Rebecca Boartfield and Tim Twigg
The implementation of the Affordable Care Act (ACA), which was passed in 2010, has been slowly occurring over the last six years. For small employers (fewer than 50 employees), the impact of the ACA has been fairly minimal.
While it has impacted the type of insurance that may be available, and even the cost of such insurance, small employers still do not have to provide health insurance or face penalties, which is a major component of the law.
Before and after the ACA passed, small employers often opted out of providing health insurance. In most cases, they did so to save money for the practice because health insurance, then and now, could be very expensive.
In lieu of providing full health insurance coverage, many small employers provided a monthly payment (stipend) to employees to help supplement any coverage they found elsewhere. This monthly payment was done in several ways:
• The employee showed proof of premiums paid and got reimbursed directly-tax-free.
• The employer paid the insurance carrier directly for the premium amount owed-tax-free.
• The employee showed proof of coverage, and the employer gave the employee a check each month for the designated benefit amount, irrespective of how much the premiums actually were-tax-free.
• The employee's paycheck was increased by a certain amount each month based on proof of coverage-taxable or nontaxable.
With the passing of the ACA, none of these options are allowable anymore. While this has been true for years, the government didn't start enforcing this rule until 2014. Now and in the future, employers can no longer provide a monthly stipend to employees to obtain insurance from another source.
In addition, employers can no longer:
• reimburse for medical expenses in lieu of providing coverage;
• make the payment out to the medical insurance carrier directly; or
• make the payment out to the employee and not tax it appropriately.
What can employers do if they don't want to provide health insurance but they do want to provide employees some help to seek out coverage somewhere else? Employers may increase employees' pay in lieu of providing medical insurance. This becomes regular taxable income. For example, change an employee's hourly rate from $18 to $19. This is really the only option.
Do not (1) call this increase in pay a medical benefit, or a medical stipend, or anything else medical/health related, or (2) ask for proof of coverage elsewhere in order to provide a benefit. As mentioned, the government is now cracking down on these plans and issuing penalties for failure to comply. The fines are not insignificant. The penalty for an employer violating the market reform rules is $100 a day, or $36,500 a year, for each affected employee, but it is never more $500,000 total. Ouch! Clearly, the government is serious about this, and employers should not take this lightly.
Conflicting information
As of the writing of this article, we recognize that there are people out there saying that the information provided herein is not accurate and that there is a way around this. While we hope to get more guidance on the issue, the Department of Labor and the IRS have both issued Q&As that indicate this is not true and cannot be done. Until there is definitive support from both agencies that employers can continue to provide stipends as they have done in the past, we recommend abandoning this practice and instead that employers provide the pay increase. It's the safest bet and the most assuredly risk-free. The other options mean taking big gambles and risking some serious fines.
Conclusion
For dental practices, this change is the most significant aspect of the ACA. Until now, the impact of the ACA has not been too terrible. This will now result in a fundamental change regarding how this extra benefit is provided. Yet it actually simplifies things. Instead of tracking proof of coverage, writing separate checks, etc., employers can now just change the rate of pay and they're done. Easy! This also streamlines documentation, which is easier still! Once employers get used to the change, they will realize that it's not so bad and may even make things a little easier.
Tim Twigg is the president of Bent Ericksen & Associates and Rebecca Boartfield is an HR compliance consultant. For more than 30 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with ever-changing and complex labor laws. To receive a complimentary copy of the company's quarterly newsletter or to learn more, call (800) 679-2760 or visit bentericksen.com.
