A just-discovered ruling by a writer at the New York Times earlier this week threatens to upend various employer-sponsored health plans and ultimately cost employees more for coverage they likely won't be using. The ruling by the Internal Revenue Service back in September negates an option that many employers with more than 50 employees were considering: canceling their plans and just reimbursing their employees with funds to go buy their own coverage on the obamacare exchanges.
This option, according to the irs, would cost employers $100 per day for each employee as penalties for exercising what heretofore was not only a reasonable option but an increasingly popular one. The Times writer, Robert Pear, quoted a tax attorney that “an employee cannot [any longer] use tax-free contributions from [his] employer to purchase an insurance policy sold in the individual health insurance market, inside or outside an exchange.”
But, according to the attorney, Christopher Condeluci, a former advisor to the Senate Finance Committee, the company is free to give additional financial assistance to their employees by paying them more, but that increase would be taxable. Bottom line: employees get to pay more for plans containing benefits (like mammograms) that they may not need or could never use in the first place.
Pears quoted another expert, Andrew Biebl, a tax partner at a large Midwestern accounting firm, who said:
For decades employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs.
The new federal ruling eliminates many of these arrangements by imposing an unusually punitive penalty.
Robert Wenzel, writing at his Economic Policy Journal blog, saw immediately that the strategy was designed to reduce the unhappiness and resultant political pushback as employees tried to wrestle with the exchanges:
With the Nov. 4 midterm elections looming, the Obama administration could not allow massive waves of employer cancellations before Democrats face an already angry electorate.
So the IRS ruled it would slap any employer with a $100 tax penalty per day per worker that used tax-exempt health insurance monies to cut workers a lump check and dump them on the Obamacare exchanges.
Advisors at Batts Morrison Wales and Lee looked at the freshly uncovered ruling and came to the same conclusion:
An employer is still allowed to establish an arrangement under which an employee may choose between cash or an after-tax amount to be applied toward health coverage.
The employer is just not permitted to provide reimbursement on a pre-tax basis…
So not only will employees be faced with higher costs for their health coverage, there will be fewer employees to pay them as employers are forced to reduce their payrolls in the face of higher costs.
What's left of the free market, however, continues to devise creative ways around the new ruling. Zane Benefits, for example, has created an alternative, called a “self-insured Medical Reimbursement Plan” whereby the employer, after discarding a plan that he might have had in place for decades, makes contributions to the new plan on a before-tax basis which employees may then draw on to cover their health care expenses, including insurance premiums.
However, as implementation of ObamaCare continues, employers are faced with more and more restrictions and limitations on what they may offer, while their employees will ultimately be required to pay more for their health care.
This is just one of the myriad problems facing the new head of Health and Human Services. The washington Post noted that ObamaCare remains controversial especially as the upcoming elections in November draw ever closer. The technical difficulties in operating the exchanges are far from over. New premium structures and rates are expected to be announced this summer with most observers expecting huge spikes over last year. small business owners will be facing expensive decisions on their own as well, while insurance companies are working overtime to keep up with the ever-changing ObamaCare landscape.
It's all part of the cost of allowing the government into a place where it has no business, and certainly no skill set, in its never-ending quest to control citizens under the guise of controlling their health care costs.