Q: I am a small employer with less than 25 employees. Part of our employee contract says that we will provide health insurance. However, since only two people are participating in this plan, the insurance company will not renew our policy.
What are my school’s options for these two individuals?
A: As an employer with fewer than 50 employees, based on the Affordable Care Act (ACA), you do not have to offer your employees health insurance. Depending on the state you live in, you can go to the Small Business Health Option Program (SHOP) for your state or with your broker you can go to the federal SHOP. If you have a Section 125 Plan, the employees can pay their premiums with pre-tax dollars.
With fewer than 25 employees, you may be eligible for the small employer tax credit of 25%-35% if you participate in the SHOP. This credit is available to you for two years. Qualifying is cut and dry. To apply for the credit, you must have fewer than 25 full-time equivalent employees, an average annual wage of less than $50,000, and an employer contribution of not less than 50%.
In most states, you need 70% participation but you can eliminate employees who have coverage through another employer’s plan, Medicare, Medicaid, the military, or veterans programs. You do have to count COBRA participants and individuals with nongroup private coverage.
If you eliminate health insurance, you have a conflict with your contract, but you might be able to find a short-term solution to accommodate the two employees who currently have group health insurance. These employees can go to the exchange for coverage and they may be eligible for a subsidy on their insurance. You will not be penalized.
Keep in mind that employees cannot pretax their individual premiums through a §125 Plan even if purchased on the exchange. Without the school offering group health insurance, you will not be able to offer medical flexible-spending accounts to your employees or a health reimbursement arrangement.
