The IRS recently issued clarification on whether or not employers can contribute money (or reimburse payments) for employees who have individual (non-group) health insurance on a pre-tax basis. The answer is no, they will not allow it. See this article for details.
Many employers are sick and tired of the increasing costs of providing health insurance to their employees — this is well known. However, employers with fewer than 50 full-time equivalents (FTEs) are not required to offer health insurance and they can drop their group coverage — if it makes sense. For businesses with 50 to 99 FTEs, the employer-mandate was delayed until 2016. There is a look-back period, so it is important to begin the planning process now.
So, why won’t the IRS allow employers and employees this tax break? Good question…and I haven’t found a good answer. This question has been posed to me by many business owners!
When employers consider dropping their group plan in favor of sending employees to the individual/family health insurance market, there are several items to consider. One issue, of course, is the tax break employees receive by paying for employer-sponsored health insurance premiums on a pre-tax basis. This can result in employees saving up to 20% – 30%. Also, the employer saves on FICA.
If employees earn lower wages, on average, then the tax savings won’t be as significant. Also, many lower income employees could qualify for a subsidy on the Exchange. For example, a family of for with a household income under $94,000 would be eligible for a subsidized plan. The individual plans are less expensive than group plans, although this can vary by state and county.
There are other considerations such as the pharmacy benefits and provider networks. Group plans tend to be stronger in both of these areas, but not always.
It is important to weigh the costs and benefits for both group and individual plans — looking at ALL the important factors. I just covered a few in this article. Some agents only focus on group or individual plans, not both. So, working with an agent who understands the pros and cons of both types of plans is necessary for an accurate analysis.
Greg Sanders Peachtree Insurance Advisors 678-236-1600
