Employers who reimburse their workers for health care costs will face massive tax penalties beginning Wednesday.
Prior to the passage of the Affordable Care Act, with its mandate that all Americans purchase insurance and requirement for businesses to offer employees insurance plans, many small companies provided coverage by directly reimbursing medical costs or for the cost of private insurance plans. Businesses do it because thatโs a less complicated process than dealing with an official health insurance plan, but continuing to do so after July 1 could cost them hundreds of dollars in fines each day.
Business groups are calling attention to what they say is an obscure part of Obamacare that could crush small businesses who are unaware of it.
โItโs the biggest penalty that no one is talking about,โ said Kevin Kuhlman, policy director for the National Federation of Independent Businesses, on Tuesday.
The penalties will only affect businesses with less than 50 employees. Those with more than 50 employees are already required to offer a health insurance plan.
The new rule is the result of an Internal Revenue Service interpretation of part of the ACA. It seems intended to force employers to offer a group health insurance plan (or leave their employees to fend for themselves on the health insurance exchanges).
The IRS says those reimbursements โย technically known as โemployer payment plansโย โ are โconsidered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.โ
The end result?
โSuch an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code,โ according to the taxmen.
Business groups say the punishment doesnโt fit the crime.
