Did the Republicans really win the health care reform battle?

A strong case can be made that the Republicans have already essentially accomplished much their agenda with regard to health care reform. If we look at what is really happening on ‘Main Street’ and not in DC and ignoring how the law is supposed to work we see:

  • No enforcement against businesses for ACA requirements
  • Growing number of tax professionals who do not comply with ACA requirements for self-reporting of penalties
  • The president’s order to government agencies to minimize the impact of ACA
  • A government option remains as a safety net
  • Growing number of non-compliant health insurance choices in the interstate health insurance market
  • Health plan sponsors may modify coverage based on religious grounds
  • Taxpayers may ‘forum shop’ on health care law and choice of insurance options based on their own unrestricted choice of residence
  • IRS admission that it does not have legal authority to collect ACA penalties other than to withhold future refunds
  • IRS announcement that it won’t fail to process or withhold refunds from taxpayers who refuse to comply with ACA self-reporting.

The end result, I argue, is that we have a voluntary safety net program that can be utilized but that nobody is forced to use.

Almost every day I receive calls from individuals and business owners telling me their problems with ACA. In response, I list a range of options that are available to them. They don’t always like the options I present; that’s not something I can control.

I typically discuss risk management, asset protection, choice of residence (insurance law issues), and tax planning. The response is something like “all I really want is cheap insurance that covers everything”. Sorry about that. But don’t say that ACA is the only problem in your way.

No law – Democratic or Republican – can make health care options palatable to reasonable Americans. None of this discussion or the news this week addresses the core issue that health care is too expensive and increasing at an unsustainable pace. None of this addresses the tough but inevitable questions surrounding rationing of health care.

My point is simply that freedom of choice is a core Republican principle. That’s where we are today, regardless of what the law says.

 

Winners and losers under Trumpcare

Who gains and who loses under the “World’s Greatest Healthcare Plan of 2017“? This is my checklist so far:

Winners

  • Upper income people under age 50 who will benefit more from the new tax credit
  • Healthy people who do not believe that they should be required to buy insurance because the high premium cost pays for care of the unhealthy
  • Males who believe that they should not be required to pay for medical expenses unique to women.
  • Large employers who do not want to provide employee health benefits.

Losers

  • Lower and middle-income people over age 50 who will pay much more for insurance
  • Low income people who will lose Medicaid expansion coverage
  • Modest income people, often in rural areas, making 3 times the federal poverty level
  • Individuals under treatment for mental conditions or other essential benefits required in current health plans but likely to be reduced or eliminated in future health plans
  • Employees of companies that cancel their group health coverage without any penalty
  • Women under treatment for a range of female medical issues
  • Individuals who use the free annual check-up preventative care benefits included in Obamacare

I’ve followed health care reform proposals and legislation through all of its iterations for more than 30 years. Yet I’m really struggling with this proposal. Someone is going to have to explain to me what make it the world’s greatest healthcare plan. I simply don’t see that it helps many people. It hurts far more. Wall Street Journal expands on the analysis of impact of the proposal.

Small business HRA setup and support services

I offer three levels of service for self-directed small business Health Reimbursement Arrangements. This applies to either of the two types of HRAs available to small firms in 2017.

BASIC SETUP: For a basic fee of $150:

  • Design of an HRA plan through an in-person interview
  • answer questions by the employer and accountant
  • Recommended sample documents for limited use

ADVISORY: For an additional fee of $150:

  • Basic services plus answers to benefits questions by the employer, employees, and spouses throughout the plan year

CLAIMS ADMINISTRATION: For an additional fee of $8 per employee per month:

  • Basic and Advisory services plus claims administration and preparation of summary report to the payroll administrator

Setup can usually be complete about a day after the design interview by telephone. Payment is expected in advance and scheduling is based on the order of payment.

Need more information? Please let me know how to reach you for a free consultation. I serve clients across the country by phone or Skype or can meet in person in the Philadelphia region. Your contact information is not shared with anyone.

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HRA or HSA

revised from original publication in 2003.

Which health plan is right for my small business?

Two types of consumer-driven health plans now compete for the attention of small businesses and self-employed individuals: Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Each type of health plan has the potential to reduce overall health care costs and improve the level of satisfaction with health benefits. Yet the health plan needs of self-employed people and small businesses vary widely. Understanding the basic features of each of these types of new health plans will enable each business operator to pick a plan that will provide the best benefits.

