All Vermont businesses with 50 or fewer employees face the same question: To offer insurance through the Vermont health exchange, or to eliminate insurance benefits for workers and allow them to go on the exchange as individuals.
The decision small employers make about whether to continue to offer a health insurance benefit for workers has a direct financial impact on employees.
It’s an either/or situation: Subsidies are not available to Vermont employees who receive insurance contributions from their employers.
Employees of businesses that offer insurance
Employees who work for businesses that buy insurance on the exchange might see higher premium prices and out-of-pocket costs, but they will still be able to purchase health care coverage pre-tax — that is, out of their gross income — and receive a contribution toward the overall cost from their employer.
If a business selects a plan through Vermont Health Connect by the end of November, workers can choose one of 18 plans offered by BCBSVT and MVP, though the Vermont Health Connect system is still not working properly, and there is not yet a mechanism for payment.
If a business buys coverage directly through an insurer by Nov. 25, employees will have limited flexibility in which exchange plans they can choose from either BCBS or MVP.
If employers miss the Nov. 25 deadline, insurers will choose a plan for the business that most closely resembles the company’s current coverage.
Businesses can also keep their current health insurance plans through March 31 if they notify their current insurer by Nov. 25 that they want an extension in coverage.
For plans that are extended to March 31, deductibles and out-of-pocket limits will reset Jan. 1. The amount consumers spend toward those deductibles and out-of-pocket limits can only be applied to another plan offered by the same insurer.
If a worker reaches his or her $1,000 deductible on a Blue Cross plan by April 1, the payment toward the deductible will only carry forward on a new Blue Cross plan. That person’s deductible would be reset if he or she decided to switch from Blue Cross to MVP, or vice-versa.
Employers extending coverage must choose plans by Feb. 1 and employees must choose plans by Feb. 28 for new policies to take effect April 1.
Workers as individuals on the exchange
Workers who do not receive insurance through their employer and qualify for government subsidies could see their insurance costs go down.
But these individuals will face the prospect of paying for insurance premiums on their own for the first time. That’s because their employer will no longer pay for insurance directly out of their paychecks.
Even with government subsidies, the cost of medical coverage could be burdensome for some families and individuals who previously relied on employers to pay their insurance bills.
The tax implications are also notable. Any part of the premium that an employee pays through a company plan is withheld from his or her income “pre-tax,” meaning the worker also gets a break on income taxes.
Still, depending on the size of an employer’s contribution, it can be more advantageous for employees to draw down state and federal subsidies and buy insurance on the exchange independently.
Vermont households earning up to 400 percent of the federal poverty level are eligible for federal premium assistance and some are eligible for subsidies to reduce out-of-pocket costs.
The premium subsidies are available to individuals earning up to $45,960 annually and for a family of four earning up to $94,200. There are additional state premium subsidies available for Vermonters earning up to 300 percent of the federal poverty level.
If a company offers family coverage for employees without a contribution toward premiums for the whole family, the adult members of that family would be prohibited from receiving premium subsidies. The employer can avoid this situation if the company offers a “self-only” plan.
If an employer offers a contribution to an employee, and that employee’s annual premium for a single plan is more than 9.5 percent of his or her household income, then the employer’s contribution is deemed unaffordable. In that case, an employer would be liable for the state assessment and the employee would go onto the exchange and draw down subsidies.
Only lower income households can fall into the unaffordability bracket. A single employee earning $18,730 a year, would need an annual employer contribution of at least $2,320 to make the annual premium affordable. With state and federal subsidies, this Vermonter would be required to pay 3.1 percent of his or her income on premiums annually. This amounts to an annual premium of about $580 for the second lowest cost silver plan and savings of about $4,400 for a plan valued at $4,950.
“If you are a business owner, and you plan on offering insurance, unless you offer a significant premium contribution, your lower income employees would be better off if you let them on the exchange and access the federal subsidies,” said Peter Sterling, director of the Vermont Campaign for Health Care Security.
A couple earning $80,000 a year would not trigger an unaffordable contribution from an employer because 9.5 percent, or $7,600, of their annual income is more than the annual premium of even the most expensive individual plan on the market. At 516 percent of the federal poverty level, this household would not qualify for subsidies, either.
Penalties and tax Implications
There are a range of penalties and tax implications that employees should be aware of. For more on this issue, read this section of the VTDigger guide.
Health Savings Accounts and other tax-exempt accounts
Regardless of whether employers offer a health insurance contribution, they can contribute to an employee health savings account, or HSA. An HSA allows employees and their families to use pre-tax dollars to pay for out-of-pocket expenses, but not premiums.
Companies can contribute to an employee’s HSA and an employee can still access subsidies if an employer doesn’t offer coverage. This was verified by the U.S. Treasury, but the administration warns that this policy may be subject to change.
An HSA can be used in conjunction with five of the 18 plans offered on the market, specifically with high deductible health plans offered at the two lowest benefit levels by Blue Cross Blue Shield of Vermont and MVP Health Care. HSAs can also be used with a Blue Cross plan that has the highest medical deductible on the market.
In 2014, the most an employer can contribute to an individual’s HSA is $3,300. The maximum contribution is $6,550 for a family.
Employers that offer health insurance contributions can contribute to employees’ medical expenses with pre-tax dollars via Flexible Spending Accounts and Health Reimbursement Accounts. For more on these arrangements, click here.