Presumably, President Obama will sign the legislation today or later this week.

And once that happens, small businesses will once again have an easy option (sort of) for providing health insurance for their employees.

Why Healthcare Reimbursement Arrangement Matters

Talking about the Affordable Care Act, better known as Obamacare, risks turning into a political argument. But putting politics aside (at least for the next twenty or so minutes), we think this new health insurance arrangement is a big deal for small businesses. And a real opportunity.

Here’s why: Obamacare created an expectation that employers will provide health insurance for employees. But at the same time, Obamacare unintentionally blew up the common, shortcut approach that small employers used for decades to provide insurance to their employees… which was to pay employees an amount (tax-free) that let them buy their own individual health insurance.

As discussed here, you could operate such a plan but the penalties were catastrophic.

How Qualified Small Employer Health Reimbursement Arrangement Works

The new law (text available here) sort of puts humpty-dumpty back together.

Specifically, starting in 2017, you can set up a plan, or an arrangement, where you reimburse for your employees’ individual health insurance as long as you carefully follow some rules that honor the spirit of Obamacare.

For example, the plan needs to be provided on the same terms to all “eligible employees” and you have to notify your employees that the plan exists.

Tip: You’ll want to really understand the employee non-discrimination rules before you set up your own health reimbursement arrangement. We’ve talked about these rules a bit in the past on our blog here (scroll down to old rule #2).

In addition, your business needs to be an “eligible employer.” This means the employer isn’t an “applicable large employer”, which is generally a business with 50 or more employees. (If your business is comfortably below 50 employees,  you can have a qualified small employer health reimbursement arrangement. If you’re near the cutoff, however, ask a tax professional to help you sort through the rules.)

No salary reduction contributions are allowed; only the employer can contribute. Further, the plan can only reimburse employees for medical expenses as defined under IRC § 213(d). Medical expenses under this definition include health insurance, but also include out-of-pocket medical expenses. But the employee needs to prove to the employer that they have health insurance coverage before the employer can make any reimbursements.

In general, the employer cannot pay out more than $4,950 a year for an employee unless the plan also covers the employee’s family, in which case the employer cannot pay out more than $10,000 a year. Also, these amounts get prorated; for example, if an employee is only on the plan for 5 months of the year and they don’t have extra relatives to cover, then the annual limit is 5⁄12 × $4,950 = $2,062.50.

Finally, an employee needs to have minimum essential coverage in order for the reimbursements to be excludable from the employee’s income. (More on this in a minute.)

Qualified Small Employer Health Reimbursement Arrangement Effective Date

I said this earlier in passing, but just so it’s clear: An employer can offer a qualified small employer health reimbursement arrangement only for years starting after December 31, 2016.

A reimbursement arrangement doesn’t work retroactively for 2016, therefore.

And a related point: Because the new option is more complicated than simply writing a check, we think you need to move fast in order to have a plan in effect at the start of the new year.

Two Other Really Important Rules to Know

As we all learn more about the new law, we’ll uncover new details and surely get additional guidance. But two other important points to know from the very start.

A first really important rule I already mentioned: The insurance paid for through one of these arrangements needs to meet the Affordable Care Act’s “minimum essential coverage” threshold. “Minimum essential coverage” is defined in IRC § 5000A(f). It is the minimum amount of coverage that your employees will need to not be subject to the penalty for not having health insurance.

If your employee receives a reimbursement and they don’t have minimum essential coverage, you include the reimbursement amounts on their W-2. Practically speaking, this extra complication means that you’ll want to establish some way of verifying that your employees have individual health insurance throughout the whole year in order to avoid creating a payroll accounting mess for yourself.

And a second really important rule: You need to provide employees with a statement that both notifies them of their eligibility to participate in your plan and describes all of the information that their state’s exchange might need to calculate their eligibility for a premium tax credit. And just so you know, this premium tax credit comes into play if an employee needs to kick in more than 9.5% of their income to pay for the part of the health insurance premium that you (the employer) are not paying.

Need More Help with the Small Businesses and the Affordable Care Act?

If you’re a tax practitioner advising small business clients about how to navigate the treacherous waters of healthcare reform, you may be interested in our monograph, Small Businesses and the Affordable Care Act, which is available for $100 and which includes sample forms, client letters and handouts you can use for explaining the mechanics of the Affordable Care Act to your clients.

We think this short whitepaper (roughly 70 pages in length) should save tax practitioners several hours of learning time. For example, it describes the ACA issues that you need to understand for your small business clients in detail and is richly footnoted with hyperlinks to primary source authorities. The monograph also provides a boilerplate healthcare policy document practitioners can use for their clients, and it supplies example W-2 forms to show how these items should be prepared given the ACA. We’ve also included sample client letters and longer “handouts” you can use to communicate with clients.

The whitepaper includes coverage of the “Qualified Small Employer Health Reimbursement Arrangement” option created in December 2016 by the 21st Century Cures Act.

If you’re ready to buy you can use this button below. Or if you need more information, click here.

View Cart

Money Back Guarantee

As with all of our publications, the Small Businesses and the Affordable Care Act (Obamacare) monograph comes with a money-back guarantee, so if you purchase it and then for whatever reason find it’s not what you need or what you expected, simply email us your refund request. We will happily issue you a refund, no questions and no hassles.

The post Qualified Small Employer Health Reimbursement Arrangement Rules appeared first on Evergreen Small Business.

No, I get it. The economy has been tough in many parts of the country. In some cases, for years now.

Further, overall inflation seems low. Look at oil prices or interest rates, for example.

But I still think you need to get much, much more disciplined about regularly bumping up your prices by some percentage for inflation. And just to get this admission out, so should I.

Let me in this post, therefore, outline the math behind this suggestion and then share three comments that may help you think more concretely about and also feel more comfortable with this idea.

Reviewing the Math of Inflation

Let’s start by quickly outlining how the math of inflation works if you don’t adjust your prices regularly for changes in price levels.

Assume for purposes of illustration that you run a business with $200,000 in revenue. Further, assume half of that revenue, or $100,000, goes to pay the expenses of running your business. The remaining half represents your profits.

The table below shows what happens if over three years inflation runs 2% (so hardly enough to worry about) but you don’t bump your prices by 2% annually.

I rounded the numbers shown in the table to the nearest thousands—which makes the table easier to read but sort of understates the problem. But you see what’s going on, right? Every year that you don’t in this hypothetical situation adjust your prices for inflation, you lose a little bit of profit.

No year’s reduction in profits kills your business, obviously. But the profits are slowly deflating.

And now let me make three points.

This Situation is Critical

Here’s a first thing to consider. While the slow reduction in profits in the given hypothetical situation seems minor, in truth, the situation is critical.

Profits of $94,000 doesn’t seem that much less than the $100,000 in profits enjoyed only three years ago. If you or I actually confronted this exact situation, we can surely figure out ways to continue operating, right?  (Maybe we just work a little harder ourselves.)

Further, even if we do take home a few thousand less in income, we can surely deal with such a shortfall by cutting expenses at home. (Maybe we can temporarily stop saving money for retirement.)

But really a hypothetical pattern like the one described here is terrible. And let me point out two factors to support this statement.

A first factor… We can’t fairly compare that $94,000 of year 4 profit to the $100,000 of year 1 profits. With 2% inflation over the last three years, we need to compare the $94,000 of year 4 profits to the $106,000 you or I should be making in year 4 in order to “keep even” with increasing prices. (If we would have bumped our profits by that 2% a year—like the operating costs bumped up by 2% a year—that $106,000 is what we would be earning in year 4.) In year 4 dollars, in other words, the business is actually be “down” by about $12,000. That’s a lot.

