By Amelia M. Klein
Health insurance premiums are expected to increase by double-digit percentages for 2017. What are you going to do about it?
Many employers will choose to increase deductibles, co-payments and/or coinsurance amounts in order to reduce the premium cost. This shifts some of the cost of health coverage to employees without violating the “affordability” requirement of the Affordable Care Act.
Under the ACA, an employer health plan is considered to be affordable if the employee’s share of the 2017 premium for individual coverage under the lowest-cost option does not exceed 9.69 percent of the employee’s 2017 W-2 wages, 9.69 percent of the 2017 individual federal poverty line, or 9.69 percent of the employee’s rate of pay multiplied by a 30 hour “full-time” work week.
But employees don’t like cost shifting. To ease their concerns, an employer might offer to reimburse all or a portion of the actual amount of the out-of-pocket costs that the employee is required to pay. However, you can’t just reimburse the expenses on an ad hoc basis as employees come in with their receipts – you must follow one of the three IRS-approved methodologies or there will be some serious tax penalties to pay.
The Health Flexible Spending Account (HSFA) is the least flexible of the options available to reimburse the additional out-of-pocket costs. In addition to the employee’s pre-tax contribution of up to $2,550, the maximum amount that the employer may contribute on behalf of the employee is $500. Contribute more than that, and the FSA will not be exempt from the ACA’s requirements for a full-fledged health plan. Unspent amounts are forfeited after the end of the year, subject to either a $500 maximum carryover or a 2.5-month grace period.