There is a penalty that can be imposed as of 1 July 2015 to small business employers who reimburse employees for premiums paid for individual health insurance policies under Obamacare (PPACA).  Yes, that means if you don’t offer insurance because your state does not offer plans for small employers and the various insurance companies charge rates that are outrageous, you can still be penalized.   But, there are ways to fix this.   Read on…

Under Internal Revenue Code Section 4980D(b)(1), the penalty is pretty steep-  it can be up to $100 per-day per-employee; if you are weak on math, that would mean this year the fine would be over $18000- and next year it could be $ 36,600.  (Come on, you DO know that 2016 is a leap year, right?)   The idea behind this is to have employers offer health plans for all employees.  Unfortunately, the SHOP program is barely operational across most of this US.  (You did buy my book, right?  It’s free if you have Kindle Unlimited.)

<24 employees

Let’s consider a few potential scenarios.   If you have 24 employees or less, you are NOT required to offer health insurance.   But, you are entitled to a pretty significant subsidy if you do decide to offer your employees coverage.  You can (hopefully) sign up on the Obamacare site  (There is some problem with some states- still.)

You can also offer a Section 105 Medical Reimbursement Plan.  The employer penalty arrangements can be avoided if you have been following our directives.

As I said, the easiest- and probably cheapest- way is to offer your employees the Small Business Health Options under Obamacare (PPACA).   But, if you can’t or you elect to employ a Section 105 Medical Reimbursement Plan, you MUST make sure that all reimbursements rendered to the employee (who picks the health insurance that fits his/her needs) are FOR the health insurance and not something else.  (The IRS verbiage- amazingly simple for the agency- can be found here.)

This idea is critical because, if you are like us, and operate in a multitude of states (or have employees that live in a state different from your own- a situation prevalent in the metro DC and NY areas), it’s tough to find a plan that meets everyone’s needs.  Following this process means there is no need for a one size fits all program – which is really tough for these <25 employer firms.

25+ employees

If you have 25 or more employees, you could offer a health plan for your staff.  But, if you don’t- instead you are reimbursing your employees for their individual programs, there are big problems.  You must ensure that NONE of them receive a subsidy from the Feds or that none of them fall below 400% of the poverty line (which is how they get the subsidy.)  If they do – and I’ll bet a lot of your staff do- fall below this threshold, you must insure the employees REFUSE the subsidy- or you will be penalized.  Of course, you can also solve this potential problem by offering them a group health plan.

So, when it comes to healthcare, for the first time, employers can’t shaft the rest of the US citizenry and have their corporate profits subsidized.   Only  when firms pay their staff below the living wage (and, therefore, accrue profits on those “savings”) does corporate welfare kick in.  Because then the US citizenry provides the welfare, the AFDC, the food stamps to make the lives of the employees livable- a function the employer should fulfill.

I guess we have to be happy with this first step to ending corporate welfare.

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