The Affordable Care Act remains a wedge issue for many of Americans, specifically the portion of the law that requires businesses to provide employee benefits to their workers. More people approve of the ACA today than they did a couple of years ago when it first went into effect three years after being signed into law, but it remains controversial.
Not every business falls under the ACA mandate. Small businesses, for example – those who employ 50 employees or fewer – are immune from the health insurance requirement, thereby avoiding the minimum fine of $100 per day for every worker who's not extended health insurance benefits.
Apparently, however, that's not always the case, as the National Federation of Independent Business is taking on the Internal Revenue Service on behalf of small businesses caught up in the health care law loophole.
In a good faith effort to provide workers with coverage – even though small businesses aren't obligated to – some companies have agreed to compensate their employees with additional income so that they can buy a health insurance policy independently, such as with a state or federal-based exchange, for instance. However, there apparently is a law on the books that prevents small businesses from setting up this type of health care framework, thereby enabling the Internal Revenue Service to fine said businesses as much as $500,000 per employee. That's 18 times more than what large employers would be required to pay for failure to provide employee benefits, according to the NFIB.
Kevin Kuhlman, NFIB policy director, indicated that if this provision is allowed to go forward, the financial hit would force many small businesses to close their doors.
"[This] the biggest penalty that no one is talking about," said Kuhlman. "The penalty for compensating employees for healthcare-related expenses is enough to destroy most small businesses."
14 percent of small businesses offer HRAs
It isn't merely a handful of small businesses that stand to be adversely affected by this little-known IRS rule. According to a separate survey done by NFIB, in lieu of a standard employer-based health insurance plan, roughly 14 percent of small businesses instead offer a health reimbursement arrangement, or HRA.
"It's hard to believe Congress or the President intended to punish employers much more severely for actually helping their workers," Kuhlman added. "Nevertheless, that's the consequence and most small businesses don't know it."
He went on to say that because many small businesses don't have a human resources department, an HRA serves as a convenient alternative, thereby providing workers with the funds they need to insure themselves and their loved ones.
President believed to sign off on changing rule
Lawmakers on Capitol Hill are pushing for a change to the present law. Sponsored by Senators Chuck Grassley of Iowa and Heidi Heitcamp of North Dakota, the legislation would enable small businesses to continue providing HRAs without having to worry about being fined as a result. All indications suggest that President Barack Obama would sign off on the reform, BenefitsPro reported.
The employer and individual mandate remain in effect. In fact, an estimated 7.5 million taxpayers who don't have health insurance – but presumably have the financial wherewithal to purchase a policy – have paid the penalty to the Internal Revenue Service for noncompliance, CNBC reported. The fine this year is 2 percent of a person's annual income or $325 for the year, whichever figure is highest. The penalty is levied after filing income taxes in April. Last year, the fine was either 1 percent of annual income or $95 per person for the year, the higher one of the two applying.
