Open enrollment for enrolling in a 2020 health insurance policy through the marketplace (Affordable Care Act) ends on December 15, 2019. If you haven’t enrolled or renewed yet, do it now. Unless you have significant change in circumstances like losing health coverage because you lost your job or aged out of your parents’ policy, moving, getting married, having a baby, or adopting a child, you cannot enroll in a policy through the marketplace outside of open enrollment. The great news is that starting in 2020, an employer opening one of the two plans available is considered a special circumstance and once that plan is opened, a nanny has 60 days to purchase a policy. To get started go to heathcare.gov.
Now is also the perfect time for employers and nannies to talk about adding health care coverage as a benefit included in the nanny’s compensation package. It’s a sought after benefit for nannies searching for a new job and for those currently in a job looking for a raise or expansion of benefits. What I love the most is that employers can offer it at no cost if they structure it right.
Jay Schulze, the President of HomeWork Solutions, generously shared his expertise on this subject in a recent Nanny Success podcast. (Click here to listen in.) He also shared two articles to help explain the options available.
There are two choices: QSEHRA and ICHRA. Here are my big takeaways as I unpacked these two options with Jay.
- require a nanny to have a qualifying health insurance policy (e.g. allows pre-existing conditions).
- can begin at any time during the year; nannies will no longer be unable to get health insurance if they miss the narrow window of open enrollment. That’s a huge gain for nannies as they find jobs throughout the year.
- The nanny cannot be covered by their spouse’s health insurance plan. If they are, skip the ICHRA and check out the benefits of the QSEHRA.
- The nanny cannot get a health insurance policy subsidy from the government under this option so it’s best suited for caregivers that earn a high wage and don’t qualify for a significant subsidy.
- There is no limit on an employer contribution so nannies that have high insurance premiums and/or high reimbursable expenses can really benefit from this.
- If the employer and nanny agree on a high benefit amount and the nanny doesn’t use the full amount, the employer can pay the remaining balance out in TAXABLE dollars. This has to be detailed in the nanny contract and is in essence, an end-of-year bonus.
- There is an annual limit on an employer’s contribution of $5,250 ($437.50 a month) for an individual policy or $10,650 for a family policy. If the nanny has high monthly premiums and/or other expenses, check to see if they quality for the ICHRA.
- If the nanny works multiple part-time jobs or in a share, each employer can offer a QSEHRA and each can have an independent limit so a nanny could receive the cap from each employer. For nannies working more than one job and whose monthly premiums exceed the limit even with a subsidy, this is a great option.
- If the nanny is covered by their spouse’s policy but would still like to receive tax free dollars to get reimbursed for deductibles, co-pays, prescriptions, and other medical expenses, this is the option for them.
- A nanny can get both a government subsidy for a health insurance policy and reimbursed of expenses through your employer however the caregiver can’t double dip, the nanny’s subsidy is offset by the employer’s reimbursement.
- If the nanny is a low earner and qualifies for a large subsidy, it might be more financially beneficial to skip the heath care reimbursement benefit from the employer and take the full subsidy. There is no set formula for figuring this out, you have to do the math for both scenarios and choose the best option from there.
There is no limit or minimum requirement on the number of employees an employer must have to provide a health care benefit anymore. Those previous requirements are gone.
The paperwork is very simple. The downloadable packet Homework Solutions provides is all you need.
2020 Health Care Benefit Math
I did a sample of what the math might look like offering a health care benefit vs. not offering a health care benefit. If the nanny is willing to drop her hourly rate, the employer can offer the benefit at the same cost as the original budget while the nanny earns essentially the same amount or a bit more and receives a boost in overall compensation. It’s one of the rare win / win situations.
Disclaimer: Amounts won’t be this clear cut when offering a health care benefit. This is to give you a general idea of how it works. If the nanny works a flexible schedule or a lot of overtime outside her typical schedule, the value of the benefit changes. Please see a tax professional for how offering a health care benefit will work in your particular situation.
The employers want to keep the nanny pay around $1,000 a week, knowing they’ll have to pay taxes on top of that. They nanny wants to earn around $1,000 a week, knowing she’ll have to pay taxes and will end up with $800 to $825 in take home pay then $700 to $725 after paying her health insurance premium. There’s not room in the employers’ budget for a health insurance benefit even though it’s important to the nanny; she cannot go without health insurance.
My advice in these situations is to always play with the numbers until you find a balance that allows both sides to get their needs met here. For those looking for a raise, I suggest raising the employer contribution and passing the tax savings onto the nanny as additional income. With all the savings combined, it works out well for both parties. Homework Solutions can help with the math and give you more exact numbers.
NOTE: In this example, I use a very low tax rate for the nanny, 10%. Most nannies pay much more, generally between 15 and 30% in state and federal income taxes. The more money the nanny pays in taxes, the more money she’ll save here.