Is the Health Insurance Marketplace working?

The number of people who enrolled for Obamacare through the individual Health Insurance Marketplace increased to 12.7 million in 2016 compared to 11.7 million in 2015 and 8 million in 2014. There is growth in the number covered but this growth is not impressive especially when we consider that the number without coverage is growing at a faster pace. Federal government subsidies paid most of the cost of that coverage and some wonder if the system is sustainable if the federal government shifts part of the cost to the states as planned.

The proportion of younger applicants did not increase over the prior year as was expected. This remains a problem for the system as designed. The most common comments I hear through OnlineNavigator are something like “It costs so much and doesn’t cover anything”. It is not surprising then that less expensive limited benefit insurance like Core Health Insurance that covers the expenses people use must (but little else) remains a popular alternative, especially among those who can avoid the individual mandate tax penalty.

In some places, like Pennsylvania where I live, insurance exchange enrollment actually declined this year. The decline in health insurance enrollment here is generally attributed to expansion of Medicaid programs that do not require individuals to enroll through an exchange.

Officials remain concerned that 1 in 8 Americans – about 30 million by some estimates – remain uninsured. The uninsured tend to be younger healthier people who don’t use health care services may not see a need to subsidize the health care costs of older people with more expensive medical needs. In some cases they choose to be uninsured if the tax penalty is less than the cost of insurance.

Not surprisingly, far more people who qualified for government-paid insurance signed up than those who must pay their own premium. About 8 out of 10 of this year’s applicants have all or part of their insurance paid through government subsidies. That ration was the same as in the prior year.

Data was unofficially released by the Department of Health and Human Services on a state-by-state basis following the close of open enrollment on January 31. An updated report is expected on the agency’s web site soon.

20 Rules for Operating a Health Reimbursement Arrangement (HRA)

Update January 30, 2017: No fee Health Reimbursement Arrangements for small businesses are available to qualifying businesses. See Freedom Benefits for business qualification information. A regular fee applies to other businesses. Setup time is 24 to 48 hours once I have the employer information required. Claim administration is typically about $100 per employee per year but varies depending on the accounting and payroll system used by the employer. In some cases where the employer uses QuickBooks Online accounting and a compatible payroll system then the claim administration may also be free.

Updated December 30, 2016 – If your small business reimburses employee health care costs, you need to be aware that tax laws have changed effective July 2015 and again in December 2016 and there may be actions necessary right now to amend your reimbursement arrangement and avoid potentially severe tax liabilities as a result of the Affordable Care Act (ACA). The IRS issued a series of rules and notices from 2013 to 2016 that detail the new tax rules.

HRAs must properly incorporate primary health insurance or risk substantial tax penalty. This following expanded list of 20 items may help small business employers and their tax advisers gain a better understanding of the new excise tax rules and how to avoid them.

Please note that if you are operating a company with one participant in the health plan or where husband and wife are the only health plan participants, many of these 20 items do not apply. Please read the note at the end of the article first.

Affordable Care Act prescription bottle on blue with sethescope and pills.

The Affordable Care Act dramatically changes the tax rules for employers who reimburse employee medical expenses.


1. The federal government considers your informal employee health care payment arrangement to be subject to the extensive legal requirements of a “group health plan” (even if you did not intend it so or think of it that way). The legal requirements include exposure under the requirements of the Employee Retirement Income Security Act of 1974 for employee welfare benefit plans.

2. To avoid taxes and legal liabilities, the HRA must either be integrated with an employer-provided ACA-compliant group health insurance plan or must comply with the provisions of  Section 18001 of the 21st Century Cures Act.

3. The HRA must be in writing unless you are reimbursing insurance costs only.

4. Employers who do not offer group health insurance may now reimburse the cost of individual health insurance or out-of-pocket medical expenses.

5. Where an employee is covered by their spouse’s plan, employers may not reimburse the cost of the spousal coverage.

6. The HRA may cover employees who are not covered by the employer’s group insurance plan, including the spouse or dependents who are not on the group health insurance.

7. For purposes of determining whether a violation of ACA market reforms has occurred, it does not matter whether the reimbursements were made on a pre-tax or after tax basis.

