Employer doesn't know how pay promised insurance benefit
May 20, 2016 7:48 AM   Subscribe

Employer promised health insurance and is now saying the Affordable Care Act is too confusing to figure out.

A year ago, I took a job which offered a $350/monthly "medical stipend". The company is too small for a group plan, and there is no HR Department.

Six months ago, I got coverage through Covered California and asked for my insurance benefits to start being paid. For the past six months I have been paying my own insurance premiums out of pocket.

The Employer's position is: I know that I offered that benefit to you, but because of changes to the laws regarding the Affordable Care Act I'm not allowed to give you any money towards insurance benefits anymore and I don't know what to do about it... sorry.

He did give me $500 in January to cover premiums until he got it sorted out. Then in March told me that he wasn't allowed/supposed to have done that because of the new laws, and now he doesn't know what to do but let him look into it. In April, he came back and said he'd give me a raise to cover it.

I declined and said it was A. unfair for me to pay income tax on a fringe benefit even if he fixed the gross amount of the raise so I got enough net amount to cover my premium, and B. any changes to my income will affect my premium so if I get a raise *my portion of my premium goes up effectively negating the raise. *I get partial income-based premium assistance from Covered California or whatever Agency gives it.

Do I call and ask the the EDD or the IRS what my options are, do I talk to a tax or employment lawyer, or do you have the answer?
posted by anonymous to Work & Money (11 answers total)
My understanding of the law is that he is correct that he can't give you money for the premiums if you're receiving subsidized insurance. I think giving you a raise to cover what he told you plus taxes is a reasonable solution. Another alternative is an untaxed health savings account, but I don't think that money can be spent on premiums.
posted by metasarah at 8:02 AM on May 20, 2016 [5 favorites]

If they don't have to offer you insurance directly and aren't allowed to just reimburse you, it sounds like raising your pay to compensate is the best option left. Since you feel like a pay raise is less valuable to you than a dorect reimbursement of the same net value, perhaps you could negotiate for the pay raise to be a bit higher than that? I'm not sure why you feel like paying taxes is a dealbreaker though (given that that was going to be taken into account) since a lot of that money is social security contributions (including matching contributions from your employer) which you will eventually get back. So your net raise would actually be quite a bit more than the cost of the health insurance, you just wouldn't see it all right away.
posted by Anticipation Of A New Lover's Arrival, The at 8:25 AM on May 20, 2016 [1 favorite]

He cannot do that (we checked at my company too). The pay raise is as good as it's going to get. Figure out the math and make sure they meet your yearly costs with taxes.
posted by Lyn Never at 8:33 AM on May 20, 2016

Aren't your health care premiums going to be deductible, and therefore you won't pay taxes on them?
posted by RustyBrooks at 9:05 AM on May 20, 2016

Under the ACA, most employers who try the old "premium reimbursement" approach may be (subject to a bunch of caveats), by law, offering a noncompliant healthcare plan, which subjects them to the risk of a $100-per-day excise tax.

"I can't understand the law" is not ordinarily a defense to compliance (subject to a bunch of caveats like due process). However, the regulations at issue are still too new for us to see how aggressive the IRS is going to be in enforcing these provisions, so employers are assuming the worst (justifiably, as I see it). And depending on how many employees your company has, they may not have to offer health insurance at all.

Your company should pay a lawyer to tell them what to do, but in my experience, most small companies prefer to save $1,000 in attorney's fees now and pay $30,000 in attorney's fees and penalties later when the IRS comes a-knocking.

Nevertheless, you presumably work in California, which has a whole book's worth of employee-friendly statutes, so it would be worth your while to spend $200-300 on a consultation with an employment lawyer to see what your rights are, especially if you are losing sleep over this situation.
posted by radicalawyer at 9:54 AM on May 20, 2016 [1 favorite]

This is actually a good deal for you. If the employer grosses up your $350 pay to cover income taxes, this is virtually identical to receiving $350 pre-tax for insurance, so that is a wash. You shouldn't care either way. And getting your insurance on the exchange is a plus because you receive a subsidy. Think about it -- any subsidy is better than no subsidy which would be the case as your employer originally planned.

