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Health insurance advisers list issues to consider

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No, you cannot give your employees pretax money to use in the Obamacare individual marketplace.

Local insurance experts say it's absolutely, expressly forbidden — and also that they've been fielding the question a lot lately.

Despite all the interest, there are no loopholes in the rule; the IRS has even issued a short, clearly worded threat to impose a $100-per-employee-per-day excise tax on violators.

Therefore, advisers say, dropping group coverage and sending employees to the individual market means forgoing the substantial tax benefit that employer-sponsored health insurance carries.

“Any time you have to give them cash and send them to the marketplace, the cash becomes taxable,” says Robert Glus, a partner at Susquehanna Township-based Conrad Siegel Actuaries. It also pushes employees' income higher, which, in turn, lowers their eligibility for subsidies on the marketplace. Given those dynamics, Glus says, offering an employer-sponsored plan on a pretax basis is still generally the way to go.

Those employer-sponsored plans may look different from the way they have in the past, however.

“What we feel is a better solution and where we see the new products evolving is in the self-funded plans,” says Matthew Scott, senior vice president of HDH Group, a Pittsburgh-based private insurance brokerage firm with a presence in Central Pennsylvania.

At Lancaster-based Murray Securus, Bruce Cannon, vice president of the employee benefits division, says a lot of its clients are looking at defined-contribution programs on private exchanges, which let employees choose from a slate of options.

But every rule has exceptions, and the advisers say companies with few and young employees who earn low wages are most likely to drop their group plans. Here are some things companies contemplating that move should know and discuss with their advisers.

Complicating factors

The next Obamacare marketplace open enrollment period will run Nov. 15, 2014, to Feb. 15, 2015. On one level that's immaterial, however, because losing job-based coverage qualifies employees to sign up outside open enrollment. And although having qualifying employer-sponsored insurance disqualifies employees from getting marketplace subsidies, the application asks about the time when coverage would start, not the present, so employees could start shopping before their job-based coverage ends.

However, on another level, open enrollment is material, indeed, because whether the marketplace is a better deal depends largely on specifics of the Obamacare plans. So far, those specifics have not yet been revealed for 2015 Pennsylvania Obamacare plans. Cannon says his understanding is that the information probably won't be released until early fall.

Because the marketplaces are so new, Cannon says, predicting next year's rates is particularly difficult. Moreover, he says, the Obamacare plans all operate on a calendar-year basis, ending Dec. 31.

Auto enrollment

People will generally be automatically re-enrolled in their Obamacare current plans unless they select new ones, but the associated premiums could change. That means people in the individual marketplace should do their homework on the available offerings every year — and employees of companies that dropped coverage in, say, August, would have to go through that process twice in quick succession.

“It's not an easy system,” says Scott of the marketplace application. In his experience, it takes about 45 minutes per person “when they know what they're doing,” and issues such as not having a credit history can throw a wrench in the works. Employers might not want to put their employees through that.

Or, Cannon says, they may look at the Obamacare out-of-pocket maximums — $6,350 per individual and $12,700 per family in 2014 — and feel it would leave their employees too exposed. Employers could offer an after-tax stipend to help mitigate that concern, he says, but it would have to be structured carefully so as to not be discriminatory.

Pay-to-play penalty

The advisers say the bigger the company, the less likely it is that sending employees to the marketplace will be a wise move. Ditto for employees who are highly paid or have high household incomes, because they likely will not qualify for subsidies, and for older employees, whose premiums are steeper to start with.

Nevertheless, they say, bigger employers considering dropping coverage should also bear in mind that the employer mandate pay-or-play penalty will start in 2015 for companies with 100 or more employees and in 2016 for those with 50 to 99 employees. The cost of dropping coverage entirely is $2,000 per employee, minus the first 30.

Regardless of the circumstances, the advisers say, health insurance is so complicated now that businesses should seek professional help in making their coverage decisions. 

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