8. Taxation of health benefits to the employee is a separate issue from the applicability of excise taxes on the employer. The normal treatment is to exclude the benefit from employee income but the benefit would be taxable compensation in some cases where the employee does not maintain minimum essential coverage. This article does not cover taxation of benefits under an HRA.

9. Employers who give taxable compensation bonuses may make reference to employee health care costs if that is the purpose of the bonus arrangement.

10. The minimum statutory tax penalty for unintentional violation of ACA market reform law not modified by the 21st Century Cures Act is 10% of the amount the employer paid. The maximum amount of penalty is $100 per employee per day of violation, plus (if applicable) wage taxes plus (if applicable) interest and penalties.

11. Stand-alone HRAs may reimburse up to $4,950 for an eligible employee and $10,000 for an employee with family coverage.

12. If an employees is not covered for the entire year, the limitations are prorated.

13. A HRA must be communicated to employees separately from the insurance plan.

14. Employees may not contribute to a HRA. All contributions must be employer paid.

15. HRAs are effective in expanding coverage at a higher overall cost. HRAs are not effective in reducing the overall cost of employee health benefits. In fact HRAs may someday trigger the “Cadillac tax” provisions for rich health benefits in the future because they increase the total health benefits for employees (unless this tax s repealed as expected).

16. Improper reimbursements trigger severe excise penalties under section 4980D of the Internal Revenue Code. This penalty is $100/day excise tax per applicable employee (which is $36,500 per year, per employee). Smaller penalties may apply if the violation was not due to willful neglect. The penalties must be self-reported beginning in 2014 yet many employers may not even realize that they are in violation so the likelihood of interest and late payment penalties further compounds the problem.

17. If the employer is subject to the smaller 10% excise penalty for one year and then still does not correct the HRA plan for 2016, there would likely be a greater likelihood that the higher severe penalty would be assessed for the same repeat violation in the second year.

18. Employers that had a medical reimbursement plan prior to July 1, 2015 and have not updated their plan this year may unknowingly be subject to the excise tax. Apparently there are many small firms that don’t even know about this problem).

19. Employers affected penalties in #16 above should act as quickly as possible to terminate or amend their HRA plan and make appropriate payroll tax adjustments if necessary to avoid additional lateness tax penalties.

20. Excise tax penalties under IRC 4980D are self-reported on IRS Form 8928. The first small business penalty taxes were payable March 16, 2016 by corporate filers on violations occurring from July to December 2015.


The good news: For most small businesses, it is easy and inexpensive to get experienced professional help with the setup and documentation of a self-administered HRA. I’ve acted as adviser to help set up or amend these benefits for dozens of small businesses and nonprofit organizations across the U.S. since the 1980s. In many cases the work can be accomplished as a flat fee concierge advisory service. I can provide sample HRA plan documents to qualifying businesses but you may wish to have an attorney review them; I cannot provide legal services.


Disclosure and clarification

The advice in this article is simplified for the purpose of clear communication regarding most small businesses. As with most aspects of tax and benefit law, there are special circumstances that may not be addressed in this general information. This article ignores the possibility of uninsured ACA-compliant health plans or grandfathered health plans simply because these are not common.

*Many of these points do not apply to one participant health plans or small C corporations. A husband and wife C corporation might be operated as a two employee company for other purposes but the HRA could be designed as a one person health benefit plan with dependent (the other employee/spouse) coverage. Then, as a one person health plan the HRA would be exempt from classification as an employer-provided health plan as discussed in IRS Notice 2015-17 that clarifies Code § 9831(a)(2) provides that the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year. Accordingly, an arrangement covering only a single employee (whether or not a shareholder-employee) generally is not subject to the market reforms whether or not such a reimbursement arrangement otherwise constitutes a group health plan. In the case, the “old rules” apply and the HRA could be operated in the same manner as before ACA. It is still important that the plan documents support the fact pattern presumed in this discussion.

The term “health insurance” in this discussion refers to primary ACA-compliant major medical insurance also known as “minimal essential coverage”.