The phrase “consumer driven” means that medical care spending decisions for routine health care are made at the individual employee/consumer level rather than as business purchase decisions. The financial effects of those day-to-day health care purchase decisions – whether positive or negative – are felt by the individual employee rather than the business or health maintenance organization. The net effect of converting to a consumer-driven health plan is that costs are lower and employee satisfaction is higher.

This article was revised since its original publication to omit discussion of several other types of health plans available to small businesses and self-employed individuals. These are:

1) Fully insured health plans – Traditional health plans have low deductibles and no financial incentive for consumers to conserve spending. These are fading in popularity due to high cost and intolerance with health insurance company claims handling procedures.

2) HMOs – managed care plans standardize many medical care decisions at the organizational level and are based on exactly the opposite design theory of consumer-driven health plans. HMOs are to socialism what consumer-driven health plans are to capitalism.

3) Section 125 Flexible Spending Account (FSA) Plans – these are typically used to provide a variety of employee benefits beyond health plans. While these plans can be very effective and popular in a business, the advantages are not primarily in the area of providing pure health benefits. With the introduction of HRAs and HSAs, FSAs are now outdated in terms of providing health benefits for most Americans because they are the only health plan with the unpopular “use it or lose it” feature.

4)Medical Savings Accounts (MSAs) have been available to small businesses since 1996 but few have taken advantage of them. The primary reason was the difficulty in finding MSA-qualified health insurance. Less than 100,000 small businesses use MSA plans today. MSAs will no longer be started after December 31, 2003 and eventually those existing plans will convert to another type of more attractive plan.

Health Reimbursement Arrangements (HRAs) were introduced in 2002 and have become the plan of choice for small and mid-sized firms for providing health benefits to employees. There are many strong advantages to these plans detailed in other recent articles. Many of these plans utilize a business bank account debit card that is held by the individual employees to pay for routine health care expenses; hence the name “Health Reimbursement Accounts” has become more popular among promoters of these plans. For more information online, see www.FreedomBenefits.org.

Health Savings Accounts (HSAs) started in 2004. These plans will essentially take over the market for healthy self-employed individuals, small businesses and healthy individuals who buy their own health insurance. HSAs are far superior to MSAs, and most MSA owners will want to convert as soon as HSAs become available. For more information online see www.HealthSavingsAccount-hsa.com.

The attractive features that all three of these health plans have in common include:

1) Use low cost health insurance plans with high deductibles

2) Allow a carry-over of unused funds from year-to-year by the employee

3) Financially reward employees for making conservative spending decisions

4) Make available 100% coverage tax-free health benefits

5) Allow liberal preventative care, alternate care, vision and dental care benefits

6) Bypass and eliminate insurance for most routine health care

7) Allow tax-deductible deposits and tax-free withdrawals.


 

HRA Primary Advantages

 

Cost is most easily controlled by the business

Unlimited maximum benefits

High level of employee satisfaction

Available to individuals and any business

Allows lower insurance policy deductibles than HSAs

Higher tax-deductible contribution limits than HSAs

May be used for long term care insurance

HRA Primary Disadvantages

Severe restrictions on health insurance allowed under ACA

 

Funded only by the employer

Voluntary employee contributions are not allowed

Restricted benefits for owners of S corps., partners or sole proprietors

Independent claim verification required

Higher administrative cost for very small companies

May be difficult to merge with firms that offer only traditional health plans or HMOs


HSA Best-Suited Use

Self-employed individual

Employees of small or mid-sized business

Anyone enrolled in the HSA qualified high deductible insurance


Total Annual Administrative Cost

HRAs cost about $75 per employee after initial setup.

HSAs cost about $10 per employee after initial setup.


When designing benefits for a small business, it is not necessary to choose one of these health plans exclusively over another.  It is possible and usually desirable to mix and match benefits for the best overall result. A small business with an HRA plan, for example, may also offer a FSA plan to employees and often provides the owner with health insurance outside the HRA plan and allows an HSA account as well.  In most cases the best results can be achieved by combining two health benefit plan designs, possibly even overlapping and incorporating retirement plans and other fringe benefits.

Finally consider that each of these plans has the effect of reducing overall health care costs immediately, but none are proven to have any effect on the real underlying long-term problem of hyperinflation in health care costs. At this point, unfortunately, a small business still needs to budget an annual spending increase of more than 12% per year just to maintain the same level of health care into the future. Obviously this issue must also be addressed, but that is far beyond the scope of this article.

