To provide health insurance or not to provide health insurance?
That is the first question employers with 50 or fewer workers must answer as they consider the ramifications of Vermont’s health care exchange program.
And the deadline is Monday, Nov. 25.
Small companies are required by law to buy insurance through Vermont Health Connect, the state’s insurance marketplace in 2014, or let their employees buy coverage on the exchange as individuals.
Many small employers are worried that if they cut health care benefits for employees they will lose talented workers. Other companies will eliminate employee health insurance plans in order to save money and enable workers to obtain subsidies.
The exchange was designed to allow employers the option of providing a set contribution toward their employee’s insurance, allowing workers to use those funds toward a range of plans. Due to technical delays and glitches hampering the exchange, employers now have a more imminent decision to make.
By Nov. 25, employers must decide whether they want to drop coverage, extend their current coverage for three months, buy plans directly from an insurer or choose a plan through Vermont Health Connect, which still isn’t working properly. If employers make no decision, insurers will automatically sign employers up for the plan that most closely resembles their current plan.
Part of that decision must take into account whether employees are better off with a pre-tax contribution by the employer or the subsidy that employees might be eligible for if they go into the exchange on their own.
Employers are eligible for a tax write-off for the amount they contribute to an employee’s health insurance premium. Any part of the premium that an employee pays is withheld from his or her income “pre-tax,” meaning the worker also gets a tax break.
Under the new law, 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 as well. 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.
The employee can accept a premium contribution from the employer or receive a subsidy from the federal government, but not both.
If a company offers family coverage for employees without making 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 by offering a “self-only” plan.
For more on subsidies, click here.
Options for buying health insurance
Small businesses have four options for insuring employees.
1. They can keep their current health insurance plans until March 31, which is the end of the federal open enrollment period for new plans, provided they notify the insurer by Nov. 25.
2. They can miss the Nov. 25 deadline and let insurers choose a plan that most closely resembles their current coverage.
3. They can buy coverage for their employees directly from one of two insurers — Blue Cross Blue Shield of Vermont or MVP Health Care — by Nov. 25.
4. They, and their employees, can purchase insurance through Vermont Health Exchange.
In scenarios #1 and #2, employees must take the plan their company offers.
Purchasing insurance through the exchange, scenario #4, could offer employees the most flexibility. Employers can allow workers to choose from any of the 18 plans available through either MVP or BlueCross BlueShield of Vermont. Employers can also choose to only offer plans through one insurer.
The problem is, at the moment, Vermont Health Connect is not yet working properly.
If companies opt for (scenario #3), their employees have some flexibility in what plan they can choose among those offered by a particular insurer. A Vermont Health Connect spokesperson said the number of options offered is up to the insurer.
At MVP, businesses can allow an employer to select from all nine of the insurer’s exchange-compatible plans, according to Bill Little, vice president of MVP Health Care.
At Blue Cross Blue Shield of Vermont, an employer with more than five workers could offer employees a maximum of two plans to choose from, according to Kevin Goddard, vice president of BCBSVT. Goddard said employers with more than 25 employees could offer up to three plans.
For plans that are extended to March 31, scenario #1, deductibles and out-of-pocket limits will reset on 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 an individual reaches the $1,000 deductible on a Blue Cross plan by April 1, that payment toward the deductible will only carry forward if he or she buys a new Blue Cross plan. That person’s deductible would be reset to zero if he or she decided to switch from Blue Cross to MVP, or vice-versa.
Employers that extend coverage through March must enroll in Vermont Health Connect by Feb. 1, and employees must choose plans by Feb. 28 for new policies to take effect April 1.
Self Insurance
Some Vermont companies are avoiding Vermont Health Connect altogether and instead are exploring the option of self-insuring. Large Vermont institutions such as state government and Fletcher Allen Health Care, have traditionally self-insured their employees. Now, smaller businesses are considering this option. Vermont Public Radio and computer manufacturer Logic Supply have both been eyeing this path.
For more information, go to the Department of Labor.
Sole Proprietors
Sole proprietors, that is individuals who run businesses that are not corporations, cannot buy insurance directly from insurers under the Affordable Care Act. They must buy coverage through Vermont Health Connect. Previously, sole proprietors could purchase insurance as businesses.
What is affordable?
Claire Benedict, who owns Bear Pond and Rivendell bookstores in Montpelier, has decided to eliminate the company’s insurance benefit program in order to save money and make employees eligible for subsidies.
Benedict, however, must pay penalties for dropping insurance coverage for her employees.
Employers that have more than four full-time equivalent employees (who work at least 30 hours per week) and do not offer health insurance coverage must pay a $480 annual penalty per worker.
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.
When employers are not on the hook
If an employer offers a health insurance contribution to an employee, and that employee gets insurance on his or her own through a spouse or some other means, the employer cannot be charged an assessment for not covering that employee.
If an employer offers an affordable contribution — as defined above — and the employee turns it down, the employer would not have to pay an assessment for that employee. At the same time, the employee would not be eligible for subsidies.
Employer subsidies
Businesses with fewer than 25 employees that pay employees on average less than $50,000 annually are eligible for a tax credit, but only if they pay at least 50 percent of their employees’ health insurance premium.
In 2014, companies can get a tax credit of up to 50 percent of premium costs; nonprofits qualify for a tax credit of up to 35 percent of premium costs.
For more on this subsidy program and to use the state’s small business tax calculator, click here.
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.
