The Business Owner's Guide to Obamacare

Here is what large businesses (Over 50 employees) can and should do to ease the pain.

Large businesses should employ a "linked" Healthcare Reimbursement Arrangement (HRA). Here is how it works. Let's say you have a group insurance plan that offers a $1,000 deductible for your employees. With a linked HRA, the business adjusts its group policy to a $5,000 deductible (or higher). However, they maintain the lower deductible for their employees, essentially self insurring the amount between the deductibles.

When an employee hits the $1,000 deductible, the business reimburses the employee for out of pocket expenses until the higher deductible is reached.

The premium for the $5,000 policy will be significantly lower in cost. Most employees will not hit their deductible. The savings can be substantial - and all reimbursed expenses absorbed by the business are deductible expenses.

For businesses with 2 to 49 employees, the answer lies in a Cafeteria 125 plan. With this plan - the business cancels its group insurance plan (if it had one). A business is not required to provide insurance for employees if they are under 50 full time employees.

The Cafeteria 125 plan allows all employees to purchase their own insurance (on or off the exchange depending on their individual needs) and pay for their insurance and other qualified out of pocket expenses with pre tax dollars. Also employees will be able to take advantage of the Federal subsidies if they apply.

Here's how it works. The employer withholds the amount of individual health insurance premium from the paycheck of the employee (pre tax) and sends the withholding to the plan administrator. The employee pays his insurance premium as always to the insurance company, and submits proof of payment to the administrator. The administrator reimburses the employee the full amount (tax free). If an employee makes $35,000 and pays a post subsidy premium of $5,000 annually, the employee's tax liability falls to $30,000.

The business wins in several ways. The savings from not having to provide a group healthcare plan will be tremendous. But beyond that, the business will see a significant reduction in FICA, Social Security and Medicare taxes. Also, the amount of the salary reported to its worker's compensation policy will reduce, providing savings on that premium as well. The Cafeteria 125 plan is a tremendous win/win for businesses and employees alike.

Smaller businesses where the owner employees family members may not get the same bang for the buck, as under a cafeteria 125 plan, the owner and immediate family members may only reduce 25% of the premium expense.

Small "mom and pop" businesses have solutions too. If a person owns a business, is a sole proprietor or and S corp, or even an LLC, they may likely qualify to open an HRA (Healthcare Reimbursement Arrangement) section 105 plan. Under this plan, the business may reimburse the owner 100% of healthcare premiums and out of pocket expenses, creating a very nice tax break.

These small business may already "deduct" health care premiums of the owner. This goes a step further by allowing the out of pocket expenses as well. The average business with an HRA 105 plan saves over $4,000 per year in taxes.

Here is a calculator where small business owners may figure their tax savings under the HRA section 105 plan:

Obamacare has created quite a stir. The law is helpful for many, and harmful for others. But, it is the law of the land. The wise and prudent business owner will learn that in order to combat a harmful tax law, one must use other tax law to their best possible benefit. The Linked HRA, the Cafeteria 125 plan, and the HRA 105 are long established solutions for business owners. Their usefulness has just become paramount in the new ACA economy and environment.

Barry Draper is a licensed insurance broker with Insphere Insurance Solutions. He has studied the effects of the Affordable Care Act on businesses and offers these tried and tested solutions as effective tools for any business to implement. Barry may be reached by visiting
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