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Tuesday, May 18, 2021

Small-business owner assumes risk, gets reward for being one-man HRA

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Particularly during tough economic times, small employers find it more difficult than their larger peers to offer employees health care coverage. However, some small-business owners have used the recession to spark creativity in finding ways to ensure that their employee family is provided for.

One such individual is Thomas Johnson, owner of Thomas A. Johnson Furniture in Lynchburg, Va. Johnson can’t afford to provide health benefits for his eight employees, so he pays for their medical and prescription drug expenses out of his own pocket.

Johnson founded his company in 1996, a mere three years after he emigrated to the United States from Ghana with just $20 and a determined work ethic. Upon his arrival, he began to read autobiographies of former U.S. presidents – absorbing the knowledge and tenacity of the nation’s forefathers.

“America is a good experiment,” he says. “If we work hard, we create a great country. [The founders] laid the framework for us to succeed, but we need to preserve that same spirit.”

For Johnson, part of that preservation translates into paying for his employees’ health care costs without a defined medical plan. “[My employees] are a part of my family,” says Johnson. “They’re happy. It’s very contagious, the energy here.”

Apparently engaged and energized by Johnson’s generosity, his employees post impeccable productivity levels and spotless attendance records, he reports.

“They’re always here,” he says, adding that he has to force them to stay home for sick days – and pays them for that time away in full.

He says paying for the medical expenses incurred by his employees is not a big price to pay for employee contentment. “It’s not that much – $100 here, $150 there. I’m getting away with it for now.”

Which raises the question: What happens when a major medical claim comes in? What if one of his employees is diagnosed with cancer?

That’s where the government comes in, he says. Though he doesn’t favor a public option as part of the ultimate health care reform package, he does support the idea of a small business cooperative to even the playing field so that small employers will have the strength and the voice to negotiate.

Still, he acknowledges that in the meantime, he’s holding his breath. “Thankfully, none of my employees have suffered any major illness,” he says.

Johnson should be thankful – for more reasons than one, legal experts say. He may have the underpinnings of a health care plan, which means that he could be required to pay for a hefty claim later down the road, based on the precedent he sets now.

Penny Wofford, a partner at Ford & Harrison LLP’s Spartanburg, S.C., office, explains:

“Under ERISA and the Internal Revenue Code, if you’re providing reimbursement for medical expensesfor two or more employees, then you have an ERISA health plan. It just happens to be a fully self-funded plan. So, I would be concerned if employers are going to reimburse employees out of their own pocket. Even if they don’t have a plan document, they still have an ERISA plan, and they have to comply with all of ERISA’s requirements.”

Further, even if not considered a health plan, Johnson’s actions could be construed as gifts.

“Gifts that employers give to employees are treated as taxable wages under the Internal Revenue Code,” Wofford says. “So, acash gift as a reimbursement to employees formedical expenses – if not offered througha plan – may bereportable on the employee’sW-2 and subject to withholding and income tax.”

Wofford’s points could raise even bigger problems for Johnson, should one of his employees incur a serious medical claim. However, he insists that he won’t be forced to pay for catastrophic expenses, as he clarifies that he does not have a formal policy: “I just do it.”

Besides, he wonders, what is the alternative?

“What if I do nothing and they get sicker?” he asks. After all, “they’re very important to my journey of developing this business.”

Wofford advises: “There are a lot of options you have, short of sponsoring a major medical plan, if you want to help your employees out in that area.” She advocates annually bringing in a nurse practitioner to do routine checkups and screenings, hosting a health fair or setting up a medical reimbursement plan.

Health care, half off

Johnson isn’t the only small employer trying new methods for getting workers covered. Exhibit Concepts Inc. – which designs and builds exhibits for trade shows, museums and permanent installations – has a more conventional, but still generous approach: The company has a $5,000 deductible for singles and $10,000 for families, but reimburses employees for half of their medical expenses.

Kelli Glasser, president and COO of Exhibit Concepts Inc., says it behooves employers to invest in employees’ health in any way they can.

“We do, as a company, have a stake in the morale and productivity of our employees and in making sure that the employees and their families are healthy, because if they or their family has a serious health care crisis, it can have an effect on their productivity, which directly affects the company,” she explains.

The company provides health reimbursement accounts managed by a third-party administrator that are completely company-funded. It also offers flexible spending accounts that allow its 87 employees to pay for the remaining half of the claim.

The high deductible and health reimbursement plan offering has also changed employees’ consumer behavior “from the standpoint that if you’re going to pay out-of-pocket versus paying $10, you’re going to think about it more. I don’t think it stops people from going to the doctor if something is really wrong, but it makes them think about every little sniffle,” Glasser says.

Glasser believes that those in need of chronic care and medicine continue to receive and seek out these services, though the average employee, on the other hand, is probably paying less.

“There’s a trade-off there. Maybe those with chronic diseases end up paying more [with the high deductible], but we try to offset that with the reimbursement and by providing the flexible spending account.”

In addition to the reimbursements, they are able to provide their employees with free preventive care.

Says Glasser: “We always try to sprinkle a little good in with the bad.”

© ©2009 Employee Benefit Adviser and SourceMedia, Inc. All rights reserved.. Displayed by permission. All rights reserved.

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