As enforcement of the Affordable Care Act ramps up, many small business owners are looking for the most cost-effective solutions. Let's face it, providing health care insurance can be expensive. But the alternative can be even more costly. How can you best control escalating health insurance expenses?
What if you were to drop your insurance and agree to pay your employees an extra amount equal to what you paid for the insurance
- Remember, if you have fewer than 50 full-time employees, your company is not required to offer health insurance—but your employees are required to have coverage or pay a penalty.
- If they buy insurance though the ACA exchanges, they could get government subsidies to help them with the cost. So low-income to moderate-income employees may be able to get better coverage for less. If they buy through private exchanges, you can contribute a fixed sum to their premiums and allow them to choose from a menu of different plans.
- You'll experience tax consequences. What you pay for your group plan is tax-deductible, and employees’ contributions to their health premiums are made pretax as well. That lowers your total cost of compensation as well as the total amount you pay in payroll taxes for each employee. You’ll lose both those advantages if you drop your group plan. Plus, federal and state taxes will be deducted from the additional money you give employees to buy their own coverage.
On the plus side, you won't have to pay premiums, so you could potentially give workers raises, invest in equipment or add to profits instead. On the negative side, you may damage employee morale and retention. Will your employees stay with you if you cut their coverage and offered a stipend instead? Telling them to go out and find their own coverage, even if you’re subsidizing, may not go over well.
Before you consider all options and make a decision, your first step should be to find out whether your state offers a small-group insurance option through the Small Employer Health Options Program (SHOP) marketplace. SHOP will help you get lower costs on group plans and claim tax credits.
With so much to think about, do you feel confident in your ability to make the best decision for your company? If not, call the team at Complete Payroll Processing.