A second awkward factor to this slow-motion disaster: The situation keeps getting worse as long as you or I procrastinate about adjusting our prices for inflation. Ugh.

But Aren’t Prices Flat?

Let me share another comment about those inflating operating expenses. You might look at those and say, “Well, sure Steve, I get the math. But my prices aren’t really inflating. Or at least not by much. Seriously, interest rates are low. Oil is cheap. There basically isn’t any inflation if you look at the consumer price index…”

Okay, so I sort of agree with you… except that you (and I) need to be careful about assuming that overall price inflation accurately measures the inflation we’re experiencing in our small business’s operating costs.

Our business expenses may be flat or increasing at a barely noticeable rate. Or, and maybe especially for small service businesses, lots of our business expenses may actually be increasing at rates rather in excess of what the consumer price index shows.

Note: You can get producer price index information by industry code from the Bureau of Labor Statistics (click here for that information). Note that you’ll need to fiddle a bit to turn the index values at various points in your industry’s history into annual inflation rates.

Further,  the inflation you’re experiencing in your personal living expenses plays into how you adjust prices for inflation, too, since your business profits need to stretch to cover the costs of taking care of your family.

My small business’s costs for labor, insurance, and taxes, for example, are all increasing at a rate rather more than the consumer price index. I bet the same is true for your small business.

You have a Good Explanation

One final comment about all this. But a reminder first: This isn’t a political blog, it’s a how-to blog. So I’m going to mention a couple of political topics but I’m only talking about them because they connect to inflation-triggered price adjustments. And with that point made, let me share a couple of things.

First of all, as a country, we are engaged in important discussions about bumping up minimum wage levels. Some localities, including the Seattle area where we work, have already done this. Other areas are talking about it. And all of the major candidates for president in the next election say that we as a country need to do this. Keep that thought in your head for a minute.

Now on to something else. The law of the land says that all but the smallest businesses need to provide health insurance to their employees. And that’s a cost bump for many small businesses. Further, for any businesses that do provide it, healthcare costs and therefore health insurance costs continue to increase in price by a rate greatly in excess of the overall consumer price index.

I don’t mention these two factors to start a political argument. Let’s do that someplace else. But it seems like we can all agree, no matter what our political feelings, that these factors drive up the labor expenses and therefore the operating costs of small businesses.

Further, it seems like the roughly half of your customer-base who support politically the candidates who’ve brought these issues forward have to accept you bumping your prices to cover the cost increases.

And, just to be practical, even the roughly half of your customer-base who don’t politically support something like a big bump in minimum wages or a requirement for businesses to provide health insurance get that you and I need to follow the rules, that following those rules pushes our costs up, and that we need to pass along those cost increases to customers in the form of price increases.

Summing up the situation, if society instructs small businesses to bump up their operating costs, I think small businesses can take that instruction as a license to raise prices to cover the cost increases.

My final comment then? Go ahead—do it. Bump your prices by some amount that reflects a “cost of living adjustment.” And then continue to make the bump each year from this point forward. I think the facts and circumstances totally justify this practice for most small businesses. Really, I do.

The post Please Bump Your Prices for Inflation appeared first on Evergreen Small Business.

To start, though, let’s clarify: we’re not talking about the individual exchange. Washington State’s individual exchange really works quite well, despite what many may think given the initial disaster that was Healthcare.gov.

We’re talking about the small business side of the Exchange, where things have not been going so well. And several reasons justify nervousness…

Reason #1: Difficulty Getting Insurers to Bite

A first reason? Too few insurers are participating.

In 2017, for example, most counties in Washington State won’t even be served by the small business side of the Exchange.

This is because UnitedHealthcare is exiting the Exchange, and up until now UnitedHealthcare was the only small business insurer the Exchange had for most counties (Clark and Cowlitz being the exception).

I’ve asked representatives of the Exchange what they attribute this to, and have really only gotten non-answers back like “well we’re having conversations with carriers…”

Poking around at Exchange meeting materials that are available publicly on its site, it sounds like what might be going on is that there are some major changes to the IT infrastructure of the site before a lot of insurers are willing to give this thing a try (maybe because the site needs to be better to lure more customers?)

Yes, I acknowledge that “sounds like what might be happening” is about as speculative as it gets, but until the Exchange leaders become a bit more forthcoming about what’s going on, we don’t really have much to go on.

However, if we’ve deduced correctly that this is the problem, then this is a bigger problem for Washington State small businesses for reasons #2, 3, and 4, which I’ll describe next.

Reason #2: Lack of Capital Reserves for Big Projects

Another reason to be nervous? A lack of adequate capital reserves—and a lack of a plan to acquire and maintain adequate capital reserves.

In a recent state auditor’s report, for example, one of the key recommendations for putting the Exchange on a path to sustainability was for the Exchange to establish a long-term financial plan, a working reserve, and a capital reserve.

We should note, for the sake of fairness, that the Exchange is working on this. The Exchange indicated in its response to the state auditor’s report that it has commenced work on establishing a long-term financial plan that includes developing a reserve, and is due to complete this work by December 31^st, 2016. However, any efforts the Exchange makes to implement effective long-term financial planning are hampered by policies of the Legislature described in #3 and 4, below.

Reason #3: Legislature’s Spending Rules Stop the Exchange from Swiftly Investing in Needed IT Improvements

A third issue: the lack of support from the Legislature for continuous basic improvement in the information technology required to run a decent exchange. Which sounds crazy.

It is in the Legislature’s best interest to enable the Exchange to make certain improvements to its website as soon as it can, because many of these improvements accelerate the Exchange’s path toward self-sustainability. This is for two main reasons:

• Because it improves the customer experience, making it easier for the Exchange to find more customers and thus reducing the Exchange’s per member per month costs, and
• Because improvements such as fewer software bugs, better user interfaces, and additional features that allow customers to perform tasks themselves on the website reduce the need for spending on customer support.

However, in HB 1947 (2013) the Legislature tied the Exchange’s hands when it comes to implementing cost-saving IT improvements. Specifically, the bill states that the Exchange can only spend as much money as the Legislature appropriates to it. In addition, the bill includes a “sweeping provision” which states that the Legislature may transfer money from the Exchange’s account to the general account.

To illustrate: for the current biennium (2015-2017), the state budget does not, in fact, simply state that the Legislature will contribute $110 million to the Exchange. Instead, what it states is that the Exchange may not spend more than $110 million. Therefore, even if the Exchange were to successfully apply for a grant elsewhere, that grant would have zero impact on the Exchange’s ability to accelerate investments in IT improvements in the current biennium. Instead, the money would likely be swept into the state’s general fund.

This policy was ostensibly intended as a measure to hold the Exchange more “fiscally responsible.” However, in practice it creates a perverse incentive for the Exchange board to not seek out grant funding as a way to accelerate cost-effective IT improvements. This is because seeking out grants would require considerable effort while providing the exchange with no financial benefit. (I’ve even had representatives of the Exchange tell me that this is their thought process behind why they don’t bother pursuing grants.)

Reason #4: Legislature’s Sweeping Provision Makes Exchange Finances Unstable

And then there’s the “sweeping” issue, which maybe makes sense for a typical government program but not for an organization with the cash flow uncertainty of the Exchange.