In summary, the HSA will likely become the plan of choice for self-employed individuals (including owner/employees of most businesses) and the HRA is the most attractive way to provide health benefits to employees.

Need more information? Please let me know how to reach you for a free consultation. I serve clients across the country by phone or Skype or can meet in person in the Philadelphia region. Your contact information is not shared with anyone.

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Small Business HRA for 2017

Note added after first publication: The deadline for starting a HRA for retroactive tax treatment is March 30, 2017. HRAs can be started any time for expenses in the future.‏

The most significant tax change affecting small businesses in 2017 is the liberalization of certain types of Health Reimbursement Arrangements (HRA) under the American Cures Act enacted in December 2016. The new rules can save up to $2,000 in taxes for each employee in a small business that fully utilizes the new HRA rules.

Two types of HRAs

In 2017 we will see two types of small business HRAs. Both offer similar tax benefits. Firms may use one or the other, but not both. The determining factor is whether the employer has a group health insurance policy.

Uninsured expenses: The older type of HRA, for companies with a group health insurance plan,wraps around the group health insurance plan to help cover out-of-pocket expenses not paid by insurance.

Individual insurance: The new type of HRA is for companies without a group health insurance plan helps employees cover the cost of individual insurance on a tax-free basis.

Tax benefits

The amount of benefits paid through the HRA bypasses wage taxes and worker’s compensation. This can add up to 40% of the total amount paid for the employer and employee. Than mean that if a HRA pays $5,000 benefits to an employee, the tax savings is $2,000.

Requirements

The first requirements under federal tax law are that the HRA plan be presented in writing, meeting all tax requirements and communicated to employees. The benefit must be offered to all eligible employees on a consistent basis. The claim processing and employee reimbursement is usually integrated with the payroll processing service.

Cost of setup and administration

I am comfortable helping a small business set up either type of HRA and can usually do so in one day once we have planned the design and administration details.

For payroll clients: There is no charge for HRA setup for existing payroll clients but I charge some small amount for claim administration. The total cost works out to be about $100 per employee per year for firms with multiple employees when integrated with a payroll processing service.

For others: Small firms that request help with setting up a stand-alone HRA service can utilize the “Non-contracted services and initial engagements” at the minimum fee. 

Checklist for setup

Plan setup requires the following information:

  • Employer legal name and address
  • Person to be plan administrator
  • Employer EIN
  • list of other qualified employee benefit plans
  • Description of employee eligibility and exclusions
  • Maximum benefit amount (single/family)
  • Year-to-year carryover benefit (if any)
  • Contact person for payroll administration
  • Claim administration procedure
  • Employee email list

After setup, HRA administration requires ongoing claims processing and coordination with the payroll system.

Health care planning for small businesses: 2017

This commentary is based on the February 10 draft outline of the Republican health plan that has not yet been presented to Congress. Of course we expect details to evolve. For fast immediate solutions during the transition period, see my post “Alternatives to Obamacare“.

If you operate a small business then proposed changes to health care legislation are likely a major financial planning concern. For decades heath care choices have dominated small business owners’ decisions, whether access to coverage or managing the cost. In fact, my clients’ obsession with health care questions pushed me to redesign my practice when I first launched my independent small business services in February 2017. Concerns eased for a few years under Obamacare but now return as major business planning concerns.

In many ways the proposal reverts to market conditions that existed before 2010. This post summarizes the current proposal’s impact on small businesses in bullet form.

  • Major medical insurance will be less affordable to lower income people after a reduction of premium subsidies.
  • Employer-provided health insurance will no longer be a fully tax-free benefit.
  • Tax credits for purchasing coverage are available to individuals, not businesses.
  • Health Savings Accounts, in place of insurance, would become a more important source of payment for routine health care expenses.
  • There is no tax penalty for not having insurance.
  • A tax credit up to $4,000 will be available to more higher income people who purchase health insurance. The credit also increases for those over age 60.
  • There is no guarantee of coverage for pre-existing medical conditions in the current proposal.
  • Young healthy individuals would have incentive to switch to limited benefit insurance.
  • Fewer poor people will qualify for Medicaid coverage.
  • State-managed high risk health pools would be partially funded by the federal government, similar to the early years of ACA.

