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Today’s Top 5 Health Insurance Options for Small Group Employers

Top Five Health Insurance Options for Small Group EmployersBy Josie Martinez, Senior Partner and Legal Counsel 
EBS Capstone, A UBA Partner Firm

Most of us are scratching our heads on a daily basis as the rules of health care reform seem to shift continually. Particularly for employers in the under 50 employee market, identifying marketplace health care coverage options has been a moving target.  Currently, it seems small groups have five viable options:  1) state exchanges; 2) SHOP exchange; 3) private exchanges; 4) co-operatives and 5) going direct to carriers. 

The first option seems relatively simple:  direct employees to the marketplace in the state where they reside to purchase individual coverage.  Keep in mind that the exchanges are state-specific, so there will be variations in benefits and network access based on that particular state’s offerings — something to consider if a small employer has employees in different states. 

The second option, the SHOP exchange, is a good coverage alternative for employers with 50 or fewer employees if certain requirements are met.  In Massachusetts, for example, employers participating in SHOP must contribute at least 50 percent of the premium amount.  In addition, employers with 1-5 employees must have 100 percent of the employees enrolled; and employers with 6-50 employees must have at least 75 percent of the employees enrolled.  For some employers, a SHOP exchange may offer the additional advantage of certain tax credits.

Private exchanges appear to hold great promise, but many are still under development or may limit plan offerings to the options available from a single carrier. On the other hand, development in this area has been rapid — witness the recent availability of the UBA Exchange Marketplace option for small employers, called benefitbay™. Benefitbay can be an option for employers because it provides an enrollment and administration process, and allow them to offer their workers the advantages of large group medical and ancillary insurance benefits with multiple carriers, while allowing subsidy-eligible employees to go to government exchanges. In the “defined contribution” model prevalent with private exchanges, employers benefit from fixed costs by choosing how much they will contribute to an employee’s health plan­ — a strategy gaining popularity for its ability to control benefits expenses.

It is certainly worth keeping an eye on the private exchange market in order to better advise small group clients. 

Finally, the last two options — co-ops and going direct to the carriers — are the traditional modes for purchasing employee health coverage. Still viable options, these methods of providing health insurance remain the most popular coverage choices for most small employers.

A critical issue for employers to consider when deciding what option works best for their small business is the tax status of contributions.  After Dec. 31, 2013, employer contributions for individual health insurance coverage are taxable to the employee as regular compensation and subject to income tax and FICA tax.  For the employer, any such contribution may be a tax deduction as a business expense, but the employer must still pay FICA taxes.  From the employee’s perspective, employer contributions for health coverage are tax free only if they go towards a group plan.  In addition, any payment by an employee for the purchase of individual coverage through a public or private exchange must be paid with post-tax dollars (although premium costs in excess of 10 percent of income may be deductible on the employee’s tax return).  These tax consequences are key considerations for any small employer grappling with the healthcare options for its employees down the road.

Why Employers Need to Pay Attention

When the Affordable Care Act first passed, most self-insured employers thought they wouldn’t need to pay much attention to the new health insurance exchanges (or marketplaces) created by the law.

The New FSA Carryover Rule…Pros and Cons…

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By Josie Martinez, Senior Partner and Legal Counsel 
EBS Capstone, A UBA Partner Firm

First, Friday the 13th and then Halloween… Coincidence, or does the IRS have a peculiar sense of humor given the dates of its recent rulings? Regardless, there was breaking news on Oct. 31 when the IRS announced a change to the long-standing Health FSA “Use-It-or-Lose-It” rule. This important change allows Section 125 Health FSAs to be amended to allow up to $500 of unused amounts remaining at the end of the Health FSA plan year to be carried over to reimburse medical expenses incurred during the following plan year. The $500 carryover amendment may be adopted for the health FSA only; it is not available for Dependent Care FSAs. Also, the carryover of up to $500 does not affect the $2,500 maximum salary reduction that the participant is permitted to elect to a health FSA. 

It is important to note that the new carryover rule can only be adopted by Health FSAs that do not also incorporate the “grace period rule” — the rule which has traditionally allowed expenses incurred within the two and one half months following the end of the plan year to draw down an account balance existing at the end of the prior plan year. The new carryover rule is an alternative to the current grace period rule. So, if an employer is deciding which rule to implement, keep in mind that there is no limit on the amount carried over in the grace period, but the money must be used within two and one half months – whereas the carryover is indefinite in duration, but limited to $500. The bottom line is that neither provision completely eliminates the chance of forfeiture. 

A few important things that employers should keep in mind:

  1. The $500 carryover feature is not automatic; employers that wish to adopt the feature must amend the Health FSA plan to incorporate it.
  2. An employer may specify a lower maximum carryover limit or no carryover at all. 
  3. Employers may adopt the carryover provision for the current or any future health FSA plan year. The amendment may be adopted during the plan year and be effective retroactive to the beginning of the plan year.
  4. Some FSA plan administrators may charge a fee to amend the health FSA to incorporate the carryover feature. Employers that elect to adopt the carryover rule should be aware that adopting the carryover provision may result in increased FSA administration costs. This is because the carryover provisions enable an employee to carryover account balances from year to year – and continue as a plan participant — even in the absence of additional salary reductions. Thus the employer may be required to pay monthly admin fees for non-electing FSA participants.

Finally, should an employer decide to amend their FSA to adopt the new carryover rule, it should be prepared to communicate the change to employees. Employee communications will be particularly important where the plan switches from the grace period to the carryover to ensure employees understand the limits of the carryover. Redistribution of health FSA Summary of Plan Descriptions (SPDs) may also be in order.

Making Sense of the New Guidance Around HRAs

health care reformOn Sept. 13, 2013, the IRS issued details on permissible health reimbursement arrangements(HRAs), providing some clarification on minimum essential, minimum value and affordable coverage, and addressing payment of individual premiums through an employer-provided plan.

Most people had expected that standalone HRAs would have difficulty meeting PPACA’s prohibition on dollar limits, and the Notice confirms this. Beginning with the 2014 plan year, an HRA will not be permitted unless:

  • It is integrated with a group medical plan that does not have dollar limits and that provides first-dollar benefits for preventive care,* or
  • The HRA only provides “excepted benefits” such as standalone dental or vision, or
  • The HRA only covers retirees.

In order for an HRA to be integrated:

  • The HRA must only be available to employees who are actually enrolled in group medical coverage (either through the employee’s or a family member’s employer); and
  • The employee receiving the HRA must actually be enrolled in a group medical plan (either through the employee’s or a family member’s employer); and
  • The HRA must be written to give the employee the opportunity at least annually to permanently decline participation in the HRA, and when employment terminates the employee must be allowed to permanently decline participation in the HRA or the balance must automatically be forfeited at termination.

United Benefit Advisors developed a full summary on this guidance, which includes additional information on the following:

  • Further details on integrated vs. stand-alone HRAs
  • How HRAs intersect with minimum essential coverage
  • HRA impact on minimum value and affordability
  • Definition of premium reimbursement arrangements (now called “employer payment plans”)
  • Next steps employers should consider when it comes to HRAs

* Grandfathered plans are not required to provide first dollar coverage for preventive care.