Q: We give our employees who do not take our health insurance an additional $100 a month. I am now told that this will go against us when we talk about the cost of health insurance. Why is our school being penalized for this policy?
A: What has been mentioned to you is from guidance that came out on December 15, 2015 in IRS Notice 2015-87 Q&A #9. In this Q&A, the employee is offered the cash only because he/she did not take the employer's health insurance. The Treasury and IRS both rule that when an employee tries to determine whether health insurance is affordable to him/her, he/she must now consider not only the cost of the premium, but also the additional money the school previously gave them for not taking insurance.
For example, if an employee's insurance premium $200 per month, and the employer gives employees who do not take your health insurance $50 a month in income, then the cost to the employee is $250/month to take school's insurance. ($200 premium + $50 of "lost" income)
Given that your school currently offers this program, this consideration does not immediately affect your school, but it's something to keep in mind. Your school should await further guidance from the IRS and Treasury beyond this mention in the Q&A, as these instructions don't apply for play years beginning before January 1, 2017, according to the IRS.
A way to help subsidize your employees' health care costs in the future is to to offer all employees—not just those who don't take your insurance—an employer contribution to an FSA that can only be used for medical expenses, specifically for Health insurance premiums, Dental or vision insurance premiums, or as a general Medical reimbursement Account. The key here is that there is no cash bonus or renumeration of non-medical expenses, as well as its equal distribution to all employees, regardless of whether they participate in your health insurance or not.
That way, when an employee considers the expense of your school's heath care plan, he/she reduces the amount that than you reduce the amount by the employer contribution that the employee needs to pay.
To borrow from the above example, let's say your school's monthly insurance premium is $200, but your school also sponsors an employer contribution to an employee's FSA for $50 a month that employees can use for health, dental or vision insurance or for medical reimbursement. In that case, the estimated cost to employee for your health insurance is $150 ($200 premium - $50 employer FSA contribution).
Curious about your school's health care policies and the reform's changes? Ask ISM’s Health Care Reform Expert a question. We respect your privacy. You can also view ISM’s health care solutions.
