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For employers, insurance mandate still confuses

IRS decision a ‘huge deal’ for employers

Getting punched in the face tomorrow hurts no less than getting punched in the face today.

That’s how Jay Rhine views the delays in the employer mandate — the provision in the Affordable Care Act that requires medium and large businesses to provide health insurance to their employees. Companies the size of his — Rhine Landscaping LLC — won’t have to comply until 2016.

But Rhine said that’s no solace.

“It doesn’t matter if they delay it until 2020,” he said. “Whenever it kicks in, it kicks in, and it’s going to be a big burden. You’re either going to punch me in the face today or in three days — it doesn’t matter. I still know I got it coming.”

Originally, all employers with 50 or more workers were supposed to provide coverage beginning in January of this year. Last summer, the White House pushed the deadline to 2015. Then, in February, federal officials decided businesses with between 50 and 99 workers would have until 2016 to offer coverage.

Businesses with 100 or more employees still must comply by January of next year, although certain requirements were relaxed.

The delay received mixed reviews from the business community.

Rhine blamed politics — “They just want to get past the elections,” he said — and Maryland Retailers Association President Patrick Donoho said the delay will prolong employers’ uncertainty and anxiety without providing relief from the administrative headaches associated with compliance.

Others, though, said the delay for medium-size companies gives those employers more time to prepare for the future changes.

Business owners who employ 49 people but have been considering expansion, for example, might benefit from the extra year, according to Paul Fronstin, a senior economist at the Employee Benefits Research Institute in Washington, D.C.

Even though adding the 50th worker would push the business over the threshold covered by the mandate, the tradeoff might be worth it, Fronstin said.

That’s because “a company with 49 employees that wants to grow isn’t thinking, ‘Let’s add one more worker,’” Fronstin said. “They’re thinking, ‘Let’s add 10 or 20, or let’s double in size.’”

“So the delay certainly buys them some time to see what happens to their business if they go ahead and expand,” he continued. “They’ll be able to assess whether the increase in costs of having to provide insurance for those extra employees would be relatively small compared to the new growth in their business.”

As the mandate slowly creeps up, another recent ruling is adding to the confusion. Some employers wondered if it would be easier and cheaper to simply give their workers lump sums of money to be used toward purchasing insurance in the individual market rather than providing coverage directly.

Contributions made by an employer to an employee’s health insurance are not counted as taxable income for the worker. So, businesses had hoped making lump payments to help pay for workers’ individual coverage would also be tax-free.

But this month, the Internal Revenue Service shot down that idea, saying such an arrangement does not satisfy the employer mandate. The IRS said large and mid-size employers could owe a tax penalty of $100 per day for every employee who goes to the individual exchange — that’s $36,500 per year for one person.

“This is a huge deal,” Donoho said. “It’s bigger than most people think it is, and I’m not sure it’s filtered down to the small business owners yet.”

Donoho said the IRS rule makes it more likely that a mid-size business owner would agree to offer employer-sponsored insurance — even though it’s a headache — because compensation in the form of benefits is exempt from the 7.65 percent payroll tax. If the employer made lump payments, the tax would apply, according to the IRS rules.

Fronstin emphasized, though, that most companies with more than 50 workers already offer insurance, so they shouldn’t be affected by the IRS rule or the mandate.

But the situation isn’t so cut and dry for Rhine. For most of the year, his landscaping and maintenance company employs just fewer than 50 employees, but during the summer busy season he adds up to 20 more workers. He only offers insurance to the 12 people who work full time.

To complicate matters further, Rhine also owns Aqua-Bright Irrigation and Illumination LLC, a small company with about seven employees.

“I can’t get a straight answer from anyone, but it looks like I’ll have to add up my total number of employees, even though it’s a totally unrelated business,” Rhine said. “We’re really worried I’ll have to provide insurance to everyone. I might have to let people go, or just liquidate the other company. I really don’t know what to do.”