You may or may not have heard about the controversy surrounding Zane Benefits, a company that has won over many small businesses by promising them that they can cancel their group health insurance plan and still offer their employees a health benefit. Zane sells software that helps small businesses reimburse workers – with tax-free dollars! – when they buy their own individual insurance policies.
At least that is how it has worked so far. All of the lawyers and other experts that were interviewed say that Zane’s plan is probably not legal – or if it is, it will not be for long.
Clinton Baller describes his own experience with Zane below. Mr. Baller had long offered group insurance to his four employees (and himself) at Avid Payment Solutions, a credit card payment processing company in Birmingham, Mich. But late last year, his renewal notice prompted him to go looking for insurance on the new individual exchange created by the Affordable Care Act.
“My personal premium was going to go from $2,100 to $2,500 a month,” he said. “And one of my employees – she had a two-person policy, and she was going to go to $2,000, and I was contributing half.” (Mr. Baller said that the increases for 2014 were no higher than the increases he had experienced in recent years, before the Affordable Care Act kicked in.) On the exchange, his employee found a policy that, after a subsidy provided through the law, would cost her only $150 and him $500 a month. When he learned about Zane and its promise that he could provide tax-free employer contributions, individual insurance seemed too good to pass up.
At the same time, Mr. Baller’s sales manager, a former health insurance agent, got word that the state’s Blue Cross/Blue Shield company was paying 3 percent commissions along with a $300 bonus for each individual policy an agent brought to the carrier – even if it was purchased on the government exchange. This, too, seemed irresistible, especially when packaged with Zane, which also pays a commission to agents who sell the company’s software. So he started another company, an insurance agency, to sell employers on the Zane arrangement and employees on individual insurance.
“You can’t look at the A.C.A. and not realize the opportunity that is there,” Mr. Baller said recently. “So the opportunity that we saw was not only to go out and sign up individuals, but to talk to businesses like mine that are being crushed by the premiums.” If they succeeded, they’d profit on two fronts: first when the business signed up with Zane and dropped group health insurance and then when the employees purchased their own insurance through his agency, the Baller Group.
He also decided to try to sell in the individual market, in particular to low-income African-Americans in Detroit, whom he figured are likely to be open to the health law, widely known as Obamacare, and to qualify for the subsidies that make it truly affordable. In this effort, the Baller Group uses the name 855-BAMA.
But at about the time the controversy about Zane began circulating, Mr. Baller started hearing the same doubts about whether the Zane plan was legal. So where does that leave him?
In the late spring, Mr. Baller went back to Zane, several times. “I pressed them really hard,” he said. “They insist up and down what they’re doing is legit. And frankly I believe it, because otherwise they’d be shut down by now. And the people who are mostly arguing against it are the incumbents, who stand to lose when businesses decide to convert from group coverage to independent coverage.”
Mr. Baller remained committed even after his own accountant spoke to a lawyer, who came back vehemently opposed to the idea. Mr. Baller chose not to talk to a lawyer himself. “First of all, lawyers are just going to cost a lot of money and to evaluate something I’m pretty able to evaluate on my own,” he said. “And it’s not settled. I don’t think anyone can definitely say yes, it’s legal, or no, it’s not.”
Still, he does suspect that even if the Zane plan technically passes legal muster now, the Internal Revenue Service may well revise its rules to foreclose any opportunity for an employer to provide tax-free reimbursement for individual insurance.
As it happens, it’s not an issue that has come up with a prospective client: the Baller Group has yet to convert any businesses from group coverage, though it has signed up 875 individuals. “Businesses don’t feel enough pain yet,” he said. “There isn’t this massive realization that there’s this alternative. So many of these business guys are Republicans who are so ideologically opposed to Obamacare that they’re blind to the fact that it’s law of the land, and the opportunities that are inherent to it.” Suffice to say, he will not be making his case to business owners as 855-BAMA.
Mr. Baller thinks the day of reckoning may come in October, when small-business owners get their renewals for next year and perhaps face the kind of sticker shock he did. So what will he tell them about the chances that the Zane approach will survive legal challenge? “I would just be personally honest with small businesses and say you could do it either way” – using either pre-tax dollars or post-tax dollars. And he said he would advise them that some lawyers think the strategy is illegal: “We’re going to be very careful about making representations about what these people are getting into.”
As for his own company, Avid, Mr. Baller said he plans to wait until the end of the year before he decides whether his own contribution will be pretax or post-tax. He may decide to do it post-tax even if the I.R.S. does not rule on the issue this year. Giving his employees raises to cover the tax obligation on policies bought on the individual exchange will still save him money over a group plan.
“If you’re in a smaller group – three or four people – and they’re all in their 50s, like our group, the policy premiums are high compared with an exchange policy,” he said. “Plus I can give my employees choice over what kind of policy they want.”