26 U.S.C. 4980D Failure to meet certain group health plan requirements

29 CFR 2510.3-1(j)

IRS Notice 2013-54

IRS Notice 2015-87

IRS Notice 2016-4

Application of Affordable Care Act Provisions to Certain Healthcare Arrangements

US Department of Labor, FAQs about Affordable Care Act Implementation (Part XXII)

Why ACA Employer Mandate Rules Need More Guidance” by Alden Bianchi in Employee Benefit News, 12/25/2014.

TD 9705: Minimum Essential Coverage and Other Rules Regarding the Shared Responsibility Payment for Individuals, 11/26/2014  (How employer contributions to HRAs affect calculation of affordability and exemption from individual mandate penalty)


Related topics:

The changing role of small business HRAs

Small business health plan compliance checklist

Taxation of health insurance in 2014

21st Century Cures Act

Is my small business required to file Form 1095?

Form 1095 is a new informational tax return that is a requirement incorporated into of the Affordable Care Act. Some small businesses are required to file it for the first time this season.

There are three types of Form 1095:

1095A from a Health Insurance Marketplace

1095B usually from an employer (the form discussed below that applies to some small businesses)

1095C usually from an insurance company

Form 1095B that is a required filing for tax year 2015 for small businesses with self-insured plans that: a) provided essential health benefits, and, b) covered more than one employee. For example, a Health Reimbursement Arrangement (HRA) plan that covered only dental benefits for a company with 10 covered employees, for example, does not need to file. Likewise a HRA providing primary health benefits for only one employee does not need to file.  Self-insured plans include both premium reimbursement plans (regardless of whether the reimbursement payment was made pre-tax or after-tax) and also medical expense reimbursement plans. A Medical Expense Reimbursement Plan  (MERP) that covered 2 workers in a 3 person company would be required to file a Form 1095B.

If you are still not sure then it makes sense to get expert advice. (If you are a small business owner without access to expert employee benefits advice please consider the flat fee service that I offer).  The penalty for failure to file Form 1095 is $250 per employee. The IRS has stated that no penalty relief will be available to employers that make no effort to file Form 1095. The filing deadline for providing Form 1095B to employees  was moved back to March 31, 2016.

(Note that this post does not cover other related issues especially the related issue of Form 1094 filing requirements. This post does not cover reporting issues for employers with 50 or more employees).

How to provide premium health care planning advice

This post is just an idea, an incomplete thought, a business observation with no clear direction or conclusion. I have no good answer to the headline.

For my entire 30+ year working career as a financial adviser I’ve focused on the theme of keeping your personal health in focus as a core of personal financial well-being. Everyone knows the cliche “If you have your health you have everything”. I’ve unfortunately spent too much time working with clients in the opposite corner: situations where chronic health problems become inseparable from personal financial hardship of otherwise successful people. The topic of medical bankruptcies tends to grab public attention but there many more less dramatic examples of how poor mental and physical health are tied to poor financial results. The plain truth is that despite the very best financial plans, a chronic health condition can wreck anyone’s financial security. It doesn’t matter who you are, who you work for, how wealthy your family may be; I’ve seen plenty of real like cases that demonstrate the direct link between declining health and loss of financial security.

This work led to my three decades of involvement with health care reform. I’ve been frustrated by the Affordable Care Act (ACA) focus on insurance reform rather than systematic health care reform. Insurance is an incomplete solution. That was true before ACA and it is just as true now. For the 99% of us (excluding the upper class “one percenters”), having the best insurance will not prevent our financial collapse.

This leads to consideration of personal affluence. I work with affluent people simply because they are able pay for my service. Other financial advisers would say the same. Let’s be perfectly clear that the allocation of premium resources (like my attention as a personal financial adviser) is not because the affluent need or deserve or can benefit from good advice any more than ordinary working folks. Insofar as my work involves health care planning, it is clear that affluent people get better advice than working class individuals. Additionally, and perhaps even more important, affluent individuals are in a better position to act on advice when facing a health care decision. By definition, this creates a class-based differentiation of health care planning.

