Employers must treat ACA stipends as taxable income

A health care reform specialist helps people select insurance plans at the free Affordable Care Act (ACA) Enrollment Fair at Pasadena City College on November 19, 2013 in Pasadena, California.

A recent IRS ruling underscores how serious the Obama Administration is about encouraging employers to keep providing health insurance to their workers.

If businesses stop offering the benefit and give employees a stipend to help cover costs on the health exchanges they must treat that as taxable income, or face fines of more than $30,000 dollars a year per worker.

There’s some concern that as the Affordable Care Act picks up steam, employers will get out of the healthcare business. But PricewaterhouseCooper’s Ceci Connolly says that overstates what she’s hearing from company executives.

"They’re saying we want to know what our options particularly for saving some money," she says. You’d think dropping employee health insurance might do that, but Connolly says the math is pretty clear.

As long as companies can write off contributions, employers and employees make out better than if worker’s got a stipend for an exchange because everyone would pay taxes on those stipends.

On top of that, Brian Marcotte with the National Business Group on Health says many employers question these exchanges.

"What’s different in terms of how care is delivered, how care is managed? Is it any better than what’s being done today," he says.

Remember many of the country’s largest employers are self-insured. Marcotte says businesses continue to believe they can do a better job controlling costs, but would be happy for the exchanges to prove them wrong.

About the author

Dan Gorenstein is the senior reporter for Marketplace’s Health Desk. You can follow him on Twitter @dmgorenstein.

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