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Health Coverage for Your Business: Debunking 5 Myths

Businesses with fewer than 50 full-time employees are exempt from the employer mandate under the Affordable Care Act ("Obamacare"). However, even these small businesses want to offer health coverage if possible to keep their employees healthy and to attract the best talent. In an effort to do this, some employers may fall victim to myths that can derail their goals and result in unintended consequences.

The following list has been prepared with the help of Victoria Braden, CEO of Braden Benefit Strategies, Inc. and a certified PPACA agent (explained later), to clarify the rules for you, the small business owner.

Myth: I can lower my premiums by hiring only healthy workers and keeping them that way.

Reality: Medical conditions have no impact on health insurance today. Your costs depend on the age of workers and where they live. (All you need for a quote are their date of birth and home zip code.)

Myth: I'll be penalized if I drop health coverage.

Reality: There is no tax penalty for dropping coverage, or failing to offer it; the employer mandate impacts only larger companies (50 or more full-time/full-time equivalent employees). In fact, dropping coverage may prove advantageous to staff members who can obtain subsidized individual coverage. An employer offering affordable coverage for an employee may prevent the employee's family from qualifying for subsidized coverage. Help employees understand that they may be better off by explaining the business decision and the fact that subsidized individual coverage through the exchange may cost less than what they would have contributed toward employee coverage.

Myth: I'll reduce costs by closing my plan and reimbursing employees for coverage they obtain through the government exchange.

Reality: If you pay for coverage that an employee obtains on his/her own, you can be subject to a tax penalty of $100 per day ($36,000 per employee for the year). (Under a transition relief rule from the IRS, the penalty won't be imposed before July 2015, and Congress may make this permanent.) You can, however, increase an employee's compensation even though you can't monitor whether the employee uses the money for health coverage. If you do increase compensation, factor in the added costs of payroll taxes (FICA and FUTA taxes, workers' compensation) and benefits (e.g., increased taxable compensation on which retirement plan contributions are based).

Myth: I don't have to offer coverage once an employee reaches age 65.

Reality: If you have coverage, you must offer the same coverage to all employees, even those age 65 and older who are eligible for Medicare. What's worse, you'll pay more for their coverage because premiums are age-based. (Because of the age rating law, the price for 64-year olds also applies to anyone age 65 and older.) And:

• For employers with 20 or more employees, Medicare is the secondary payor, picking up where your insurance leaves off.

• For employers with fewer than 20 employees, Medicare is the primary payor; your insurance only pays what Medicare does not. The insurance companies require employees who work for small companies to enroll in Medicare Part B.  Now the employees of small companies have to pay both the Part B premium and the increased price caused by Obamacare. Previously the insurance company would not charge the same premium for employees over the age of 64 because it was only liable as the Medicare supplement. Under Obamacare employees age 65-plus must pay the same as 65-year old employees and sign up for Part B, as explained on page 15 of Medicare and You.  Employers cannot pay or incent employees to leave the company plan because they are eligible for Medicare.

Myth: Any insurance agent can help me get the best low-cost policy.

Reality: You need to work with a knowledgeable agent who can advise you on options that won't trigger unintended consequences. Best action: Find a certified PPACA specialist (an agent who has been certified by the National Association of Insurance Underwriters). Someone qualified to sell insurance on the exchange is not necessarily a certified PPACA specialist.