The Goodness of Their Heart – The True Cost of Making Benefit Payments on Behalf of Your Employees

I have been speaking with a great number of small business owners who have looked at the exchange as an alternative vehicle for providing health care for their employees.  Because their employees are eligible for subsidies, employers have requested that they sign up for coverage and have agreed to pay the cost of the coverage.  Since January, they have been writing checks to providers to pay their employees’ premiums. 

The problem is, by doing this, business owners and their employees can get into serious trouble.  Not just pay the fine and walk away trouble, serious trouble.  In reality, this payment is considered employee compensation.  Payroll taxes, from the employer and the employee are required to be paid.  For the employer, failure to pay payroll taxes can become criminal. 

What should you do?  The amount paid to the exchange is taxable income for the employee. You must add it to the income the employee receives and taxes must be withheld.  Some employers gross up the number so the total compensation paid to the employee minus their taxes due equals the amount the employer pays to the exchange on their behalf.  In addition, the employer must pay their portion of taxes due,  social security, disablilty, etc.

In addition to interest, penalties are assessed on delinquent taxes.  Better to pay the money when due.

Fact or Fiction?

This month I thought I would answer the question, fact or fiction:

  1. Sign Ups Will Close on March 31, 2014 for policies offered during the 2014 Calendar year:  FACTYou will not be able to sign up for polices after the 31st; unless, of course they decide to extend the deadline.  With less than a month to go to sign up for health insurance, the web sites are still having problems.  This means that you should sign up before the deadline.  If you sign up at the last minute and there is a problem transmitting your data, you will NOT be covered.  Remember, too, you are not covered until your payment has been received and processed.  After March 31st, you cannot sign up for insurance for 2014 unless you meet one of the exceptions: Divorce, losing your job. 
  2. College Students will be able to get insurance after graduation: FICTIONThis is a serious problem for graduating college students who were on their college plans.  If they don’t sign up on the exchange now and begin paying, they will not be able to obtain individual coverage until 2015.  Typically if they get a job, they can get coverage through their employer; but this coverage doesn’t go into effect immediately.  One typically waits up to 90 days after starting work before they are covered.
  3. 70% of People Signed Up for Covered California Have Not Paid: FICTIONWhile the numbers are high, they are not this high.  REMEMBER: YOU ARE NOT COVERD UNLESS YOUR FIRST PAYMENT HAS BEEN RECEIVED BY THE INSURANCE COMPANY AND PROCESSED.  For those who have signed up, It is important for people to verify coverage at their nearby facility before purchasing a policy. The best way to avoid unexpected medical bills was to be proactive, not reactive.
  4. Once Your Have Insurance, All Services You Use are Covered.  FICTIONBelieving this can be dangerous for your and your family.  Only services from doctors and hospitals that contract with the provider you have are covered.  For example UCLA Health has only contracted with the following exchange plans: Healthnet Bronze Catastrophic Plan and Anthem Blue Cross EPO Plan.  They are out of network for all other plans offered on the exchange.  If you don’t have one of these plans you will not be covered for services you receive there. 
  5. Fewer People Are Covered by Insurance.  PART FACT PART FICTIONMore people have signed up than expected; but because premiums have not been collected from all these people, it is unclear what the results will be.  As to young people, the big increase in coverage has been the inclusion of young people on their parents policies.  If you count these people as uninsured people that are now insured, this makes the statement above Fiction. 
  6. There is a 10% Chance Your Doctor will either not accept insurance and/or leave the practice of medicine all together.  FACT.  The pressure is on Doctors is also mounting.  Reimbursement rates have been significantly cut.  According to a Kaiser study, the average income for a primary care physician is approximately $130,000.  This sounds like a lot of money but when you graduate with $800,000 of loans to pay back for your medical education, it’s tough to make a living.    Reimbursements are going to be cut.  They are also reducing doctor’s income by “bundling”.   A typical doctor’s practice has over 4000 patients.  This number is likely to increase.   Doctors who can’t afford to remain in private practice, are giving up their practices and becoming employees.  The corporations they work for defines their work rules.  The day of personalized service are going away.  This makes medicine a less attractive option for doctors, many of whom went into the profession to help people.  If they want to stay independent, the decision that they have to make is to accept only cash or charge additional fees for services.  The more successful the doctor, the more likely the above statement will be true for them.
  7. If You Are Covered by an Exchange Plan, You Will Have Insurance Coverage Even if You Don’t Pay Your Premium.  FICTIONIf you don’t pay your premium, after the first month, the insurance company will no longer pay your bills.  You can reinstate your policy if you pay by the end of month three.  The problem for you is doctors who call to verify coverage will not be informed that your coverage has been terminated until the end of month 3. Therefore, in month 2 and in month 3, if you get medical services, you may be on the hook for significant medical bills.