Cutting Off Your Nose to Spite Your Face – Beating ObamaCare

The combination of the federal government shutdown along with the roll out of ObamaCare is a once in a lifetime event – sort of like a Lunar Eclipse or Haley’s comet. It is more like the time that I had hemorrhoids!

I saw an interview on TV the other day where a journalist was randomly interviewing regular citizens about their opinion on ObamaCare. Universally, everyone immensely disliked ObamaCare. On the other hand, when asked about the Affordable Care Act (the same thing as ObamaCare but the official name), all of the same people who disliked ObamaCare unanimously endorsed the Affordable Care Act. I was even surprised that some of the people being interviewed were familiar with some of the better known provisions such as guaranteed insurability and dependent coverage until age 26.  

The point is that the people were talking about the same thing but weren’t even aware of it. Could ObamaCare be  a situation where the Messenger was killed right out of the starting blocks?  Time will tell! 

ObamaCare is the law of the land but not if the Republicans have anything to say about. The House Republicans have tried forty different times to repeal or defund ObamaCare and now have shut down the federal government over a health insurance program. The reality might be that the cure may be a better situation for the small business owner and the employees than previously thought. 

Group health insurance seems to become an entitlement of employment right after World War II. Anywhere else in the World, most people are covered by national healthcare and if you are rich, you probably have some private health insurance on top of that coverage. Regardless of any of the arguments about the Canadians coming to the U.S. for medical treatment, we are stuck with Obamacare for now and It may not be that bad for the business owner as previously thought.  

The reality is that most business owners never wanted to be in the health insurance business. First, how about employees complaining about claims not being paid and creditors calling as a result. How about healthcare being the second biggest cost after payroll increasing by 15-30 percent per year. In a certain respect, a business owner should be happy to be getting rid of group health insurance. 

The solution to the problem is to drop group health insurance altogether and allow the employees to get on the state or federal exchange. An employee can qualify for subsidies if the employee meets two conditions:

First, “household income” has to be less than 400% of the federal poverty level, or “FPL.” For 2013, the FPL is $23,550 for a family of four, which means subsidies are available for incomes up to $94,200. “Household income” includes income from you, your spouse, and any dependents. This income range would seem to cover may employees within a small business. 

•Second, if  an employer offers coverage, the employee’s share of the premium has to be more than 9.5% of your household income. So, if the employee’s household income is $50,000, and the  premium is more than $395.83/month, the employee can qualify.
 
So the employee purchases coverage on the Exchange – Bronze or Silver Plan- and applies for federal subsidies. The business establishes a Section 125 Cafeteria Plan to allow the employees to use pre-tax dollars for the employee’s payment of  individual health coverage. Next, the business also establishes a IRC Sec 105 Medical Expense Reimbursement Plan (MERP) that reimburses the employee for medical expenses up to an allowance.
 
This allowance can be the amount equal to the cost of coverage per employee previously – say $5,000 per employee. The payments under the MERP are tax deductible to the business when paid and non-taxable to the employee. The payments are not subject to FICA or FUTA withholding taxation. The business owner does not have any expense until the employee submits for reimbursement. 
 
In may parts of the country, the cost of health insurance for a 40 year old employee with family coverage can be as high as $1400-1500 per month. The same coverage for John Smith (age 40) from Cleveland on the exchange might be $750 for family coverage before federal subsidies and $350 after federal subsidies for a Silver Plan. If John’s employer creates a MERP, the business can provide a medical expense reimbursement allowance that approximates the deductible under a Bronze Plan. Starting in 2014 the federal limit for annual out-of-pocket expense for individuals (not including monthly premiums) is expected to be capped at $6,350; the family cap is $12,700. Certain plans may have even lower out-of-pocket caps.
 
Summary 
 
Call me crazy but it seems that there is a pretty workable solution in spite of all of the political rhetoric. It seems to me that whatever we had was not working either. Yes, we have quality healthcare but at what price. As a small business owner myself, I was paying close to $20,000 for mediocre coverage. I have a friend who is a business owner whose wife had breast cancer and severe asthma who is paying close to $50,000 per year for premiums and out-of-pocket medical expenses. Obviously, there are many facets to the problem. However, where it concerns a small business owner and his employees, there is a way through the maze and it is called individual coverage combined with a MERP. 
 
Did I fail to mention that I can help you implement one of these plans? Feel free to contact me either to call me a communist (I am a moderate Republican) or for some assistance evaluating this solution. 
 
