Small business owners who have decided to reimburse their employees’ health insurance premiums as a way of lowering the burdensome cost of directly providing health insurance are learning the meaning of the expression “no good deed goes unpunished.”
Faced with the expense of providing health insurance as required by the Patient Protection and Affordable Care Act (“PPACA”), some small business employers instead encouraged their employees to buy their own health insurance plans (either on or off the marketplace) and then reimbursed their employees for all or a portion of the premiums.
But what employers thought was a good-faith attempt to help meet the health insurance needs of employees at a lower cost to the business is instead being viewed as a violation of the PPACA and could cost employers far more money than providing a health insurance plan would have, as staggering penalties begin to add up.
The described reimbursement arrangement, also called employer payment plans, are considered under the PPACA to be part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees. As such, these arrangements are considered group health plan coverage under the PPACA and are subject to the market reform provisions of the PPACA applicable to group health plans. Such arrangements cannot be integrated with individual market policies, and as such fail to comply with the PPACA market reforms. Therefore, reimbursement arrangements violate the PPACA.
This violation comes at a heavy financial penalty of up to $100.00 for each day such an arrangement is in place, per applicable employee. This can total $36,500 per year per employee.
Small businesses are not taking this sitting down. On Thursday July 23, 2015 small business owners, organized by the National Federation of Independent Business, took their case to Capitol Hill to lobby Congress to change this provision of the PPACA. Their argument is that the penalty punishes small businesses that cannot afford to provide employer-sponsored health insurance, but are still trying to help employees meet their health insurance needs through another method. Larger businesses have also expressed opposition to this provision of the PPACA.
The proposed legislation aimed at changing that provision is the Small Business Healthcare Relief Act, which enjoys bipartisan support in both the House and Senate where it has been introduced. In its current form, the Act allows employers with fewer than 50 employees to offer reimbursement arrangements without penalties. Those who support the Act believe that if President Obama truly desires, as stated, common-sense improvements to health care, then the Act should pass.
If the Act does not pass, small employers do have one other option. Although reimbursement arrangements are considered violations of the PPACA and are subject to heavy penalties, additional compensation arrangements are not. This alternative arrangement allows employers to provide additional compensation to employees that is intended to help meet health insurance needs. While employees have the option to use the additional compensation to help pay for health insurance premiums, employers cannot make such use a condition of the provision of additional compensation, and thus cannot guarantee that employees will use the additional compensation to acquire insurance. This option, therefore, is rendered less effective for helping meet employees’ health insurance needs.
According to the U.S. Treasury Department, 96% of all businesses in the U.S. have 50 or fewer employees, so their collective voice in Washington will certainly be heard. But until Congress acts, small business owners will have to tread carefully or risk an even greater financial burden than the one they were trying to alleviate in the first place.