What’s the issue here? Simple. The provision in HB 1947 authorizing “excess funds” to be removed from the Exchange’s account and placed in the Legislature’s general fund appears to complicate the goal of developing stable reserves. In fact, the auditor’s report specifically asked the Legislature to consider as part of the appropriation process “the Exchange’s long-term financial plan, its planned list of IT investments, its need for both working and capital reserves, and how sweeping those reserves adversely affects planning.” [emphasis added]

It’s worth emphasizing here that a big part of why this is so important for the Exchange is that both the amount and the timing of the Exchange’s cash inflows are uncertain. The amount is uncertain because much of the Exchange’s revenue comes from a 2% health insurance premium tax and assessments that the Exchange can charge insurers who sell plans through the website (almost a bit like a commission, to cover the Exchange’s operating costs).

Timing is uncertain because a large additional portion of the Exchange’s revenue comes from reimbursements from Medicaid for costs the Exchange incurs on Medicaid’s behalf. And, as awkward as this is to point out, according to the state auditor’s report Medicaid has a history of not paying its bills to the Exchange on time.

This is the whole reason the Exchange needs a working reserve (and why, as small business owners, we need to be thinking about liquidity, too). If projected revenues come in a little lower than expected, the Exchange needs some cushion so it knows it can keep the lights on and the servers running. Ditto for if Medicaid pays a bill a few months late. So how nerve-wrecking is it that the Exchange could do the responsible thing by building up an adequate working reserve, only to see the Legislature sweep it all away because some state legislators think that reserve is “excess funds”?

Final Thoughts

These things are all fixable. And to the extent that the Exchange’s leaders have the power to, they seem to be putting a lot of work into trying to fix it.

However, the Legislature still has some things it needs to do if it really wants to get this program working. It needs to change the Exchange’s enacting legislation to remove counterproductive policies such as the appropriations rules and the sweeping provision, and replace these with constructive policies.

Examples of constructive policies the Legislature could enact include:

• Requiring the Exchange to have a long-term financial plan that includes provisions for a working reserve and a capital reserve.
• Requiring the Exchange to prepare a report for the Legislature explaining why they’ve had such trouble inducing insurers to participate in the small business side of the Exchange, and what their plan is to fix it.
• Requiring the Exchange to conduct ongoing user interface studies, including studies of how efficient and intuitive it is for the typical user to work with both the individual and SHOP portions of the website.
• Requiring the Exchange to conduct ongoing surveys among Washington residents and small business owners on features they would like to see included as part of both the individual and SHOP portions of the website.

We’re keeping up to date on developments with the Washington SHOP Exchange, and will post updates to this blog as they become available. Stay tuned.

The post Why You Should Be Nervous About Washington’s SHOP Exchange appeared first on Evergreen Small Business.

If you’re interested in the blog post that Bob referred to, click here. (The other blog post, by the way, provides the nitty gritty details the post you’re reading right now lacks.) But here’s what you really need to know and act on quickly…

Step 1: Cancel Any Employer Payment Plan

You need to cancel any employer payment plan (EPP) where you give money to employees which they then use to buy individual health insurance. Yes, for decades small businesses used this approach. And it worked pretty well. But you can’t do this anymore. Sorry.

We’ll talk about the penalties you risk if you continue this practice in a minute…

But let us say this: We think you need to be careful of anything that smells like an employer payment plan. For example, if you used to pay $250 a month for Tom’s insurance, $300 a month for Harriet’s insurance and then $150 a month for Dick’s insurance, we think it’s risky to stop doing that and then simultaneously add $250 a month to Tom’s check, $300 a month to Harriet’s check, and $150 a month to Dick’s check unless you’re really careful and follow some essential rules to show that you truly have “completely abandoned” the old EPP:

• Don’t recommend they use the extra money to buy health insurance, tell them to do whatever they want with it.
• Don’t recommend any particular health insurance plan to purchase.
• Don’t give the extra part of the paycheck any special tax treatment when you enter it in your payroll software.

Note: For 2017 and later years, you can use a qualified small employer reimbursement arrangement. (Click that link for details.)

Step 2: Cancel Any Healthcare Reimbursement Arrangements

You also need to cancel any healthcare reimbursement arrangements (sometimes also known as Sec. 105(b) plans) unless you’ve paired the HRA with a true small-group health plan. In the past, you could sometimes also get these arrangements to work as a way to provide for health insurance premiums and more commonly pay for uncovered out-of-pocket and copay expenditures. But you also shouldn’t do one of these any more except in limited circumstances (ask your tax adviser).

By the way, a word about the penalties of not taking steps 1 and 2: The risks of you using an employer payment plan or a healthcare reimbursement arrangement are shockingly high. You could be fined a $100 a day per employee. So, just to do the math, if you have five employees and get hit with the penalty, you’re looking at about $182,500 in penalties for a year of breaking the rules.

That’s 5 employees… each triggering a $100 penalty or $500 a day in total… for 365 days. Ouch.

Tip: A quick point: If you’ve been using something like a healthcare reimbursement arrangement to jack your small business’s tax deductions, you should know that there are probably other, lower risk ways to do this.

The plain fact is, federal and state tax laws provide small businesses with dozens of powerful tactics for cutting taxes.

If you want information about how to take advantage of these “loopholes,” consider our popular downloadable ebook “Small Businesses Tax Deduction Secrets“.

Step 3: Don’t Worry about S Corporation Shareholder-employees… Yet

If your business is an S corporation and you were correctly handling your shareholder-employee health insurance before—which means following the rules described in IRS Notice 2008-01—you don’t need to change anything.

The pre-Obamacare accounting still works the same way. But you need to be careful and alert because the IRS may change the accounting for your situation at some point in the future.

Note: A shareholder-employee’s health insurance is treated as wages and subject (potentially) to income taxes but not to payroll taxes like Medicare and Social Security. But usually, the health insurance becomes a “self-employed health insurance” deduction on the shareholder’s individual tax return.

Step 4: Plan on Your State’s Small Business Exchange Failing

An awkward point because it sounds political—but actually is not political.

Ever since the IRS and Department of Labor effectively banned EPPs, the clean way to provide health insurance to a small business’s employees has been to let employees use the state’s small business exchange. The mechanics of how you did this required a little bit of thinking. But in a sense, all an employer had to do was pick the level of “metal” like bronze or silver or gold or platinum that the employer wanted to pay for and then let employees sign up.

However, because of all sorts of reasons best left to other people to sort out, many SHOP exchanges don’t appear to be stable yet. In Washington State, for example, SHOP won’t be available in 2017 in most counties. For this reason, we think you ought to check now on whether your state’s SHOP exchange will operate after this year. And we think you ought to plan for the very real possibility that your state’s SHOP exchange might be unavailable in the future.

Step 5: Consider Going Bare

While Obamacare understandably sets an expectation that employers will provide for employee’s health care, we think your small business probably needs to consider going bare. Sorry.

For the record, this is the choice that, regrettably, we think our small CPA firm will have to select given that United Healthcare, the sole provider for our state’s SHOP exchange in most Washington counties, decided to withdraw from the state for reasons described here.

Yes, you can possibly set up a non-SHOP-exchange small group. But that choice seems impractical. Note that the whole reason the SHOP exchanges were created by Obamacare was that the SHOP exchange option was supposed to be the workable way for super-small employers to provide insurance without too much administrative burden.

Tip: If you are operating as an S corporation, you want to make any decisions about health insurance in light of how health insurance for shareholder-employees works and shareholder-employee salaries.

You can get more information about how to set shareholder-employee salaries, including the effect of health insurance on wages and pensions, in our “Setting Low Salaries for S Corporations” e-book.

Step 6: Consider Writing a Letter to Your Elected Representatives

A crazy idea? Can I suggest you consider writing a letter to your U.S. representative (click here to get that mailing address) and your state’s two U.S. senators (click here to get those address)?

