To remain compliant, cannabis companies need to factor in health insurance requirements — early and often — starting now.
Unless they have been responsible for benefits in the past, few people realize that many regulations regarding health insurance are overseen by the IRS, the U.S. Department of Labor and the U.S. Department of Health and Human Services, to name a few. The IRS is the police and filter for some key health insurance compliance, so overlooking this aspect of business operations can possibly open the door to an IRS audit — a slippery slope on which no one wants to stumble.
Despite Republicans’ best efforts, the Affordable Care Act, most commonly known as Obamacare, still stands as the law of the land for the foreseeable future. Efforts to repeal it have continued to fall short. For employers, the Affordable Care Act contains counting, tracking and reporting requirements that all companies should be aware of and assess repeatedly throughout the year. Additionally, if your organization is deemed an “applicable large employer” — or an ALE — you must comply with a multitude of additional rules. And there is no exception for the cannabis industry.
The rules include added features that organizations with investors must factor in, at times making it easy for smaller companies to assume they’re not an ALE and overlook multiple requirements. It should be noted that this article is just an overview; all the complexities of health care regulations can’t be detailed here.
The Affordable Care Act classifies an ALE as an employer with 50 or more full-time and full-time equivalent (FTE) employees on average in the prior calendar year.
To determine a company’s employee count, the Affordable Care Act also follows an IRS rule where an investor’s other business ventures may impact who is counted and thereby push a small cannabis company into the ALE size category — subjecting each individual business to the large employer “play or pay” rules.
It makes no difference if an investor owns stakes in multiple companies that are in completely separate and unrelated industries. According to the IRS website, “This longstanding rule generally treats companies that have a common owner, or similar relationship, as a single employer. These are aggregated companies. The law combines these companies to determine whether they employ at least 50 full-time employees including full-time equivalents.”
Employers that are considered ALEs are required to either offer adequate, affordable health insurance to 95% of their eligible employees, or, if they don’t, to pay one or more employer payments to the IRS (commonly called the “employer penalties”). These are some of Obamacare’s “shared responsibility” provisions, asking large employers to step up and insure their employees.
– If you are an ALE and have more than 50 FTE employees, you can “play ball” in offering coverage that fits the requirements. You’re good to go, provided you track and report that properly to the IRS.
– If you are an ALE and you don’t meet the criteria, you’re required to track and report that status as well, and potentially pay an employer shared responsibility payment (penalty) to the IRS. These penalties can be huge.
What you can do
It’s recommended that you establish a strategy regarding health and welfare benefits and intentionally develop a corporate culture that inspires loyalty irrespective of the rules — attracting and retaining a quality crew will depend on it at different phases of your organization’s growth, especially as labor markets tighten, or turnover brings excessive training and inefficiency costs and risks.
To be clear, these Affordable Care Act rules don’t address when you will want to offer medical insurance, but instead establish who has to comply with the counting and reporting requirements beyond offering insurance. And the IRS asking for a look behind the curtain is the price of not knowing or complying.
Here are some key steps toward compliance:
– Ask your CPA if you’re able to file taxes as a “controlled group” due to your investors’ ownership concentrations. If the answer is yes, then you’ll need to work together with those other companies that comprise the controlled or affiliated group to count your collective employees and determine if your company is classified as an ALE.
– Determine if you’re an ALE using the ACA formulas, IRS guidance and Q&A’s, noting that startup and ongoing companies have slightly different snapshots of time in which they’re required to count. Be aware that there are excludable employees — those covered by the Department of Veterans Affairs and Tricare (military coverage), as well as some seasonal workers. Cannabis growing operations and other agricultural organizations will want to know and apply the seasonal worker rules to their best advantage.
– Periodically confirm with your CPA whether you’re a “controlled group,” as that status could change with investor and ownership changes.
– Find an experienced and trained health insurance broker, health insurance compliance consultant or Employment Retirement Income Security Act (ERISA) attorney, along with your CPA to help with this. Take note: This expertise is specific to health insurance and not liability or other property and casualty coverage. Because of the complexity of the laws, please don’t go at this alone or without having a top compliance health insurance compliance expert in your corner — a trained, experienced and insured health insurance adviser is critical.
– I recommend you confirm that your health insurance adviser is not just knowledgeable, but also insured for this type of compliance consultation. (Many insurance advisers do not have errors and omissions insurance that covers them for Affordable Care Act and other regulatory consulting.)
– Ask how and what the adviser is charging or being paid, as well as the scope of services that are included. This will vary based on the adviser’s capabilities, the size of the employer and size of health plans being managed. Outsourcing some or all of this consulting to a qualified and trusted employee benefits broker will not only simplify the process, but funding it may be included in commissions already being paid for placement and service of your health insurance contracts and limit additional consulting and legal fees.
This subject might be deadly boring, but it can be a fatal flaw to not be aware of and compliant with all IRS regulations — including those in the Affordable Care Act and the many other health insurance laws.
Dede Kennedy-Simington is the president of BenAssist Health Insurance Services, LLC. In late February, she went to Washington, D.C., to lobby on health care policy and will provide a follow-up in a future issue.