A person is hired by a company and the new employee’s compensation package includes both wages and an employer contribution toward a group health plan. Along comes the Affordable Care Act and premiums skyrocket. The employer, not covered by “pay or play” due to it’s number of employees, drops the group plan and informs the covered employees that if they need coverage they will need to purchase individual plans on their own.
Should the employer now provide the affected employees an “insurance allowance” to adjust for the fact that the employees’ overall compensation has been reduced? Not doing so makes the employer look cheap or greedy. Doing so may be in conflict with guidance provided by the Department of Labor (DOL).
Here’s what the DOL says in an FAQ about Affordable Care Act implementation:
My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?
“No. If the employer uses an arrangement that provides cash reimbursement for the purchase of an individual market policy, the employer’s payment arrangement is part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Therefore, the arrangement is group health plan coverage within the meaning of Code section 9832(a), Employee Retirement Income Security Act (ERISA) section 733(a) and PHS Act section 2791(a), and is subject to the market reform provisions of the Affordable Care Act applicable to group health plans. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code. Under the Departments’ prior published guidance, the cash arrangement fails to comply with the market reforms because the cash payment cannot be integrated with an individual market policy.”
Again, it is important to note that an employer cannot mandate that employees go to the exchange for insurance and they may not create a fund, account or any reserve of money designated for health insurance. That would be considered a healthcare savings account (HSA).
The best tactic is probably to address the transition as part of an “annual compensation and performance review.” This review could lead to making adjustments in compensation based on the benefits offered and the performance of the employee. If the employee opts to purchase insurance, it is a private matter for that employee.
A creative alternative one employer implemented with the savings from not providing group health insurance was establishing a wellness plan, which is a company fund created to cover gym memberships, weight loss programs and other health-related endeavors outside of the workplace. You can tell employees that while you can no longer provide health insurance, you are still concerned about their overall health and wellness. As we know, healthier employees tend to be happier employees.
If you need assistance sorting through the Affordable Care Act and the Health Insurance Marketplace, please call us at 678-208-2802.