As discussed in previous posts, a keystone element of our nation’s health care reform is the mandate for every American to have health insurance. An incentive proposed to promote such a change is a tax penalty placed on both family households and employers who do not have/offer health insurance. The questions that remain are what does this mean for small business owners, and what can they do to offer quality health insurance to their employees without breaking the bank?

Currently an employer who has a payroll less than $250,000 would be exempt from any penalty tax related to offering health insurance to their employees. Where the penalty really comes into play is with the businesses whose payroll ranges from $250,000-$400,000 a year. If an employer has a payroll of $400,000 or more they would be subject to an 8% penalty if they did not offer health insurance, and those who have a payroll ranging from $250,000-$400,000 would be subject to a penalty slightly less. According to an article I read in the Wall Street Journal the average payroll for a business (in the year 2006) with 5-10 employees was on average $350,000 a year. Hence, such a tax penalty will hit closer to home than one may think.

So what can employers do to offer insurance to their employees?

My suggestion to all small business owners is to set up and Health Reimbursement Arrangement (HRA). This is a sanctioned program that allows employers to compensate the medical expenses of their employees. The HRA is a fund created by an employer that functions to reimburse any medical expenses incurred by employees. Employers are also eligible for tax benefits when implementing a HRA; namely, any qualified expenses are tax deductible.

If you are a small business owner and looking to be exempt from tax penalties associated with health insurance, come visit us at MyInsuranceExpert.com.