In general for small employers, they are doing their employees a favor by not providing insurance and instead giving them a pay increase to buy their own insurance through the ACA exchange with subsidies. The worst thing an employer can do is provide just barely compliant insurance with a high employee premium share and high deductibles and no government subsidy.
posted by JackFlash at 1:15 PM on May 20, 2016 [1 favorite]

Let's go through some numbers for example.

Case A: Your employer buys an insurance plan for $500 per month, which is typical for a single person. He puts in $350 and you have to put in $150 out of your pocket.

Case B: Your employer gives you a $350 raise plus $87.50 to cover taxes (not exact but close enough). You take your raise, pay your taxes and have $350 to spend on insurance. You go to the exchange to buy a similar $500 policy and the exchange gives you a $100 per month subsidy. You take your $350 and the $100 subsidy and you have to add an extra $50 out of your pocket to buy the $500 policy. So you out of pocket cost is now $50 instead of $150. (Note that the $50 is post-tax and the $150 is pre-tax, but you still come out ahead.)

The bottom line is that you are better off with a government subsidized plan than an employer plan that only covers a small share of the total cost. You also get to choose the type of plan that works best for you, not one selected by your employer.
posted by JackFlash at 1:43 PM on May 20, 2016 [1 favorite]

Nthing what radicalawyer said above: The regulations are indeed confusing, it is in fact not compliant with the ACA for your employer to give you $ for your individually-purchased health insurance, and they should absolutely pay a lawyer (or at least a CPA who is very familiar with benefits, but probably a lawyer) to tell them what to do.

(By the way, unless you're literally the only employee at the company on the payroll and eligible for health insurance--which I acknowledge may totally be the case!--then the company isn't too small for a group plan. If there are at least 2 W2 employees on payroll who are eligible for and intend to enroll in health insurance, you can get a group plan.)
posted by rhiannonstone at 7:55 PM on May 20, 2016

What radicalawyer is talking about are non-taxable Health Reimbursement Arrangements. These are now illegal. However there is no prohibition on an employer giving you a raise as taxable income to cover your own purchase of health insurance. It is simply a raise. While the motivation for the raise may be in lieu of employer provided insurance, what you spend the raise on is up to you.

The extra money you get from your employer is just like any other wage or salary and is taxable. What is prohibited is the employer giving you money tax-free.

The regulations aren't confusing at all. If the employer chooses to give you extra income for health insurance, they can simply do that as long as it is included on your W-2. If the employer has less than 50 employees, they are not required to provide health insurance.
posted by JackFlash at 10:59 PM on May 20, 2016

[This is a followup from the asker.]
Thank you for your helpful comments, but I am still confused because if I get a raise, I have to declare that change in income to Covered California causing my subsidy to go down and my portion of the premium to go up, negating any raise.

Employer only willing to give my premium amount of $190 (+ taxes), not the promised $350. Can they decrease the amount of the stipend they originally offered just because my premium is only $190?
posted by cortex (staff) at 7:37 AM on May 21, 2016

The employer can do anything they want. It is an agreement between the two of you whether you want to work there for the what they are willing to pay.

If you get a raise, it will indeed lower your subsidy a bit. However some subsidy is better than none at all.

Your employer is trying to be cheap. They originally promised a benefit of $350 per month and now they only seem willing to give you around $240 per month.

Since you are buying insurance on your own, it is really no business of your employer how much you pay for insurance. They should just give you an agreed amount of money and forget the whole connection to insurance.

Just tell them you want an $xx raise, perhaps the originally agreed $350 and that what you pay for insurance is none of their business. However they can refuse and pay you anything they like.
posted by JackFlash at 8:06 AM on May 21, 2016

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