How a Tax-free Health Insurance Reimbursement Plan can reduce your costs and give your employees better coverage.
Now that the Affordable Care Act (or Obamacare) is in full swing, there are many changes to how individuals and large groups are going to be handling their health insurance purchases. There are a variety of mandates that every policy must adhere to, like free preventive health care and childhood immunizations. Insurance companies are also no longer allowed to deny coverage for pre-existing conditions or increase premium cost due to age or gender.
With all of the media hoopla currently focused on individual health insurance plans and tax credits or subsidies, and the federal insurance website not working correctly (or at all), the question of how the ACA is going to affect small businesses has been shoved into a corner. While not forgotten, small businesses and self-employed individuals have not received as much attention as other demographics, and therefore may be unaware of how the Affordable Care Act is going to impact them.
Are Small Businesses Required to Provide Insurance For Employees?
No. Small business owners are defined as those with fewer than 50 employees, and they are not legally required to provide any insurance benefits for their employees. However, many smaller companies have done so in the past, and would like to continue to do so. After all, employees who feel valued by their employer are more likely to remain loyal to their employer.
Along with all of the other problems associated with health care reform, small businesses are also feeling the impact of higher premiums for their small group insurance plans. This has perhaps created the biggest issue for those employers who have provided policies in the past but due to price are unable to continue to do so.
These small businesses are faced with the very real dilemma of whether to cut benefits entirely, charge employees a higher percentage for their coverage, or even to decrease employee hours or pay in order to continue to provide (or provide new) coverage.
How Have Small Employers Provided Insurance in the Past?
Some small businesses have formed a small group health plan and paid the premium for their employees, leaving the responsibility of adding and paying for dependents entirely up to the employee. Other employers have simply not provided any kind of insurance benefit, while still others have used an HRA (health reimbursement arrangement) or FSA (flexible spending arrangement) to help their employees pay for the cost of their own health plan.
Now that the Affordable Care Act is in force, however, some of these options for employers are no longer available. For example, an HRA is no longer allowable unless it is combined with a high-deductible health plan, as there is no longer a cap allowed on annual limits under the ACA.
Are There Other Options?
Yes. One of the best options for small businesses who are unable to afford to cover the entire cost of their employee health plan is to establish a Tax-free Health Insurance Reimbursement Plan, or THIRP, through HSA for America. This is a defined contribution plan that allows employers to set forth their own guidelines regarding how much money they are going to contribute and how often it will be disbursed.
With a THIRP, employers can contribute tax-free money in any amount to their employees to be used specifically to help pay health insurance premiums. There is no limit to how much an employer contributes, as long as all employees of similar status receive the same amount.
An example of this is office staff, where every full-time employee receives the same dollar amount, but warehouse workers receive a different, though still standardized for the group, contribution. Employers can decide whether part-time employees receive any contribution, and can also decide to provide different dollar amounts for different departments (like custodial).
Why Is a THIRP a Good Option?
For employers, the contribution amounts are tax-free, which is an obvious advantage to any business. In addition, it allows the employer to help their employees cover the cost of health insurance without taking on the expense of creating a small group health plan. Since it is not actually a health plan, there are no limits to how much or how little an employer contributes, and there are no mandates to what services it provides (as there are with health plans).
A THIRP is a good option for employees as well, because it allows them to have some extra (and tax-free!) help to pay for their legally mandated health insurance. In addition, receiving monies from a THIRP does not exclude the employee from eligibility for any premium tax credits or subsidies. In this way, some employees may end up paying little or nothing out of their own pocket for health insurance premiums.
Although a THIRP is a new addition to the health care scene, I think it is going to be used frequently by small business owners as a way to help their employees. It is truly a win-win plan, as both employers and employees reap significant benefits. If you have questions on how a THIRP could work for you, please visit our THIRP page or call us at 1-866-749-2039.
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.