Small group medical insurance vs. individual medical plans for employees? That is the question most small employers are asking. Although not required to do so by the Affordable Care Act (ACA), most small employers (under 50 FTE employees) want to provide their employees group medical insurance or financial assistance for individual medical plans. Finding the least cost solution – small group plan or ACA individual medical plans is the challenge for small employers.

GET FREE ASSISTANCE

Our experienced health insurance agents can help you compare the coverage and premiums for small group vs individual plans for your employees. Contact us online here or call (208) 746-9646 or email Medical@Am-Ins.com for an appointment with Tim Gleason or Dave Root to review your medical insurance needs and update you on the latest regulations and information regarding the Affordable Care Act.

Small Group Plans

Certain current small group medical plans may be “grandfathered” or “grandmothered” and may not be fully compliant with ACA market reforms. New small group plans may be quoted at any time and are fully compliant ACA plans. You can now apply for the Small Business Health Insurance Marketplace (SHOP) that was created under ACA  plans and tax breaks. You control the coverage you offer and how much you pay toward employee premiums. Ask us for free quote assistance to compare group plan prices, coverage, and quality of plans inside or outside of SHOP. SHOP provides qualified small businesses with up to a 50% tax credit on premium costs.

Individual Medical Plans 

The attraction for small employers is that many employees may qualify for premium subsidy under an ACA qualified individual plan through the Health Insurance Exchange Marketplace, thus shifting cost from the employer to the Exchange. However, to keep employers from dumping workers onto the health exchanges, the IRS and Department of Labor have created barriers with rules and penalties.

Essentially, the issue is the tax deductibility of the employer contributions. On Sept. 13, 2013, the IRS issued , which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The new rules make these various arrangements and Employer Payment Plans to be “group health plans” that are subject to all ACA market reforms. This effectively prohibited using these arrangements for Individual Medical Plans or providing reimbursements on a non-taxable basis to the employee.

This does NOT mean that small employers can’t give money for medical insurance premiums to their employees. It just means that those contributions are taxed as wages leaving only the net "after-tax" money available to pay an individual premium. The exception to IRS Ruling 61-146 says, “An employer payment plan, as the term is used in this notice, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage. Individual employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL’s regulation at 29 C.F.R. §2510.3-1(j) are met.”

COMPARING SMALL GROUP TO INDIVIDUAL MEDICAL PLAN RATES:

Do not underestimate the financial impact of the tax burden when comparing the relative premium costs of group (which is deductible and not included as income to employees) and individual premiums (which must be paid after-tax). A $100 gross wage contribution to an employee for premium is reduced by employer and employee taxes.

$100.00 Gross Wages to Employee

• - 7.65 FICA Employee Contribution (7.65%)
• - 10.00 Federal Income Tax (10% at a minimum)
• - 7.00 State Income Tax (7% at a minimum)
• $ 75.35 Net Wage left for Employee to pay premium

So, at least 25% reduction in net amount because of various taxes. In this example, an employer would need to increase the employee gross wage to $133.33 to pay a net $100 premium. Higher compensated employees will lose 30% to 40% to taxes further increasing the employer cost.

$100.00 Cost to Employer

• + 7.65 FICA Employer Tax (7.65%)
• $ 107.65 Adjusted Cost to Employer
• + ?.?? Pension or other payroll related benefits

Although the wages, taxes and benefits are tax deductible to the employer, the gross cost to fund individual medical contributions may be much higher than anticipated.

GET FREE ASSISTANCE

Our experienced health insurance agents can help you compare the coverage and premiums for small group vs individual plans for your employees. Contact us online here or call (208) 746-9646 or email Medical@Am-Ins.com for an appointment with Tim Gleason or Dave Root to review your medical insurance needs and update you on the latest regulations and information regarding the Affordable Care Act.