Avoiding Penalties while Maintaining Health Care Benefits

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Aside from an employees’ paycheck, the benefits a company provides are one of the most important factors in maintaining a quality staff. As the Affordable Care Act reaches full implementation, there are some things CFOs should consider when working out the costs associated with providing this important benefit to the workforce.

IRS penalties

As all CFOs know, one of the major points of the health care reform was a mandate for most companies to provide insurance to their employees. While some companies might choose to eliminate the benefit to save money, that can result in hefty fines from the IRS.

While some companies consider letting employees fend for themselves in the exchanges, the fines levied by the IRS could be more costly than the insurance plan itself. Some companies are offering tax-free funds to allow employees to withdraw money to pay for premiums. This will draw fines because it violates the ACA’s provision on annual and lifetime coverage limits.

The fine from the IRS for this action can be up to $100 per employee per day – $36,500 per year – a number any CFO will want to avoid.

Doing it right

There are legal ways for companies to offer workers assistance in paying for premiums, whether through a company-sponsored plan or the exchange. Health reimbursement plans that are integrated with high-deductible plans are allowed, but only if the employee accessing the account is enrolled in the plan. If companies choose to offer reimbursement for exchange premiums, it must be as taxed income.

Keeping it affordable

While avoiding penalties is important for the company, it is essential to keep in mind the potential costs to your employees. A recent Aflac study revealed that many employees have difficulty with expenses related to medical care due to high-deductible plans.

According to the study, more than half would be required to borrow from their 401(k) or use credit cards to cover expenses. Just shy of half have less than $1,000 available to cover the cost of unexpected expenses. More than 40 percent said they are either not or poorly prepared to cover the costs of a serious illness.