New ACA Penalty as of July 1

For those small employers (less than 50 employees) who are thinking they can provide their employees with medical insurance coverage but avoid the medical insurance hassle in covering their employees with a company plan, please consider the following. Many employers have come up with a plan of just giving their employees the money to go out to purchase their own health coverage; thereby avoiding the headaches of shopping for and then maintaining medical insurance plan for their worker pools. This may have worked years ago, prior to the Affordable Care Act (“ACA”), but not anymore. Doing this could result in fines of $100 per day, per employee or $36,500 per year, per employee. The ACA is truly an employer-driven system and this rule has been set up to keep it that way.

Employers were provided some transitional relief from this penalty, but that expired on June 30, 2015.

Federal tax law prohibits any form of "employer payment plan" with respect to non-sponsored or integrated "individual" health policies (other than certain "excepted benefits" such as limited-scope dental or vision policies). Specifically, employers are prohibited from making or offering any form of payment for individual policy premiums, whether through pretax reimbursements, premium reimbursement arrangements (i.e., HRAs), after-tax reimbursements, or cash compensation. This limitation exists, regardless of employer size.

As a small business, what are your options?

1. Get health insurance on your state’s SHOP Exchange.
2. Hire an insurance broker/agent and ask them to obtain an ACA-compliant plan.
3. Don’t offer any employee health insurance.

None of these are particularly creative, but the penalties being assessed by ignoring them can be onerous.