In 2010 I launched a project under the trademark name “OnlineNavigator” that was meant to provide premium advice on health care to the public; regular working class folks who recognized the need for better personalized information. The project never really took off. The concept was to offer brief consults for free and extended work for a fee. At the project’s peak (prior to adoption of the current name) I talked with or emailed as many as 50 people per day. I continue to offer the same service today but at a much reduced pace: perhaps 10 people per week. (Most of the user questions now are some version of the same issue discussed in this recent blog post). For 2016 OnlineNavidator added a technology to allow users to schedule telephone calls on demand and this option is just beginning to catch on

In September 2013 Yahoo Finance writer Rick Newman put out a questioning and critical review of OnlineNavigator. The article titled “Obamacare Could Be a Fraudsters’ Free-For-All” clearly set a negative tone for the project. Based on that newspaper review and armed with some inaccurate perceptions about ACA law, the Better Business Bureau then adopted a negative attitude about premium advice services (despite no indication of any consumer complaints). I had worked with and written for the BBB and considered them an ally in lobbying for health care reform since the early 1980s. This difference of opinion on how to provide premium advice to consumers put us on different paths and I ended my long term affiliation.

Unfortunately many of the issues in this field are still clouded by political beliefs. A person’s underlying belief of whether the Affordable Care Act was a savior or a curse seemed to dictate their slant on every other related issue. I try to stay away from that theoretical discussion to focus on providing advice under current realities. Yet I personally find few people who are able to analyse the current marketplace from a neutral stance.

Now in 2016 I notice that the market demand for premium health care planning advice is stronger than ever. I simply don’t know how to help meet that consumer need.

OnlineNavigator in 2016

For more than 30 years I’ve addressed consumer finance questions related to health insurance planning. It started as an effort to market my young financial planning practice in a local newspaper back in 1983 and is now an online social media activity through the trademark OnlineNavigator. I’ve lost count of how many thousands of consumer questions were addressed over this span. Most of this lifelong work has been uncompensated although I am paid for marketing through Freedom Benefits and occasionally for an article or presentation. Obviously the issues that affect Americans have changed over time. Yet it is clear that dealing with our national health care crisis continues to be a huge challenge to the people who contact me for advice. Lately the consumer questions tend to highlight the shortcomings of the Affordable Care Act. The real consumer question posted below is representative of the type of issue that I am asked about most often now in 2016.

Consumer’s question in early 2016:

“Hello. My name is xxxxxxxxxx. I was looking for health insurance for about 150 per month. I made 45000 last year, but I got laid off and I make significantly less now. I cannot afford the cheapest quote I was given at”

OnlineNavigator response:

Thanks for contacting OnlineNavigator service. Health insurance planning issues like yours are a common challenge for millions of Americans and this service is designed to give the most practical advice in an otherwise difficult and sometimes unmanageable situation.

As an immediate measure, some people who cannot afford qualified health insurance in the short-term opt for less expensive non-qualified insurance that costs less and covers less. For example, an emergency medical insurance plan cover only limited dollar coverage in an emergency room but might be quite affordable at around $20 per month. See the range of options available where you live by going to and selecting your state. My strong belief is that some coverage is better than no coverage even if this is not a complete solution.  In a period of personal financial crisis, it is important to focus on making sure that you don’t find yourself feeling “locked out” of the health care system in the event that you need care unexpectedly.

Pay special attention to limited benefit “short term medical insurance” that is specifically designed for people who are laid off and face a financial crisis as you describe. Another policy that has played a large role it “core health insurance”. Both of these are non-qualified plans that no not meet the standards commonly described as “Obamacare”. It makes sense to consider that health insurance is priced in direct proportion to the benefits that are paid out. There is no better example of “you get what you pay for” so a plan that costs only $150 per month as you suggest will not cover all of your potential medical expenses. All an individual can do is to match policies that are more likely to meet specific individual needs and that fall within an allotted budget.

