Many employers, as well as employees not covered by an employer plan, are looking at ways to curtail the cost of medical coverage. This post will briefly mention two cost-reduction plan ideas that some companies may be exploring. As such, this posting will also be of interest to those employees affected by such employer cost-cutting strategies. These two strategies that affect employees’ health care costs are . . . <\/p>\n
Dumping Employees<\/strong><\/span>: As companies look at the economics of the Affordable Care Act (ACA or Obamacare), some companies were headed in the direction of discontinuing health care coverage for their employees and to \u201creimburse\u201d them for their health care coverage by providing them with a fixed allowance. The thought process was that the employees\u2019 receipt of a health care allowance would be tax free to the employee under current tax law, the employee chooses a health plan that best meets the needs of that employee\u2019s family, and the employer can control the cost of the health care benefits it pays its employees. Some have referred to this as a \u201cdumping\u201d strategy in that the employer is dumping its employees onto the health care exchanges. Companies who were contemplating this strategy had obviously concluded that it would be cheaper to provide each employee with a lump-sum payment to buy insurance on an exchange rather than to pay the cost of employer-provided medical coverage.<\/p>\n Due to concerns of the White House that employer-provided insurance may be terminated by employers, the IRS posted Questions and Answers (Q&As) on its website that address the consequences of an employer reimbursing its employees for the premiums they pay for health insurance, i.e., health insurance through a qualified health plan in the health insurance exchange or outside the exchange, rather than providing a health insurance plan for its employees. The New York Times<\/em> reported on May 25, 2014 that such an arrangement will not satisfy the ACA and that employers may be subject to a tax penalty of $100 a day, or $36,500 a year, for each employee who goes into the individual health care marketplace.<\/p>\n From both an employer and employee perspective, the key element in this Q&A ruling is the \u201ctax-free reimbursement\u201d of such an arrangement. If the employer provides a reimbursement for the employees\u2019 health care costs and includes that reimbursement as taxable compensation, such an arrangement apparently will not run afoul of this new Q&A and the ACA. Now employers who were planning to dump their employee medical coverage have another economic factor to consider when reviewing the employer cost of providing medical care. Whether the employer provides a tax-free allowance or a taxable allowance, the cost to the employer of the paid allowance is the same. However, the employer will now have to pay the employer\u2019s one-half share of payroll taxes (FICA & Medicare). The employer will need to also consider the additional cost to the employee, which would the income taxes due on the now taxable medical care allowance and the employee\u2019s one-half share of the payroll taxes.<\/p>\n Cobra: <\/strong>A second strategy some employers may utilize is to cut back on the hours of their employees. Since the ACA defines full-time employees as someone who works at least 30 hours per week, employers may be inclined to cut back the employee\u2019s hours to less than 30 hours per week to avoid covering those employees under the employer\u2019s health care plan.<\/p>\n For employers considering this strategy, they should first consult with their health care provider and legal counsel. If the cut-back of the number of hours means that an employee loses his health care benefit, what are the employer\u2019s notification requirements under COBRA? What happens if the employer failed to provide a timely Cobra notice?<\/p>\n When it comes to the ACA and how employers should best proceed, employers should work closely with their health care insurance broker, legal counsel, human resource consultant, and accounting professional to ensure compliance with the ACA, affect on employee morale and hiring, and the after-tax cost of the various options the employer is considering.<\/p>\n If you are working with a tax professional who merely prepares tax returns, you are missing one of the advantages of using an experienced tax professional for tax preparation<\/a>\u00a0and tax planning<\/a>\u00a0services which is to maximize your after-tax cash flows.<\/p>\n If you want to learn more about personal or business financial or tax matters, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a>\u00a0to discuss your situation. You can also schedule a consultation at Click Here<\/a>.<\/p>\n Copyright \u00a9 2014 Keystone Financial Solutions, P.C. All rights reserved. BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Many employers, as well as employees not covered by an employer plan, are looking at ways to curtail the cost of medical coverage. This post will briefly mention two cost-reduction plan ideas that some companies may be exploring. 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