From TV news stories to Internet articles and simple word of mouth, misconceptions and falsehoods muddy the waters of small business health insurance plans on a regular basis. With due diligence in mind, small businesses are weeding out the myths and focusing on what’s possible for employers and their teams.
Here are some facts small business owners need to know about health insurance reimbursement in 2016:
Health insurance reimbursements are still compliant, if set up correctly.
There’s been a lot of buzz about a modification to the Affordable Care Act that will penalize employers who reimburse employees for individual non-group health plans — to the tune of $100 a day or $36,500 per year. However, Section 105 Defined Contribution Plans which are structured as group plans and meet applicable regulations remain fully compliant and offer a tax-free benefit.
Small business employers are able to make tax-free payroll reimbursements through a Section 105 Pure Defined Contribution Health Plan. This type of plan can reimburse health insurance premiums up to a certain monthly amount. You may also hear this referred to as a Healthcare Reimbursement Plan (HRP).
Payroll reimbursements are different than payroll deductions.
As opposed to a payroll deduction — the removal of dollars from a paycheck — a payroll reimbursement is the addition of dollars to a paycheck. When a small business reimburses employees through a Section 105 Pure Defined Contribution Health Plan, gross salaries are unaffected.
The employer adds the dollars that have been approved for employees' qualified insurance premiums to their paychecks using a nontaxable line item. It’s also called a "tax-free addition" or "negative deduction.”
With rising insurance costs, employees are looking for support.
High-deductible health plans and rising premiums are major trends in health insurance. Many employers are shifting expenses to employees with increased deductibles and surcharges for insuring a spouse.
According to the Kaiser Family Foundation's 2015 Employer Health Benefits Survey, the average deductible for workers who have plans with deductibles nearly doubled in the past decade, from $584 in 2006 to $1,318 in 2015.
Many small businesses are inviting their employees to sign up for individual medical policies through the Health Insurance Marketplace, as part of a Defined Contribution Health Plan with payroll reimbursements.
Employees are finding this system valuable, as individual health insurance plans cost 20 percent less than traditional group health insurance, on average. Also, premium tax credits that are available to eligible employees through the Marketplace provide additional savings.
Reimbursement levels tailored to individual or family needs.
Small businesses can set reimbursement levels, based on family status or job criteria, that make the most sense to both the employer and staff members, who receive a monthly allowance that accrues in their healthcare balances.
In conjunction with employees choosing their individual insurance polices in the Marketplace, right-sized reimbursement levels that are chosen at the company level provide optimal customization of health benefits.
Small businesses are seeing results — and responding.
Company-provided health insurance reimbursements are a cost-effective way to offer health benefits to small business employees — in a time when rising costs are a major concern. Employers are responding, as it’s estimated that 60 percent of small businesses will adopt individual health insurance and premium reimbursement solutions by 2017.
Conclusion
As healthcare costs and insurance policy premiums rise in unison, health insurance reimbursements as part of Section 105 Defined Contribution Plans have emerged as cost-effective solutions that both employers and employees embrace.
What questions do you have about health insurance reimbursements?
