In my book The Complete Guide to the Affordable Care Act, I discuss the Act in great detail. Monday we discussed Health Exchanges. Tuesday we introduced SHOPs for Small Businesses. Wednesday we are discussed Provisions for Individuals. Today we will talk about the Requirements of Small Businesses.
As I mentioned in Chapter One, there is a common misconception about the Affordable Care Act and small businesses. The Affordable Care Act does not include an employer mandate. However t it does require some employers to pay a “shared responsibility fee.” This shared responsibility fee or penalty is paid by some employers that don’t provide affordable coverage or provides coverage to employees that cover less than 60 percent of essential healthcare. This penalty is paid by the employer if their employees purchase their insurance from the Healthcare Exchanges through premium tax credits.
Under the Affordable Care Act an employer that has 50 or more full-time employees that do not offer coverage and have at least one full-time employee that receives a premium tax credit is charged a penalty of $2,000.00 per full-time employee. The first 30 employees are excluded from the assessment.
If the employer that offers coverage that is either unaffordable or inadequate and who has at least one full-time employee receiving subsidized coverage in the Exchange must pay an annual fee of $3,000.00 for each full-time employee receiving the premium tax credit. The maximum penalty is equal to $2,000.00 for each full-time employee. The law excludes the first 30 employees from the assessment.
Coverage is considered unaffordable if the employee must contribute more than 9.5 percent of their household income for their premium. Conversely, coverage is considered inadequate if the plan does not cover at least 60 percent of a person’s medical costs.
The Affordable Care Act places three requirements on employers to disclose information to employees either at the time of hire, or by March 31, 2013 for current employees
1. Employers must provide written notice informing employees about State’s Exchange, including a description of how the employee may contact the Exchange for assistance.
2. The employer must notify employees if the plan offered by the employer is inadequate.
3. Employers must notify employees that if they purchase a health plan through the Exchange, the employee may lose the employer’s contribution to health benefits offered by the employer.
Employers are to provide a “minimum value” plan to their employees. As I mentioned before, employers with 50 or more full-time employees or equivalents face penalties if the plan that they offer does not offer all employees “affordable” coverage with an actuarial value of 60 percent. Generally that means that the employees total out of pocket expenses won’t be more than 40 percent of the cost of benefits under the plan. The calculation emphases are on four “core” benefits:
1. Physician care
2. Hospital and emergency care
3. Pharmacy benefits
4. Lab/imaging services
Employees that are not offered access to an employer’s plan that meets these minimum value thresholds, and who have household income of less than 400 percent of the Federal Poverty Level, will be eligible for premium subsidies. These premium subsidies will be delivered in the form of tax credits for coverage through the Health Insurance Exchanges.
On April 26, 2012 the Internal Revenue Service issued Notice 2012-31. This notice discussed eligible employer-sponsored plans as defined in IRC § 5000A, that provides minimum value plans within the scope of IRC § 36B(c)(2)(C)(ii). The Notice proposed three ways for employers to calculate whether their group health plans met the standard for minimum value in 2014. These options are:
1. A Calculator – This calculator will be made available by the Department of Health and Human Services (HHS) and the Department of Treasury. The calculator is used by employers imputing information about their plan benefits and the percent of cost sharing with employees.
2. An Actuarial Certification – Employers that sponsor plans that have non-standard features would use a combination of the calculator and an actuarial certification.
3. Safe Harbor Checklist – Instead of using the calculation or actuarial certification, employers can use the “safe harbor” checklist. The safe harbor checklist lists the four core benefits (mentioned above) and the minimum cost-sharing levels the employer can use to reach the 60 percent actuarial value. If the cost sharing level for any of these core benefits exceeds the allowable amount on the safe harbor checklist, the employer’s plan would not reach the required “minimum value.”
The determination of whether or not an employer is potentially liable for penalties is made on a controlled group basis. The determination each year of whether or not the employer would qualify as a “large employer” (defined as an employer with 50 or more full-time employees) for the next calendar year using the employer’s current calculation of full-time employees. The calculation of employees for the purposes of being liable for the penalty is applied to employers that employ at least 50 full-time employees, or a combination of full and part-time employees on average during the year. The Internal Revenue Service’s example of this calculation is “40 full-time employees employed for 30 or more hours per week on average plus 20 half-time employees employed 15 hours per week on average are equivalent to 50 full-time employees.” For 2014 only employers are permitted to use a transition rule to make a determination on whether they are considered a “large employer” based on any period of at least six consecutive months during 2013, rather than the entire calendar year. The requirements of a large employer are enforced on these employers. This would include for-profit, not-for-profit, and governmental employers.
These penalties would apply to an employer if they fail to offer coverage for their full-time employees and their dependents. For the purposes of this penalty, dependents are defined as children, including biological, adopted, foster, and stepchildren up to age 26, but not spouses. During the 2014 plan year, employers are given time to restructure their plans so that they will be in compliance with this rule.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle, and The Complete Guide to Hiring an Accountant, available on Nook and Kindle.