Agribusinesses Have Health Benefit Options That Avoid Penalties

We hear a lot of commentary in the news about the Affordable Care Act’s individual mandate, employer penalties, and the frequent tweaks to the law as we all adjust to the changes. However, in agribusiness, I am most concerned about penalties on medical expense reimbursements and employer payment plans.

Employers now face penalties of $100 per day per employee for offering medical expense reimbursements or payment of non-group health insurance premiums. Limited relief was granted earlier in the year for small employers, but expired on June 30, 2015.

What types of health benefits are compliant?

Though the IRS has offered tax relief for small employers, the restrictions and exceptions on employer provided reimbursement plans are confusing. Questions about which types of health benefits are compliant still stump business owners and advisors alike. There are many rules and many exceptions.

I continue to receive emails every day with questions about these regulations. I’ve noticed that it is easier to apply your personal situation to the rules than it is to completely understand how every rule applies to your business. Some common situations may help clarify these rules.

Option one: group health insurance

Brown Cow Farms, Inc., offers group health insurance to all full-time employees. Brown Cow Farms withholds a portion of the employee’s check for a share of the premium and pays the rest as an employee benefit.

Group health insurance plans generally comply with market reforms, and are a safe bet for avoiding penalties. Employers may even offer out-of-pocket medical expense reimbursement which can be integrated with these plans.

Option two: employer payment plans

Little Farm, Inc., has only a few employees and decides to forgo the cost of group insurance. Instead, they let each employee go pick their own insurance plan and submit their premium bill to the farm for payment.

This may appear to be less expensive than a group health plan, and the employee may be happy to pick their own plan, but Little Farm is subject to a steep $100 per employee per day penalty. Employer payment plans like this generally violate market reforms.

Option three: one-employee exception

Itty Bitty Farm, LLC, has only one full time employee, Hank, and several harvest workers. The owners determine that offering a group plan is a hassle for just one participant. Hank finds a great individual plan and asks Itty Bitty if they would reimburse his premiums.

Fortunately, there is an exception for situations where only one employee is receiving the benefits, and Itty Bitty Farm is therefore not subject to the penalty.

Option four: S corporation shareholders

Sue and Dave are the sole owners and employees of Family Farms, Inc., an S corporation. They were told by their accountant many years ago to have Family Farms pay for their family medical insurance and to include the cost of coverage in their W-2 Box 1 wages, and on their individual tax return as a self-employed health insurance deduction. Their coverage is not an employer sponsored group policy, and they are concerned that they can no longer have the company pay it for them under the new health reform law.

The IRS offered additional relief to S corporation shareholders, who can continue paying individual premiums through December 31, 2015. Inconsistencies with health reform regulations and IRS laws for self-employed health insurance deductions of S corporation shareholders warranted additional time to sort out appropriate treatment. We expect further guidance from the IRS in 2016.

How we can help

CLA can help alleviate some of your concerns about your health offering. After more than a year of transitional relief, extensions, and clarifications, people are still uncertain about how to comply with the Affordable Care Act. We can help you fully understand your health benefit situation, so you can avoid steep penalties and stay informed about health reform requirements.