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What Can a Small Employer Do in the Face of Rising Health Insurance Costs?

Insurance Person Riding High Costs Expenses Medical PricesMuch has been written about Obamacare’s effect on large businesses. The employer mandate has changed the game completely, and the question for larger companies has been “How can we afford all these new expenses?”

But what about the little guys? Although companies with fewer than 50 employees (and for 2015, fewer than 100) are exempt from the employer mandate, their costs are rising, too. In addition, they face new restrictions on how they can help foot the bill for their employees’ healthcare plans, making it even more difficult to do right by them.

So, what are their options?

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For decades, one of the better solutions to rising costs has been for employers to eliminate their fully-insured group plans, and simply reimburse their employees’ premiums after signing up for individual coverage. Sometimes referred to as “Employee Payment Plans,” this solution eliminated administrative costs for employers, while also enabling them to still foot the bill for employees. Better yet, these payments would often be tax-free.

Unfortunately, those days are over. In 2013, the Department of Labor concluded that such arrangements, whether tax free or not, violate a clause of the Affordable Care Act regarding the implementation of limitations on group plans. The clause and subsequent legal reasoning get wonky, but suffice to say, Employee Payment Plans are now effectively illegal.

This came as a big surprise to employers who weren’t aware of the clause or findings of the Department of Labor, as the penalty for violation is $100 a day per employee (or $36,500 a year). There’s hope the federal government will be lenient with companies that racked up monumental fines in 2014, but the key here is for companies to find new cost solutions now that EPP is off the table.

One option is to simply stop providing health care benefits altogether, and instead give each employee a raise. Since this additional money would be considered income and not medical benefits, it isn’t subject to any of the ACA’s regulations.

But there are problems with this approach. For one, even though employers can openly communicate to employees that the money is intended to offset a loss in benefits, there is nothing the employer can do to force them to spend it on health insurance. Employees could still wind up with inadequate or even no coverage, and the company would be at risk of incurring associated losses in productivity due to illness.

In addition, employers receive no tax breaks for increasing wages, and they certainly don’t get a boost in their recruitment efforts without a benefits package on the table.

A better option for companies looking to do right by their employees is to find a new group healthcare plan. Although the industry shake-up has been expensive for most employers, it also provides an opportunity to shop for better insurance, particularly for companies that haven’t done so in a long time. The growing popularity of products such as Gap Plans and Level-Funded Plans is a prime example of employers turning to new solutions in a changing marketplace.

More than ever, the assistance of a third-party company like Creative Benefits can make a dramatic difference in a company’s search for solutions to rising healthcare costs. As the worlds of law, finance, and benefits collide, navigating independently is becoming an increasingly treacherous proposition for employers. If your company is in above its head, we invite you to consider the all-in-one benefits service we provide.

About the author: Denise Ogurkis is an Employee Benefits Broker with Creative Benefits. Specializing in corporate group employee benefits, Denise helps clients find medical plans that work for them and ensure regulatory compliance.