As all are aware, the Affordable Care Act, or ACA – commonly known as Obamacare – is a very complex law. As we have continued to learn more about the law and how it impacts our clients, we have identified two “pitfalls” that employers need to be aware of and avoid.
When calculating the number of full-time employees, take time to consider hires that you consider independent contractors. Independent contractors are not counted as employees in ACA terms. However, the IRS, the Department of Labor or the state workers compensation board can dispute the status of an independent contractor and reclassify them as employees, which would now qualify them for employer-sponsored health coverage and potential penalties to you. So, make sure employees classified as independent contractors are properly classified. Call us if you have any concerns about classifications.
Health Reimbursement Arrangements (HRAs) and Employer Payment Plans:
A Health Reimbursement Arrangement, or HRA, is an arrangement where an employer reimburses an employee for medical expenses up to a maximum dollar amount. An Employer Payment Plan is an arrangement where the employer reimburses an employee’s premiums for non-employer sponsored medical insurance or pays the non-employer sponsored premiums directly to the insurance company. For plan years beginning after 2013, an HRA or an Employer Payment Plan does not comply with the ACA unless the employer also provides a qualifying ACA medical plan. Consequently, providing a standalone HRA or employer payment plan for two or more current employees after 2013 could subject an employer to a penalty of $100 per day per employee.
Please understand that this is not a typo. This can work out to $36,500 per year per employee for which you pay these premiums. If you are reimbursing an employee for health insurance premiums, this should stop immediately. If you do provide a HRA or Employer Payment Plan, be sure that it is coupled with a qualified ACA plan. Short-term transition relief was recently passed for certain small employers.