There’s every tendency to write some long-winded complaint if you do this, of course. If I wasn’t trying to be on my best behavior here, who knows what I’d say. But as a practical matter, what I’m thinking is something a bit more “how to” in nature like this:

Dear Senator Murray, Senator Cantwell, and Rep. Del Bene,

While the continuing political discussion about the Affordable Care Act includes many points of view from all over the political spectrum, I write to ask you to work toward fixing an outcome which probably no one anticipated and surely no one involved wants.

As you may know, in Washington State as in many other states, the Small Business Health Options Program exchange (also known as the SHOP exchange) essentially fails at the end of this year because the only insurance company providing coverage in most counties is exiting the state. This means that small businesses like my own will no longer have a practical option to provide employees with health insurance.

Further, the Affordable Care Act prohibits small businesses from paying for employee health insurance through previously acceptable practices such as Employer Payment Plans as described in Revenue Ruling 61-146, and Healthcare Reimbursement Arrangements allowed an IRC Section 105(b).

I understand that action is tricky. But no matter what your political point of view, I respectfully ask you to consider the impact and hardship suffered by small business employers in your state when the Affordable Care Act sets up an expectation that employers provide health care, then prohibits long-used mechanisms for providing healthcare, and then fails to provide a functioning replacement option.

Sincerely,

Stephen L. Nelson, CPA

In addition, if you’re a small business owner in Washington State, definitely consider making a public comment to the Exchange’s board explaining what you need from them when it comes to employee health insurance. They want to hear from Washington small business owners so they understand what you guys need from them, and what you don’t.

Finally, if you’re a Washington State small business owner, consider writing to your legislator (you can find out who your state legislators are here) and explaining to them what’s happening to your small business as it relates to employee health insurance.

The post Really Simplified Guide to Small Business Obamacare Rules appeared first on Evergreen Small Business.

Sorry for the length of this post. But this is complicated and very important stuff…

The good news: better site, better support tools

First, a little history. We used WA Healthplanfinder Business in our CPA firm to offer employee coverage. Our experience setting up an employer account with the exchange was OK, but not stellar.

The website worked fine for the most part, but the user interface wasn’t very intuitive. However, one software bug did stand out: if an employee who received an invitation from their employer to sign up for coverage clicked a button saying “Use My Existing Account”, the site simply returned a giant server error page.

For what it’s worth, we should note that once we finished setting up our small business account on Washington Healthplanfinder, the website was very easy to use. Adding new employees to the account and removing employees who have left your team is as effortless and intuitive as it should be.

Looking to 2017, it appears that open enrollment for small businesses should be a smoother experience. The exchange’s website now provides a page devoted to helping small business owners set up their accounts on the exchange. I would highly encourage anyone who creates a small business account to first read the Enrollment Guide (available at the webpage linked above). It walks you through the process of setting up an account and includes everything I wish I had known when I set up our firm’s account last year. And if you have problems setting up your account, even with the help of the enrollment guide, do call one of their business field representatives. They’re very knowledgeable and we’ve had a great experience working with them.

Disappointingly, however, it sounds like the notorious “Use My Existing Account” bug has not yet been fixed. I interviewed the exchange’s communications director, Michael Marchand, for this article and he had this to say in response to a question I asked about the bug, and about the website’s performance in general:

You’re asking me a pretty detailed technical question that I don’t have an answer for right off the top of my head, but we do make changes to the system annually. In any given year we usually have 2-3 major releases, not including smaller releases to fix smaller bugs and issues. That’s a much quicker cadence than many established companies offer, and that’s part and parcel of the fact that we had only 18 months to build a system for 7 million people. The experience is significantly different than what people had a year or so ago.

The bad news: no statewide coverage this year

In 2016 WA Healthplanfinder Business offered coverage options for small businesses statewide. However, in 2017, thanks to UnitedHealth withdrawing from the exchange, small businesses in most Washington counties won’t have the option to apply for group coverage through the exchange.

Businesses in Clark and Cowlitz counties will be able to choose from plans offered by Kaiser Foundation Health plan.

Why losing options through the exchange is a big deal for small businesses

You might be thinking to yourself, well, any small business that has an incentive to offer employee health insurance is already doing so, right? Who would even need to use the new SHOP exchange? So why would this even be a big deal?

In a nutshell: HRAs and EPPs.

But first, some background. And apologies ahead of time for going so far into the weeds on this, but it’s all relevant to understanding the issue (especially for public policymakers), I promise.

Before the Affordable Care Act (“Obamacare”) was enacted, many of the smallest businesses offered health insurance to their employees through plans that are nowadays described as “health reimbursement arrangements,” or “HRAs” for short, and “employer payment plans,” or “EPPs” for short.

What happened was this: for a long time, small businesses provided health insurance benefits to their employees by simply writing a check reimbursing the employee for their individual insurance premiums or out-of-pocket medical expenses. Small businesses and their employees would get the same tax benefit for such arrangements as they would have had with a more formal plan; the small business gets a deduction for the expense, but the employee pays no income taxes on the benefit, nor do either the employee or the employer pay any payroll taxes on the benefit.

The reason such informal arrangements worked is because IRC § 105(b), IRC § 125, and various IRS pronouncements had determined that such plans could qualify for this tax benefit, provided that the plans met certain requirements.

One way this arrangement could work was by saying the reimbursement arrangement was a health reimbursement arrangement (HRA) as described in IRS Notice 2002-45 and Rev. Rul. 2002-41. Another way this could work was by saying this arrangement was a group health plan as described in Rev. Rul. 61-146, sometimes referred to as “employer payment plans.” And a final way this could work was by saying the arrangement was a health flexible spending account (FSA) formed under a § 125 cafeteria plan.

Fast forward to 2013, when the IRS publishes Notice 2013-54. In this short 14pp document, the IRS noted the following relevant changes to the way health insurance is regulated under the ACA:

• If a group health plan has two or more participants, it is subject to the new market reform rules
• Under the new market reform rules, a group health plan may not establish any annual limit on the dollar amount of benefits for any individual
• Non-grandfathered group health plans need to provide certain preventative services without imposing cost-sharing requirements on the plan participants

OK, this seems like what we’ve all heard before on the news about the ACA. But now let’s take a more careful look at the tax law we cited before; the primary source authorities small businesses cited when claiming a tax benefit for their informal reimbursement arrangements.

Health Reimbursement Arrangements

As discussed in Notice 2013-54, an HRA is an arrangement where an employer reimburses an employee for medical expenses up to a maximum dollar amount. The authorities for giving such arrangements preferential tax treatment are IRC § 105(b), IRS Notice 2002-45 and Rev. Rul. 2002-41.

HRAs can be distinguished from health FSAs under § 125 cafeteria plans because HRAs are not associated with salary reductions. As long as the HRA follows the guidelines of Notice 2002-45, the reimbursement amounts qualify for preferential tax treatment. Notice 2002-45 also stipulates that, by definition, HRAs provide reimbursements for medical expenses up to a maximum dollar amount for the coverage period.

According to Notice 2013-54, an HRA will not fall afoul of the new ACA rule against annual limits if the HRA is integrated with primary group health plan coverage provided by the employer and the primary group plan complies with the new market reform rules. However, the Notice also points out that an employer-sponsored HRA cannot be integrated with an individual plan of an employee’s. Therefore, an HRA used by employees to purchase individual market coverage, or to receive reimbursements for preventive services, violates the ACA’s market reforms.

