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We have now been through two months of renewals under the new Affordable Care Act plans. We have had the opportunity to compare the group rates to rates for individual plans available for purchase without any medical underwriting. Overall, the individual plan premiums are up to 40% lower than the group plans. While the group plans are more costly, they do provider a higher level of benefits. One example pertains to the prescription benefit. The group plans provide the benefit subject to flat copays for most tiers while the individual plans charge a percentage of the prescription cost ranging from 20% to 50%. The individual plans also have higher out of pocket maximums.
The IRS released Notice 2013-54 which has been interpreted as prohibiting individual policy premiums from being paid either by the employer directly and taking the cost as a business expense or by the employee via pre-tax payroll deductions. We believe the purpose of this prohibition is to prevent an employee from applying for a financial subsidy through an Exchange and at the same time getting the plan paid by the employer or paying the premiums pre-tax.
The conclusion is that while the individual policies are less expensive than the group plans, the loss of the tax deduction both to the employer and the employee may mitigate the rate differences between the group and individual plans.
One exception to the potential lack of tax deductibility for an individual policy may apply to shareholders who own 2% or more of an S-Corp. We believe that an individual policy purchased for one of these shareholders can still be deducted on the personal tax return of the shareholder if the policy is paid for by the S-corp and included in the W-2 wages of the shareholder.
As always, please contact your accountant to discuss their position on this taxability issue.
Posted on January 22, 2014 by
MASSACHUSETTS HEALTH CARE REFORM ACT – FOR EMPLOYERS WITH EMPLOYEES RESIDING IN MASSACHUSETTS(Deadline January 31)
The Massachusetts Health Care Reform Act requires Massachusetts residents to have health insurance that meets minimum standards or be subject to tax penalties. This is a state tax penalty in addition to the new federal Affordable Care Act tax penalties. The requirement can be met by an employee if they have employer sponsored coverage as long as that coverage is considered “creditable.” In order for a group health plan to be considered “creditable,” it must meet Minimum Creditable Coverage(MCC) Requirements. Employers are required to complete Form-MA 1099-HC and mail to their Massachusetts employees by January 31 each year. Please contact us if you need assistance with determining the MCC status of your plan.
Posted on January 22, 2014 by