This reform proposal will come to Congress for first vote within the next two weeks. Republican leaders have stated that they expect to pass the law without any Democratic support.

I will continue to publish state-specific recommendations to small business owners as details of the transition unfold. State-specific news and coverage options will be updated at FreedomBenefits.net during the transition period.

Need more information? Please let me know how to reach you for a free consultation. I serve clients across the country by phone or Skype or can meet in person in the Philadelphia region. Your contact information is not shared with anyone.

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Save money on small business payroll processing by removing bundled fees

A no-load approach to small business payroll

In the “old days”, small business payroll services were priced based on a formula that was a bit complex. Factors like frequency of payroll, number of employees, type of pay, benefits, and local taxes all factored into the cost. Year-end ad ancillary services were typically priced separately. To me, this always seemed like businesses were “nickeled and dimed” and did not have an easy way to compare costs and services between providers.

Today’s online payroll services use a lower flat “all-inclusive” monthly fee that is based only on the number of employees. This pricing formula represents most other online hosted services and is significantly less than the fees of the older providers. For example, I just quoted a 31 employee business at $225 per month. One or two employee businesses cost under $50 per month. I’ve been using these online payroll service providers for about two years and find this approach to be flawless.

There is one catch however: the online services do not include a local accountant’s help. I am pleased to provide that setup and support help separately as needed. In most cases I don’t think it needs to be a built-in fee as the earlier payroll services.

Other things to consider:

  • online providers work best when employees use direct deposit
  • employees have full-time access to their payroll information via mobile phone or other device.
  • employees need to be a bit tech savvy; if your employees don’t have an email address or a cell phone this method will not work. (Believe it or not, some businesses have employees with no online presence).
  • any employee benefit can be integrated
  • “pay as yo go” worker’s compensation can be integrated to save time and avoid surprises at the policy’s year-end reconciliation.

Republican attacks against labor unions

Yesterday Pennsylvania labor unions became the latest to suffer a legislative setback

Labor unions are under attack. Newly elected Republican governments around the country went to work this past month to weaken the unions exactly as they announced in the campaign season. While labor unions normally support Democratic pro-labor platforms, this year many unions and their members switched to support Trump and other Republicans. It made no sense to me, just as much of this current populist political trend makes no sense to the working middle class.

“The Republican are going to come after labor hot and heavy,” said Greg Junemann, president of the International Federation of Professional and Technical Engineers. This past week the U.S. Congress reintroduced ‘right to work’ legislation that prevents private-sector unions from compelling members to pay dues. Since only a small portion of union members voluntarily elect to financially support their unions, this law effectively guts the political power of labor unions. It is well understood that ‘right to work’ is an effective way to dismember the power of labor unions.

President Trump supports ‘right to work’ and promised to sign the legislation when it gets to his desk. Trump’s nominee for the Supreme Court Neil Gorsuch also presumably supports ‘right to work’. The anti-union movement is believed to be pushed by vice-president Mike Pence, a former Indiana governor also known for anti-worker moves in his home state.

Meanwhile, Virginia Foxx, the new Republican chair of the U.S. House Education and Workforce Committee, says that her committee will work to repeal measures put in place by the Obama Administration to protect the rights of workers to join unions.

Similar legislative attacks against unions are underway in many state governments. In Iowa, a spokesperson for the police union said “We didn’t vote for Republicans to get stabbed in the back while we’re trying to dodge cars and bullets”. Yet his state Republican leadership is doing exactly what they announced in the campaign to attack organized labor as a means of implementing cost-reducing plans. The union should not be surprised.

Yesterday the Pennsylvania Senate passed Bill 166, sneakily called “Public Employee Paycheck Protection” that restricts unions from deducting any portion of union dues that underwrite political activity and union political action committee contributions from the paychecks of unionized workers. Labor unions who oppose the change call it “paycheck deception”. Similar legislation under Senate Bill 167 would make the change a constitutional amendment. Democratic Governor Wolf and most Democratic legislators oppose the change. Yet with the Republicans in control, anti-union changes are likely this year.

In Texas, an almost identical Senate Bill 13 targets mandatory labor union dues. About half of all states have ‘right to work’ laws and the number could grow sharply this year.