For example, a small business could purchase a single group health insurance policy for its employees and then say, “Hey employees, in addition to this primary health insurance benefit, we’re also going to offer you an HRA that we’ll integrate with that health insurance plan for your out-of-pocket costs.” That could work. But if an HRA is all the employer offers, then the employer has established a group health plan and that plan is noncompliant with the new market reforms.

Employer Payment Plans

Employer payment plans (EPPs) are similar to HRAs. However, while an HRA reimburses employees for medical expenses in general, an employer payment plan reimburses employees for all or part of their health insurance premiums. The authority for giving such arrangements preferential tax treatment is Rev. Rul. 61-146.

According to Rev. Rul. 61-146, an employer payment plan could work like this: the employee would go out and buy individual health insurance. Once doing this, the employee would, in some way, substantiate the amount of the insurance premium to their employer. The employer could then either (1) reimburse the employee for premiums the employee already paid, or (2) pay the insurance company the premiums directly. If the accounting for this is done correctly and the reimbursement amount doesn’t exceed the premium, then the reimbursement amount qualifies for preferential tax treatment.

So here, again, we run into the annual limits problem. For an EPP to qualify for this special tax treatment, the reimbursement amount cannot exceed the amount paid for a premium. So, by definition, EPPs must establish limits on what they pay out to plan participants. The ACA disallows any group health plan from having an annual limit, and thus EPPs are, by definition, noncompliant group health plans. In addition, EPPs are problematic because they cannot be integrated with any individual health insurance policy the employee purchases.

In short, there will never be an EPP that is ACA-compliant.

Health FSAs

A health FSA is a benefit where employees are reimbursed for medical care expenses. When the health FSA is offered through a § 125 cafeteria plan, the employee doesn’t recognize the reimbursement as income. These plans are often paired with a salary reduction agreement.

It’s important to note that the market reforms don’t apply to plans covering “excepted benefits.” Excepted benefits include stuff like accident-only coverage, disability income, certain dental and vision benefits, and certain long-term care benefits.

Notice 2013-54 clarified that if a health FSA is paired with a group health plan that complies with the new market reform rules, the health FSA will be considered to provide only excepted benefits. However, if an employer doesn’t structure its health plan in such a way that the FSA qualifies as excepted benefits, then the FSA is subject to the new market reform rules.

The notice finally concludes that, because by definition a health FSA considered to provide excepted benefits has been integrated with a compliant group health plan, health FSAs that don’t provide excepted benefits must necessarily be FSAs that are not integrated with a compliant group health plan. Therefore, these FSAs will fail to meet the new market reform rules because they fail to meet the no-cost-sharing-for-preventive-services requirement.

For example, a small business could purchase a single group health insurance policy for its employees and then say, “Hey employees, in addition to this primary health insurance benefit, we’re also going to offer you a health FSA for vision and dental.” That could work. But if a health FSA is all the employer offers, then the employer has established a group health plan and that plan is noncompliant with the new market reforms.

Bringing it All Together

In summary, if a small business claims that its reimbursement policy for its employees’ individual health care costs falls under one of the categories of plans described above, it still does get the tax benefit it always has. To emphasize, the tax laws didn’t change.

However, because each of these types of plans is considered a group health plan, the plans need to comply with the new market reform rules. And the nature of these plans means that by definition they violate the new market reform rules unless the plan can somehow be integrated with a primary group health plan that complies with the market reform rules.

If you’re wondering right now why these boring rules are even a big deal, here’s why: if the small business claims for tax reasons that its health insurance premium reimbursement policy is an EPP, the business is subject to the $100 per employee per day penalty for establishing a noncompliant plan under the market reform rules. And if the small business offers an HRA or a health FSA that isn’t formally integrated with an ACA-compliant group health plan, again, that $100 per employee per day penalty kicks in.

Take a moment to let that sink in. That’s a $36,500 per employee per year penalty for failure to follow the new rules. It would kill a small business to offer a noncompliant employee health insurance benefit.

OK then, a small business owner might say. But if I just don’t claim the tax benefit of an EPP, can I still reimburse my employees for their individual health insurance premiums?

The Department of Labor answered this question with a resounding “no” in an FAQ it published on the subject in November of 2014.  Regardless of whether the payment is pre-tax or post-tax, the DOL said a cash reimbursement arrangement is a noncompliant group health plan under the new market reform rules. The DOL’s logic is that renouncing the tax benefits of these plans still does nothing to address the fact that these reimbursement plans are group health plans that cannot be integrated with the individual plans that employees purchase.

The IRS confirmed the DOL’s interpretation of the rules when it published Notice 2015-17. The IRS clarified in this notice that the only way an employer can fix a noncompliant premium reimbursement plan is to completely abandon it.

What’s the Impact?

Losing the ability to set up HRAs and EPPs was a big deal for small businesses. These reimbursement programs were an easy way for small businesses to provide a good health benefit that accommodated a diverse group of employees.

Example: Steve’s friend Andy is a type I diabetic. When Andy was involved in a number of startups during the 90s, having control over his own health insurance was a huge deal. Various employers came and went during the dotcom bubble, but Andy never had to worry about gaps in his coverage or getting stuck with a small group health plan that provided inadequate coverage for his health care needs because these small startups often used EPPs to provide employee health insurance benefits.

Many small businesses have employees with diverse needs from their health insurance, and are in situations similar to Andy’s dotcom-era employers. Top talent may have special needs for their health insurance, and in order to stay competitive small firms need a way to offer good, flexible benefits. And not only did EPPs provide employees with control over their health insurance, they also relieved small business owners of the administrative burden of researching different small group plans. To continue with the example above, the typical small business owner was never going to do as good of a job at picking health insurance for Andy as Andy could, because it was only Andy who knew what it was like to have type I diabetes and wrangle with a health insurance company over the issue.

HRA and EPP plans also meant that small businesses didn’t need to worry about issues like minimum participation requirements when providing their employees an insurance benefit. Note that many small businesses have difficulty signing up for formal group health plans because it’s tricky to meet minimum participation requirements. For a very small business, failing to entice even just one employee into your plan often means you fail to meet the minimum participation rules.

So Why WA Healthplanfinder Business?

The SHOP exchanges, when actually available, provide a practical alternative to HRAs and EPPs for small businesses for two reasons: the flexibility of the “employee choice” program and the exemption from minimum participation requirements during open enrollment.

Employee choice is a SHOP exchange program that enables small businesses to contract with multiple insurers, and thus let employees choose between a variety of insurance companies and networks (within restrictions). Employers set up this group health plan through the SHOP exchange, and there are some basic rules for coverage that integrate the group health plan and prevent employers who use SHOP from discriminating in favor of highly-compensated employees.

And here’s the deal with those minimum participation requirements: a special rule says that businesses that apply for coverage through SHOP exchanges during the open enrollment period (November-December each year) don’t have to meet minimum participation thresholds.

Interestingly, when I asked Marchand why he thought SHOP exchanges across the country were having more difficulty gaining traction than the individual exchanges, he had this thought to share:

The most important piece of any product, if you’re trying to get people to buy it, is what problem is it solving for the people you’re trying to sell it to. I’m not sure in this state, given how association plans work, and how small businesses nationally find insurance for their employees, there is necessarily a problem that can be solved.

