Blueprints magazine and has worked as a marketing consultant for ministries and as a PR lead for one of the largest churches in America.