For the longer term, however, all Americans need to consider that health care expenses will consume an average of 18% of your total household income. A myriad of laws are being phased in that are designed to make sure that everyone pays what government considers a “fair share”. That means that for a household with total annual income of $50,000 then the amount to be budgeted for health care is $675 per month. That is why your budget of $150 doesn’t come close to being adequate. The reality is that few people can afford this now and so that is why we have premium tax credits – at least for now. But even with the tax credits applied, as you indicated, millions of Americans cannot afford the premiums without major change to their lifestyle. For that reason consumer finance advisers like me work with individuals facing the shocking realization that they can’t continue to afford the basics of American life: rent, a car payment, a cable bill and health care. There is no doubt the out-of-control spiraling cost of health care is the #1 issue affecting your (and everyone else’s) future financial security. Eventually, over the long-term, as each of us pays more toward health care we will spend proportionally less on housing and other expenses.

Finally, you may also want to consider the ways to avoid a tax penalty during the period when you may be without qualified health insurance. That’s a different topic than what you asked and it won’t come up until you file your income tax return more than a year from now but see the OnlineNavigator article at to consider this issue further. In your case it will likely take some work to avoid a tax penalty that would be $695 or more.

4980D Small Business Excise Tax Liability

This is the original submitted version of the article published by New Jersey CPA magazine under the same title in the January 2016 edition. The published version was slightly shortened to meet space requirements in the print publication.


The Affordable Care Act adds Section 9815 to the Internal Revenue Code that requires employer-provided health plans to comply with a number of market reform provisions. IRS Notice 2013-54 explained that some of the most popular health benefit arrangements used by small businesses violate market reform provisions. The most common examples of non-compliance are an employer’s payment for individual health insurance or payment of health benefits that are not integrated with an employer-sponsored group health insurance plan.

Employer-paid health benefits for common law employees must now be: a) integrated with a qualified employer-sponsored group health insurance policy, b) benefits excepted by law, or c) subject to an excise tax penalty. There are exceptions for one person businesses, S-corporation shareholder employees, church plans, and union plans that are not covered in this article. The excise tax penalty for small business employers took effect on January 1, 2015. IRS Notice 2015-17 delayed enforcement of the excise penalty during a correction period that extended until June 30, 2015. Efforts by some members of Congress and the AICPA to repeal implementation of this potentially harsh penalty will not likely be granted for 2015, according to most sources at the time this article was submitted.


New Reporting Requirements

Excise taxes payable by a small business employer under IRC 4890D are self-reported on Form 8928, Part 2, that must be filed by the due date of the 2015 return, including extension.

There are two types of excise tax penalties: Section A – Failures Due to Reasonable Cause and Not to Willful Neglect and Section B – Failures Due to Willful Neglect or Otherwise Not Due to Reasonable Cause. The Section A penalty is a manageable 10% of the total amount paid for employee health benefits for affected employees. The Section B penalty is a potentially much greater $100 per employee per day excise tax.

This article does not address the determination of which excise tax penalty applies. We presume that for 2015 some affected employers will take the position that the failure was not discovered despite exercising reasonable diligence or was corrected within the correction period and was due to reasonable cause. If so, then the Section A penalty would apply for 2015. Little other guidance is available at this time.

How to recognize a penalty situation

Employers and their tax preparers should look for and address arrangements that may trigger an excise tax. Tax preparers should be on the lookout for these common warning signs that may indicate exposure to 4890D excise tax liability:

  1. Lack of health plan documents or document that have not been updated since before implementation of the Affordable Care Act.
  2. Commercially marketed “workaround” arrangements that use wording like “Section 105 plan”.
  3. Employer payments for individual health insurance premiums.
  4. Employer payments for health care expenses that are not administered together with the group health insurance policy.


Penalty relief

The IRS issued relief from this penalty to small business employers with non-compliant health plans for the first six months of the year (IRS Notice 2015-17), so the Section 4980D penalty would apply to health benefits beginning July 1 2015 through December 31, 2015. This means, for example, that if an employer made a payment to a single employee for health benefits of $300 per month for all of 2015 then the tax under Section A would only be $180 (10% of $300 x 6 months) but the tax under Section B would be $18,400 ($100 per day for 184 days). Without further guidance from the Service, it appears that in the most common types of small business health plan violation scenarios a strong statutory argument could be made for the more severe Section B penalty.