Hopefully I’m not getting too political, but here’s my response to that line of reasoning: I think there is a problem to be solved. The smallest businesses, those who have been left in the lurch by Notice 2013-54, have a problem that needs to be solved. The small tech startups, the small professional and creative service firms that have up until now relied on HRAs and EPPs as their only feasible option for delivering employee health insurance benefits, they have a problem that needs to be solved. Maybe Congress will eventually overcome its gridlock on the Affordable Care Act and come up with some solution for these smallest of businesses that doesn’t involve state exchanges. But until that happens, if ever, small business owners need a practical alternative to HRAs and EPPs. And the employee choice portion of the SHOP exchanges has the potential to be that alternative.

Final thoughts

With no SHOP exchange options in most counties and no ability to establish an HRA or EPP, the smallest businesses in Washington State are in a tight spot due to oversights in the Affordable Care Act. This is unfortunate; it would be a real boon to small businesses if we could get the employee choice portion of the exchange figured out.

It would also be nice for small business owners to have an automated, low-effort option for purchasing employee health insurance online other than Zenefits, given what we now know about some of the nonsense that’s been going on over there. And while there are other companies such as Gusto working to fill that niche, it’s worth noting that an efficiently-delivered traditional small group plan is still not the same thing as employee choice.

And just to make this final point: if your small business is a one-man-band sole proprietorship, single-member LLC, or S corporation, don’t worry too much about this issue. You can generally purchase a health plan for yourself through the individual exchange and take the self-employed health insurance deduction on the premiums. (For situations where this isn’t the case, consult a tax adviser).

The post WA Healthplanfinder Business Update for 2017 appeared first on Evergreen Small Business.

This is the time of year when small business owners often need to work with the Washington State SHOP Exchange. For this reason, I thought it’d make sense to share some tips for making the process easier and less taxing.

Tip #1: Use a different email address for each WA Healthplanfinder account

For account security reasons, WA Healthplanfinder’s system has been designed to require each account to use a different email address. It makes sense that the exchange does things this way, but it’s also something that could make working with the site difficult for small-business owners if they’re not already aware of it.

Here’s an example of how to use this tip in practice. If you, the business owner, are also an employee (which you should be if you’re an S corporation officer), then you should use a different email address for the business’s SHOP account and your account as an individual employee.

Another example: if an employee already has an individual account with WA Healthplanfinder, then the email address you provide for the employee on your roster should be different than the one the employee used to create his or her own individual account.

Tip #2: Never, ever, under any circumstances let your employees click “Use Your Existing Account”

Once you sign up for WA Healthplanfinder’s SHOP exchange, you’ll send an email out to your employees inviting them to sign up for coverage on your plan. The email your employees receive will include a link they can click that will bring them to the WA Healthplanfinder website so they can sign up for the plan.

The first screen your employees see will prompt them to provide some information confirming their identity. Next, they’ll be prompted to create an employee account with the Healthplanfinder.

Here’s the tricky part, though. If the employee already has an existing individual account with WA Healthplanfinder, the screen will ask the employee if he or she wants to create a new employee account or use the existing account to manage his or her employee health benefits. As of this writing, if an employee clicks the “Use Your Existing Account” button, the site won’t work. The employee will just be taken to an Oracle error page and can’t do anything else.

We know, your first question is probably, “If clicking that button breaks their site, why is it even there?” To which we say, those are the sorts of questions only God knows the answer to. And possibly some programmers at Deloitte. But we don’t have those guys’ phone numbers.

Tip #3: SHOP Customer Support often doesn’t know what they’re talking about

Don’t get me wrong; some of the people working at WA Healthplanfinder’s customer support have been fantastic. But in my experience, the level of expertise among the support staff has been a mixed bag.

For example, here’s an interesting little anecdote. When I, as an employee of the CPA firm, first tried to sign up for coverage through WA Healthplanfinder, I made the fatal mistake of clicking the “Use Your Existing Account” button. I then called their customer support to figure out what was wrong.

After going through two very confused support representatives, I was told that I needed to dis-enroll from my current individual health plan before I could sign up for my employer’s health plan. That made little sense to me at the time; there wasn’t any overlap between the enrollment dates for my old individual plan and my new employer-provided plan, so why should there be a problem? Later I found out that this advice I received from SHOP Customer Support wasn’t even correct. The real solution was to just create a second account for myself, as I described above in Tip #2.

Customer Support should have known this, but instead I had to learn about it from Mike Jackling, who seems to be one of the few people at the SHOP exchange who knows what he’s talking about. Mike is one of their business outreach representatives. (For what it’s worth, Mike’s a pretty cool guy, and he helped our firm out a lot as we tried to figure out how to work with the exchange.)

Tip #4: If you want WA Healthplanfinder to fix something about the website, attend a board meeting and make a stink about it

Here’s our short wish list of improvements we’d like to see:

• Fix the site so Tip #2 shouldn’t even have to exist.
• Make the welcome email to employees look more professionally designed (surely this wouldn’t be that difficult).
• Provide small-business owners with sample FLSA 18B disclosure statements and COBRA notices.

Our thought process on that last request might be worth fleshing out a little bit. First, some background. One of the many new rules the ACA put in place was that all employers had to provide certain disclosures to their employees. One required disclosure is that if an employer provides a group health insurance plan to employees, it has to notify its employees that they’re eligible to sign up for the plan.

There are also some new required disclosures under Section 18B of the Fair Labor Standards Act. The information in these disclosures is basically letting your employees know that the health insurance marketplace is a thing that exists, etc.

Finally, there have been rules for a while that say if an employer is subject to COBRA, it needs to notify employees about their eligibility to continue coverage in certain situations under the program. Helpfully, the Department of Labor has provided copies of example notices that comply with these rules here and  here.

Now this might not seem immediately relevant, but pension plans that small businesses offer, such as SIMPLE-IRAs, come with somewhat-similar disclosure requirements. For example, at our CPA firm, we have a SIMPLE-IRA we offer to our employees that’s managed through Vanguard.

Every year, Vanguard sends our firm the following items:

• A partially filled out Form 5305-SIMPLE
• Some professional, nicely designed instructions on how to move plan assets to the SIMPLE-IRA, which we can provide to our employees
• A cover letter written to us as the employer explaining what these documents are and what to do with them

It’s a simple thing to do, but it’s the sort of thing that provides immense value to small-business owners, who often struggle to find the time and money to stay on top of these sorts of important disclosures.

So here’s our point: The SHOP exchange exists, theoretically, to expand health insurance coverage to more people by making it easier and more convenient for small businesses to offer health insurance to their employees. And dealing with things such as FLSA 18B disclosures and COBRA notices is one of the reasons many small businesses shy away from offering employee health insurance coverage. Shouldn’t WA Healthplanfinder offer examples of boilerplate Affordable Care Act disclosures to their small-business clients, just like Vanguard does for client pension plans? Wouldn’t that make sense given the exchange’s mission? We think so.

Tip #5: Don’t give up on SHOP

Despite all the bad press that the exchanges have gotten, WA Healthplanfinder’s SHOP exchange is definitely usable. In fact, as long as you’re aware of our Tip #2, you shouldn’t have any problems using the exchange and getting coverage for your employees. Everything about the process of signing up (minus Tip #2, of course) is just about as easy and convenient for a small-business owner to DIY as it should be.

A big part of the reason we’re taking the time to make such a fuss over Tip #2 is because we’re excited about what the SHOP exchange could be for small-business owners once they’ve ironed out the last few kinks in the system.

Helpful Resources

Let me close by pointing out a couple of other helpful resources you possibly want to know about…

We’ve prepared an example health plan enrollment questionnaire for small-business owners in Washington state. Once a new employee has filled out this questionnaire and a Form W-4, you should have enough information to add the employee to your SHOP roster.

