November 10, 2015 by Tony Novak
I received a disturbing call from a woman in Maryland today. Her husband has a steady $16 per hour job but she is disabled with medical issues. Before the Affordable Care Act (ACA) they did OK on the employer’s group health plan. After passage of ACA the group health insurer pulled out of the market and the company was unable to replace the coverage at a reasonable cost. So the employer dropped health insurance and raised each employee’s pay by about $5,000 to buy insurance on the individual health insurance exchange. She does not like the high deductible (around $12,000) of the plan they can afford now.
I questioned the woman about what would happen if she did not buy health insurance: would they still get the bonus? Yes, she said, so this is a true taxable wage bonus and not an employer health plan in violation of IRS Notice 2013-54. (I had other employer tax concerns about the arrangement as she described it but that discussion is beyond the scope of this article).
The problem with this arrangement is that the taxable bonus boosts their income to a level that disqualifies them from Medicaid and reduces their earned income credit by $1,200. So the end result is that this working class family would have qualified for Medicaid without the employer health plan now has to pay thousands of dollars in health plan costs below the high deductible, loses their earned income credit.
This is a disturbing financial disaster triggered by an employer’s inappropriate response to the ACA. I hope this posts prevents other firms from making the same mistake that so deeply hurts lower-income workers. Another article offers better approaches for a small business at https://www.linkedin.com/pulse/dos-donts-small-business-health-plans-tony-novak