 

 

 

About gerrynowotny

I am a tax and estate planning attorney with a JD and LL.M in estate planning from the Univesity of Miami School of Law. I have worked in the life insurance industry for twenty three years and the last eleven in private placement life insurance.
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8 Responses to Cutting Off Your Nose to Spite Your Face – Beating ObamaCare

  1. Denis Kleinfeld says:

    Gerry,
    Seems to me that Obamacare / PPACA will never get implemented. (That is my speculation at this point.) There is no computer system, there is no cybersecurity, and there is no insurance for the personal liability of officers and directors of companies with the data from breaches of privacy under a number of federal statutes. (It is impossible to figure out the premium when the population to be impacted is unknown and while the severity and frequency of the risks are unkn0wn.)
    It would seem to have been a better idea to allow competition across state lines from private insurance companies with the government providing a safety net for those in a high risk pool.
    The PPACA was not enacted to provide care, just the facade of insurance.
    But my point is that like a grandiose building designed by a committee of architects, the problem is that the contractor cannot build the building.
    In any event, there is no point is debating the point as this will all play out. So far, I think it is fair and reasonable to observe that the roll-out of the PPACA has been disaterous.
    Let’s review this on December 2 when the sign up period closes.
    I am reminded in all this by the wisdom expressed in Occum’s Razor.
    Denis Kleinfeld

    • gerrynowotny says:

      Denis

      Hope that you are doing well. I have seen commentary suggesting the same citing the real objective as a single payer system and that this Plan was designed to fail. You may be right as it seems incredulous that the rollout of the individual mandate has been so poorly managed and executed. The military equivalent might be attacking the wrong country. how long it will remain the law of the land remains to be seen.

  2. Jon Callaway says:

    Gerry,
    Is Obamacare really “the law of the land” or the law of just that part of the land that isn’t well-connected enough to the administration to get their special waiver or exemption. Or did we transition to an Empire, where our ‘dear leader’ can just implement the laws he likes, ignore the ones he doesn’t and punish those who dare disagree.

    Anyone who calls themselves a “moderate Republican” and thinks Obamacare is a good idea needs to just quit pretending and call themselves a Socialist. Government run healthcare will be every bit as good as Amtrack or the US Postal System. Stand in line for hours, hope that the surly workers in charge actually show up that day or care to do their job, and hope that you don’t cross the IRS and they decide to audit you or pass your confidential tax (and now health) information on to their buddies in other Federal organizations or Progressive blogs, websites etc. to further punish and intimidate.

    Call me crazy, but if you disagree, please print out this post, seal it in an envelope that says “Open in 2020” and marvel at the accuracy of my predictions. Just saying …

    • gerrynowotny says:

      John
      You make some valid points that I agree with. Nevertheless, what we had in health care was not working either. A biz owner should not have to file bankruptcy after going to the emergency room for chest pains and 30k of tests to discover that he had indigestion. I am hard pressed to recall the republican alternative. This is probably not the answer as far as how to pay for it. The bill was voted and passed by the House and Senate. 40 efforts to repeal and defend along with a shutdown is not creative legislation. My point is that. If it is here and it is the law then make it work for you.

      Gerry

      • Rob says:

        “I am hard pressed to recall the republican alternative. This is probably not the answer as far as how to pay for it.”

        -It was called the Ryan Plan and didn’t involve spending a trillion dollars, not mandating anything, nor spending billions on the IRS to enforce it! I suggest you read it, it would have solved most of the problems with our previous system.

      • gerrynowotny says:

        Rob

        I am not saying that is is the best solution. However, i am not convinced either that all of the propaganda is accurate either. Time will tell. I don’t think that it qualifies as the centerpiece of a government shutdown and 40 failed efforts to repeal or defund when there are other proverbial fish to fry. God or bad- it is the law and you have to deal with the cards as dealt. I am not certain for small employers that getting out of the health insurance business is such a dire problem.

        Gerry

  3. Rick says:

    Our Federal Government was designed by geniuses who did not know the future, but knew history and human nature. They designed a system that is purposefully contentious so that no one person can gain too much power, with the idea that the citizens should retain their liberty (the ultimate power). Part of this design was to give the House of Representatives the power of the pursestrings to counterbalance the Senate and the President. The fourteenth admendment madates that the Senate create and pass a budget each year. The budget would then go to the house for reconciliation and be passed on to the President for an up or down vote.
    Presently, the U.S. Senate has removed the House’s power of the purse strings by refusing to pass a budget for the last four years forcing the House to fund the government by “Continuing Resolution”, which are by law a series of short term fixes that must be continuosly renewed absent a budget bill. Without a budet bill to debate and vote on, the House can’t do anything to affect policy, effectively disempowering them. The recent house strategy was to use their only leverage and refuse to renew the Continuing Resolution,effectively defunding the government (although only 17% was defunded and closed down while 83% continued operations).

    • gerrynowotny says:

      Poltics is a full contact sport. Lots of blame to throw in many directions. We have the best system of government and trying to become a European- style country is the not the best answer for us. Not certain if the Republican PArty hurt itself or blew itself up on this fight.

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