This past spring we published a monograph (downloadable as a PDF) for other CPA firms trying to help their clients deal with the Affordable Care Act’s complexity. If you’re a client of our CPA firm, we are happy to provide you with a complimentary copy of the monograph. Just call us.

If you aren’t a firm client but rather are a CPA, know that we’d be happy to sell you a copy of the monograph for $100. Roughly 60 pages in length, the monograph outlines everything you need to know to advise small-business clients on the elements of the Affordable Care Act they must know. The monograph also includes useful appendixes, which provide sample health plans, sample W-2s that show how an ACA-compliant W-2 should be prepared, sample client letters, and sample handouts you can use to help clients learn the new law. (Need more info? Click here.)

In summary, this relatively short whitepaper should save tax practitioners and their clients hours of learning time by describing the ACA issues that one needs to understand if one operates in the world of small business.

Purchase and DownloadView Cart

And remember that our ebooks are available for free to our tax return clients. If you would like any of our publications, just ask for your complimentary copy.

Money-Back Guarantee

As with all of our publications, the “Small Businesses and the Affordable Care Act” (Obamacare) monograph comes with a money-back guarantee, so if you purchase it then for whatever reason find it’s not what you need or what you expected, simply email us your refund request. We will happily issue you a refund, no questions and no hassles.

The post Inside Tips for WA Small-Business Owners Using the SHOP Exchange appeared first on Evergreen Small Business.

But you know what? With the Affordable Care Act now in full force, most businesses also need to spend time over the holiday season (and before year end) thinking about their employee health insurance programs.

Which explains (or at least sort of explains?) why we’re doing a blog post that connects the Breaking Bad television series and its principal character, Walter White, with the recent news that Healthcare.gov, the biggest Obamacare exchange, is going to offer fewer PPOs and more HMOs.

We want to explain why this maybe isn’t a bad thing, even if it seems like a bad thing…

An Extended Case for a PPO and Spoiler Alert

We briefly described the difference between HMOs, PPOs, and EPOs in our article on health insurance basics. But understanding this difference is really useful. Accordingly, I want to talk more about why PPOs seem attractive–and why they maybe don’t actually make as much sense economically.

And here’s how this all connects to Breaking Bad: The importance of the difference among these types of plans can be well illustrated with by the example of fictional TV character Walter White.

A misconception among people who didn’t pay careful attention to the series Breaking Bad was that Walter White was diagnosed with lung cancer when he didn’t have health insurance, and it was his lack of insurance coverage that meant (spoiler?) he had to start selling crystal meth to pay for his medical bills.

But Walt did have insurance. The issue was, in his own words, “I don’t have… great insurance.”

Why didn’t he have great insurance? Well, Walt had an HMO plan.

So he went to see a doctor in his network, who performed a series a tests. The doctor’s diagnosis was lung cancer. The prognosis? Best-case scenario: with chemo he lives a couple more years.

When Walt’s family finds out about his illness, they quickly determine that the network doctor isn’t good enough. Walt’s sister-in-law, Marie, knows who the best oncologist in town is, one Dr. Delcavoli.

Of course, the best oncologist in town isn’t in Walt’s network. Which is unfortunate. This top-tier doctor has a more optimistic opinion on Walt’s illness, but sadly that prognosis and the relevant treatment doesn’t come without a cost; the first visit alone is $5,000 out of pocket. His total out-of-pocket costs add up to $90,000.

This (among other reasons) is why Walt started making crystal meth. It wasn’t because he didn’t have health insurance. It was because once he and his family were staring death in the face, they decided that the HMO’s doctor wasn’t good enough. What they wished they’d had all along was a PPO that would have shouldered the cost of Dr. Delcavoli’s treatments.

The Case for Cutting Costs

Does a PPO provide you with better insurance? Well. that’s the big question. And Walter White answered in one way.

But here’s the rebuttal you’ll often hear from the pro-cost-cutting crowd: Most of this extra spending we do on health care in the U.S. isn’t buying us much.

In this interview with the PBS Newshour, for example, Harvard economist David Cutler explained a lot about why our country’s health care costs so much, and he did so in pretty good detail. There are many different reasons, but here he sums up the big idea we’re concerned with in our discussion:

[T]here’s a lot of gray area where it’s not clear if you need the open heart surgery or not, and in the U.S., people will get it and in Canada, they don’t. The interesting thing about it is that life expectancy or one-year mortality after a heart attack is the same in the two countries.

Cutler goes on in the article to discuss different things that Massachusetts has been trying to reduce “wasteful” health-care spending. This includes higher co-pays when patients go to more expensive health-care providers for routine procedures and higher out-of-pocket costs for patients who want procedures that aren’t clearly medically necessary.

You can see that this cost sharing makes cancer treatments for people such as Walter White more expensive. Experimental medicine? You’ll need to pay more for that. Choosing the most expensive doctor in town when it’s not clearly necessary? You’ll need to pay more for that.

This is the sort of thing that doesn’t make the Marie Schraders of the world very happy. But as Walt himself said when she suggested a supposedly better (though out-of-network) oncologist, his treatment would likely be “expensive, unpleasant, and ineffective.” And he was right.

And one final relevant comment. In the series, Walter lived several seasons. But the real reason Walt lived so long under Dr. Delcavoli’s treatment wasn’t because that’s how it usually happens in real life; it’s because Breaking Bad was a successful TV show that needed a decent number of episodes.

More Detailed Information Is Available

This past spring we published a monograph (downloadable as a PDF) for other CPA firms trying to help their clients deal with the Affordable Care Act’s complexity. If you’re a client of our CPA firm, we are happy to provide you with a complimentary copy of the monograph. Just call us.

If you aren’t a firm client but rather are a CPA, know that we’d be happy to sell you a copy of the monograph for $100. Roughly 60 pages in length, the monograph outlines everything you need to know to advise small-business clients on the elements of the Affordable Care Act they must know. The monograph also includes useful appendixes, which provide sample health plans, sample W-2s that show how an ACA-compliant W-2 should be prepared, sample client letters, and sample handouts you can use to help clients learn the new law. (Need more info? Click here.)

In summary, this relatively short whitepaper should save tax practitioners and their clients hours of learning time by describing the ACA issues that one needs to understand if one operates in the world of small business.

View Cart

Money-Back Guarantee

As with all of our publications, the “Small Businesses and the Affordable Care Act” (Obamacare) monograph comes with a money-back guarantee, so if you purchase it then for whatever reason find it’s not what you need or what you expected, simply email us your refund request. We will happily issue you a refund, no questions and no hassles.

The post Walter White Wished He’d Had a PPO appeared first on Evergreen Small Business.

Okay, so the New Year is right around the corner and that means, among other things, that now is the time to make health insurance decisions for the coming year. With that in mind, I thought I’d review the stuff you want to know about buying health insurance in Washington State.

First Thing to Know: You Can Probably Buy Health Insurance Yourself

Assuming that you’re an educated, rational consumer (which, apparently many people aren’t), you can buy health insurance yourself on Washington Healthplanfinder. If you’re uncomfortable doing this yourself then brokers and navigators are an option, but really, it’s not necessary. The computer skills required to sign up are similar to those required for making a purchase at Amazon.com (i.e., no real computer skills required whatsoever).

However, you want to be sure to do some research on the product itself before you buy. Accordingly, if you’re an individual purchasing health insurance for yourself or your family, this article will walk you through what you need to know. And if you’re a small business owner thinking about covering your employees, I’ve included links to some helpful resources on this stuff at the bottom of the page.

Understand the Product

You want to understand some basics about the health insurance product you’re shopping for and will ultimately purchase. Accordingly, let me define the basic vocabulary you need to know, explain the “metal levels,” and then outline the various plan options you will choose from.

