Obamacare for Law Firms

Riding the train to NYC and this is my first attempt to complete to complete on my Smart phone. Yes, I know it is an oxymoron for me to use anything with the word “smart” pertaining to myself.

The level of hysteria and propaganda has reached epic proportions. I find myself unable to listen to anything about Obamacare on TV or the radio. It is truly nauseating listening to either side. It is my understanding that the Department of Defense Language Institute is offering a quick immersion class in Doublespeak, the official language of government!

There is more than enough blame to go around. But here is the point, it is the law of the land. The only question that matters is not whether the republicans should one more time (41st time) to repeal Obamacare but how can you make the law work for your benefit as the owner of a small or medium law firm can benefit from the law.

Here is the Plan and rationale. Drop your group health insurance effective January 1, 2014. Have your employees apply for individual coverage on the health insurance exchange effective January 1, 2013. Tax subsidies become available January 1, 2014. Coverage is available without medical underwriting

Individuals will qualify for subsidies under two conditions:

(1) The insured’s “household income” has to be less than 400% of the federal \poverty level. 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 the employee, employee’s spouse, and any dependents.

(2) Second, if the employee has an employer who 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 will qualify.

The goal of the subsidy is to make sure the individual does not spend an unreasonably high percentage of personal income on health insurance. The range is 2 percent of income up to 133 percent of the FPL and 9.5 percent at 400 percent of the FPL. The subsidies are based on the cost of a “silver” plan. Premium will vary according to where the employee lives, and the subsidies will always cap your premium at the appropriate percentage.

An Example

A law firm in Dayton, Ohio previously provided group coverage for his existing 22 employees. The monthly premium under the existing group was $23,900 per month or $1,086 per employee. Family rates were as high as $2,100 per month, Individual rates were as high as $762 per month. The existing plan had co-payments up to $1,000/$2,000 Out-of-Pocket. The average age of employees is 45 with a $70,000 average salary.

The premium under Obamacare for a family of four (age 45) including two children is outlined in this paragraph. The average salary is 297 percent of the federal poverty level. The unsubsidized premium is $8,737 or $728 per month for Bronze level coverage. The maximum percentage of income to be spent on health insurance per employee is 6.84 percent. The employee’s cost for coverage after subsidies is $4,790 or $399 per month for Bronze coverage. The cost of the Silver Plan is $10,541 or $6,595 after subsidies. The monthly premium after after subsidies is $550 per month.

The cost savings are $7238 per month or $86,856 per year.

The law firm provides a MERP annual benefit equal to $5,000 for out of pocket reimbursements for each employee. Each reimbursement is tax deductible to the law firm and non-taxable to the employee. The reimbursements are not subject to FICA and FUTA withholding.

The MERP will cover virtually all of the employee’s out of pocket expenses. The bottom line is that the employee has a stronger benefit at a lower personal cost as does the law firm.

One of the things that you owe yourself and employees is to see how Obamacare affects you. If you want to see an analysis for your firm, drop me a line.

Remember to count your blessings today!

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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