Union members make up a significant portion of the 4 in 10 people in the nation who still support the Republican party today. It is puzzling. When the news media reports the anti-union actions by the government, some of these Republicans yell” fake news”. Even this blog post is likely to be similarly attacked with politically motivated comments unrelated to the issue of the fate of labor unions. How will union members react to this and other government trends adverse to their financial interests? I presume the political tide will eventually return to the traditional Democrat/labor alliance.  We will not know for sure until the 2018 election.

A holistic approach to small business benefit plans

An earlier version of this article was published in 2011

An introduction to consumer-driven defined contribution health plans

Surprisingly little of substance has changed in the world of small business health plans since I published the first edition of “Small Business Guide to Employee Benefits” in 1987. At that time – almost 25 years ago – it was clear that employee-directed flexible benefit plans would continue to gain popularity even though I had no idea of the slow pace of that trend. A defined contribution approach. much like a 401(k) retirement plan, was viewed as smart strategy compared to the older defined benefit approach for the majority of employers of all sizes. It was also clear that medical inflation was outpacing other business costs and eventually employer health plans would need to pare back in order to survive. We were already using the term “health care crisis” to describe the difficulties in changing the system. We said that, in theory, we wished to reduce health care expenses but did not wish to risk any reduction in the top-rate care that we treasured for ourselves.

The economics and politics of health cost reduction

Economists and politicians seem to argue that health costs can be controlled in two ways: 1) putting less money into the system (cut employer and government funding), and 2) paying less money out of the system (squeeze medical service providers and insurance companies and make the claims payment process difficult). This is true because the two amounts are directly linked over the long-term – now both by law and market forces. Our national approach to health care reform attempts to utilize both methods of cost control.

For small business owners, however, only the first approach works. This is because a smaller purchaser of health care does not exercise enough control over market to influence costs and ultimately cannot impact insurance rates of the cost of employee medical expenses. This means that the only way to control health costs is simply to pay less into the health plan. But how? This is certainly one of those oversimplified statements that is harder to implement in real life.

A defined benefit consumer-driven health plan is simply a long name for the strategy that allows an employer to elect to pay less into the health system.  In paying less into the system, we know that ultimately the amount paid out in care will be less. It is important for employers to acknowledge (and for employees to recognize) that by reducing health plan costs, we are also reducing the medical benefits available. The effect is that sooner or later someone does not have all of the medical benefits that would have been available without a cost reduction effort. Employers and government are careful to avoid assuming responsibility or liability for this risk, thereby spawning the emergence of consumer-driven health care choices. For purposes of simplicity, this article refers to these types of defined contribution consumer-driven health plans as “modern plans”.

 The first crucial step

The primary responsibility of the employer in a modern health plan is to decide on the level of contribution. This is designated in a flat dollar amount or based on some formula that may account for position, salary, longevity family coverage status or location. With only a few exceptions, discrimination in employer funding for health benefits is allowed and, in fact, is the norm in most larger organizations. Small employers may choose a “one size fits all” approach simply because it is easier than dealing with the employee feedback about a tiered benefit plan.

Benefits of an insurance exchange

Virtually all health insurance is priced, applied for and issued through the use of online technologies. The term “insurance exchange” has come to refer to the various public and private systems that combine a variety of online services to consumers and small businesses. These are just in their infancy stage but by 2014 these online exchanges will likely dominate the health insurance market.

The benefits are likely to be similar to those enjoyed by other online financial service transactions including convenience, security, speed and efficiency. But also like the online transactions in other industries, professional personal service is not expected to be among the advantages.

 

 

Support for ADP clients

Many of us think of ADP as a payroll company, and for good reason. The company is the market share leader in payroll processing and handles 1 in 6 of all paychecks issued in the United States.

But in reality, ADP has transformed into a Human Resources management platform with over 100 specialized applications running from its online technology platform. The business model is very similar to Intuit that is the #1 market share leader in small business accounting but in reality primarily acts as a host for many smaller companies and services.

I am pleased to offer a range of support services for ADP clients including tax and employee benefit plan services. For example, I may be able to work with business management to reduce wage taxes and worker’s compensation costs. We might also be able to remotely manage flexible benefit employee health plans to increase employee satisfaction and improve the percentage of expense that goes directly into benefits that employees value most.

In many cases these services can be customized and offered at a lower fee than other available options. All you need to do is invite me to have secure online access to your ADP account. My software specifically designed for accountants allows me to analyze and work with a range of common small business requests easily and remotely.