The Service has the statutory authority to grant penalty relief in this matter. Given the severity of the Section B penalty and its potential to even bankrupt some small employers, we presume that the Service may liberally concede to accept a Section A penalty from affected small business employers for 2015. However, once an employer claims an unintentional violation for 2015 and assumes the lower Section A penalty, it would appear to be unlikely that the employer could continue to claim that the very same violation was unintentional again on the 2016 tax return. For this reason, it may be urgent to correct the non-compliant provisions in the underlying health benefit plans that are triggering the excise tax as early as possible and certainly (hopefully) before the 2015 tax return filing date in early 2016.

Ehealth financial results and strategy are surprising to Freedom Benefits

The most recent financial operating results reported by health insurance industry leader E-health were startling to me as the owner of the much smaller Freedom Benefits. Submitted applications for individual and family plan products decreased 78% in the second quarter of 2014 compared to the prior year.

We consider Ehealth to be our most direct and significant competitor. Over the past four years. until the second quarter of 2014, both firms have moved in sync to the same major market forces like the economic recession and the impact of the Affordable Care Act. Both Web-based companies operate nationally offering primary and supplemental health insurance online, supplemented by telephone agents. But that’s where the similarity ends.

Ehealth is thousands of times larger but apparently shrinking rapidly since implementation of the Affordable Care Act. Meanwhile, Freedom Benefits operating performance have slowly but steadily increased since the implementation of the Affordable Care Act. Both firms’ operating results are subject to seasonal variations but the trends for Freedom Benefits are clearly opposite those indicated by Ehealth, especially for the new second quarter 2014 financial results just announced.

Of course we can’t be sure why the difference in trends. I can only suspect that the ability to engage individuals in niche markets is easier for a small firm. Additionally, there is likely some negative “kill the messenger” mentality over Affordable Care Act that hurts Ehealth more than it hurts us. One of the metrics I follow – not reported in financial results of public companies – is the social media “following”. I’ve noticed, for example, that Ehealth following on Facebook has been flat since the open enrollment began under the Affordable Care Act. Freedom Benefits does not target Facebook users so I can’t make a direct comparison but I do know that social media direct person-to-person engagement has grown over the same period. Overall seasonally adjusted Web traffic logs reported by third-party firms confirm the trends indicated.  Ehealth is decreasing  Freedom Benefits is increasing.

There may be a difference in core values of the two companies as shown by this example:

Ehealth indicated that they spent $4.5 million to acquire the domain name “”. This was not a smart strategy – at least not in terms of the values used to grow Freedom Benefits. Consumers demand clear and honest communications about the distinction between government and private businesses in the health insurance field. A private firm using the web domain is likely to draw some negative reaction and distrust. Some might consider this strategy to be nothing more that what we commonly see used by other “web squatters” who tag onto the coattails of someone else’s brand name. I noticed the web site has a tiny text line of disclosure (barely visible in light blue color even with my eyeglasses) saying “A non-government site operated by Ehealth”. Frankly, I find it surprising that a large public company would take this approach and I presume that eventually some consumer-protection agency will have something to say about this. In the end, any short-term benefit gained by fooling web-surfing consumers will be negated by negative permanent consumer backlash against the company that is marketing through less than transparent methods.

In contrast, consider the approach taken by Freedom Benefits’ web site that provides free public advice about health care reform. OnlineNavigator uses a similar marketing strategy of using a word commonly used with government insurance – “navigator”. But Freedom Benefits insists on disclosing in bold capital letters that this is an independent service not associated with the government or it’s use of the term. Additionally, Freedom Benefits went through the extra effort to obtain a trademark on the term “OnlineNavigator” to further differentiate this service though the resources available through the federal government. Clearly Ehealth could not do that with the term “Medicare”.

Earlier this year I communicated by email with an Ehealth executive about the possibility of his firm acquiring Freedom Benefits, but Ehealth declined interest in acquisition after an initial review. I suspect that if Freedom Benefits continues to grow and Ehealth is not able to correct its decline, there still might be interest in the future. We still have a long way to go.

For now I have to focus on identifying the factors that are contributing to our growth in spite of industry trends and how to best use this positive momentum moving forward.