The Basic Vocabulary

Here are the basic terms you need to know:

Premium – This is the bill you pay every month to remain covered under the insurance plan.

Out-of-pocket costs – This is the amount you have to pay out of pocket on medical expenses covered by your insurance plan, including copays, deductibles, and coinsurance.

• Copay – A flat fee you pay for medical services or products. This amount is generally charged when you receive the service.
• Deductible – The initial portion of your medical expenses not covered by a copay and not paid for by your insurance.
• Coinsurance – The portion of your costs that you pay once you’ve reached your deductible amount. For example, if a policy has 20% coinsurance and a $2,000 deductible, then once you’ve paid $2,000 of medical costs yourself you only have to pay 20% of your medical costs. In any given policy period (usually a year), you pay coinsurance up until the point your out-of-pocket costs have reached your out-of-pocket maximum.

Metal Levels

“Metal levels” are a new classification introduced by ACA. A particular plan’s metal level describes how much on average the health plan pays vs. what you the consumer pay out of pocket. Note that “on average” means that the amount you pay out of pocket might be a little more or less when all is said and done, depending on what medical expenses you incur during the year.

Predictably, lower metal levels have cheaper insurance premiums due to those higher out-of-pocket costs.

I should note also that there’s a fifth category, “catastrophic coverage.” This isn’t really a “metal,” but it’s a special category of coverage where the plan pays less than 60% of total average cost of care. Most people don’t qualify for catastrophic coverage; you’re only eligible for a catastrophic coverage plan if you’re under 30 or you qualify with a hardship exemption.

HMO, PPO, & EPO Plans

You should know the difference between HMO, PPO, & EPO plans. PPOs are more expensive than HMOs and EPOs, so before you buy you’ll want to understand what you’re paying for.

HMO stands for “health maintenance organization.” These plans make you pick a primary care physician, and then route all of your health care through that doctor. You only get to see another provider if either (a) your primary care physician refers you to one or (b) it’s a medical emergency. These plans tend to be cheaper, but the consumer loses a fair amount of flexibility and control in return for the cost savings.

PPO stands for “preferred provider organization.” These plans are more expensive than either HMOs or EPOs, but they give you the consumer more control and flexibility. You can go directly to a specialist if you like, and you can generally see health care professionals both inside and outside of your network (though staying in-network is generally cheaper because it reduces your copays and other out-of-pocket costs).

EPO stands for “exclusive provider organization.” These plans are a bit of a middle ground between HMOs and PPOs when it comes to cost vs. flexibility and consumer control. You can go directly to the specialist if you want, but you have to stay in network unless it’s a medical emergency.

You can see, then, how a consumer might choose between these different types of plans. If the idea of having to go through a primary care physician doesn’t bother you and you appreciate cost savings, then go with an HMO. If you dislike the idea of not getting to go directly to your preferred specialist whenever you want and you believe that flexibility is worth the extra cost, then go with a PPO. Or go with an EPO if you want something in between the two extremes.

How to Keep Your Doctor

If you already have a doctor you like, you’ll probably want to make sure that doctor is in your future health plan’s network. Washington Healthplanfinder makes it pretty easy to see which plans have your current doctor in their network. When shopping on the individual exchange, you’ll see in the upper left corner of the screen a section where you can enter your doctor’s information. Then just filter for plans that include your doctor in their network.

Understand Your Rights as a Consumer

The Affordable Care Act codified a variety of consumer rights, which you’ll want to know about as you’re looking at health insurance.

Here are some things your health insurance company can’t do, for example:

• Your insurance company can’t set an annual or lifetime limit for your coverage
• You generally can’t be discriminated against for having a preexisting condition
• You can’t be charged any out of pocket costs for medically necessary preventive health services (e.g. vaccines, routine screenings for common diseases)
• In 2015, you can’t be charged more than $6,600 in out of pocket costs if you’re on an individual plan or $13,200 if you’re on a family plan (amounts adjust each year for inflation).

In addition, your basic health insurance plan needs to cover 10 “essential health benefits.”

Understand Your Options for Financial Assistance

Consumers should know that the Affordable Care Act provides some significant financial assistance.

Premium Tax Credit

If your income is below a certain amount, you might qualify for a federal tax credit that offsets the cost of your health insurance premiums. You can apply for this subsidy as part of the process of purchasing health insurance through Washington Healthplanfinder. You can choose to either have the credit applied as a reduction to your monthly payments, or you can figure the credit all at once when you file your federal tax return.

Note: If your income ends up being higher than you forecast, you end up paying back some or all of the premium tax credit when you file your tax return.

Cost Sharing Reductions

If you purchase a silver plan through Washington Healthplanfinder, then you might qualify for cost sharing reductions based on your income. This will reduce your deductibles, copays, and coinsurance.

Washington Apple Health

If your income is below a certain amount, you might qualify for Washington Apple Health, our state’s Medicaid program. This health insurance is free. To see if you qualify, you apply through Washington Healthplanfinder (the same way you apply for a premium tax credit).

Understand the Tax Benefits of HSAs and HDHPs

Health savings accounts (HSAs) paired with high-deductible health plans (HDHPs) provide some very compelling tax benefits. And you’ll want to understand the potential benefits of an “HSA-pairable” plan before making a purchase on Washington Healthplanfinder.

Here’s the bottom line: HSA contributions reduce your adjusted gross income (AGI). This is true whether you make the contribution (the contribution is reported as an adjustment to income on your tax return) or your employer does (the contribution amount isn’t included in Box 1 of your W-2).

Several big tax benefits stem from this tax treatment.  The first, most obvious, benefit of this is that when you pay for out-of-pocket medical costs through an HSA, the money spent is pre-tax. So for example, if you earn $40,000 in a year and make $2,000 of HSA contributions, you pay income tax as if you made $38,000 that year. If your employer pays you with $38,000 of wages and $2,000 of HSA contributions, it’s a similar effect.

However, you should know that there are some other more subtle benefits of using an HSA. A second benefit is this: the premium tax credit described above is based on AGI. Therefore, if you’re a taxpayer whose income is in the range to qualify for the premium tax credit, an HSA contribution might not only lower your income tax bill, but also increase the federal subsidies you receive to pay for the plan premiums.

And now a third subtle benefit: You can pay for medical costs out of an HSA even if the plan it’s linked to doesn’t cover the costs. The only rule is that the expense has to be considered a medically necessary expense under federal tax law [specifically, IRC § 213(d)]. So for example, if you purchase a basic health plan that you pair with an HSA, but don’t purchase dental or vision coverage, you can still pay for dental and vision costs through your HSA and that money is pre-tax.

For Small Businesses: Make Sure You Understand the Law

If you own a small business, establishing a health insurance plan is a bit more complicated than it is for individuals to buy coverage.

The reason for this isn’t that it’s particularly difficult to use Washington Healthplanfinder’s SHOP exchange (though you’ll want to be aware of some “quirks” of the system before you try using it). Rather, it’s because before you purchase anything you’ll surely want to consult with quality professionals to make sure your plan is even legal.

For example, if your small business establishes a health plan for employees, then the plan needs to comply with the new market reforms in the ACA. Failure to follow the rules can result in a $100 penalty per employee per day. Yes, that’s $36,500 for each employee per year. It could destroy your business to mess this up.

These issues are too much to get into for one article, but you can see our e-book on these issues for more details, or contact us to schedule an appointment if you have more questions.

The post What to Know About Buying Health Insurance in WA appeared first on Evergreen Small Business.