Affordable Health Care Update - prepared for MCMOA and the MWWDA
Things We Have Learned
About Compliance with the
Affordable Care Act
Requirements for ALL businesses:
First, every business, no matter what the size was supposed to have issued a Health Insurance Options letter to all of their employees on October 1, 2013. If you have not done so, please go to the appropriate website http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf for employers that offer insurance and http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf for employers that do NOT offer insurance), download the form, fill it out for each of your employees and distribute it as soon as possible. In the future, this letter must be given to each new hire.
Determining if you are a “small business”:
Although the article is focusing on small business compliance, you need to first verify that you do indeed fall into the “small business” category. If you own more than one business, total all of the full and part time employees in all of the businesses. If this total is over 50, you should visit with your accountant to make sure that you are indeed still considered a small business. Under the ACA, similar businesses with the same ownership are all grouped into one for the purposes of counting employees and everyone employed over 30 hours per week is considered a full time employee. For part time employees, you must total all hours paid in a week and divide by 30 in order to determine the count for FTE purposes. Determining similar business ownership will be different for each business and your accountant can help make this determination.
The remainder will focus on compliance for businesses with less than 50 FTE. These businesses are not required to offer health insurance to their employees. However, if you do offer health insurance, it must meet certain criteria.
Purchasing Individual Insurance Policies:
By January 1, 2014, every person is supposed to have an insurance policy. (Obviously this is not going to be that easy) If a person does not have insurance offered to them thru the workplace, they must purchase a policy on their own. If they choose to access the “Marketplace” policies, they will likely qualify for some premium subsidy. On the Montana Marketplace there are three different companies offering three different levels of insurance. All of these comply with the requirements of the ACA.
If insurance is offered thru the workplace the employee may still opt to purchase thru the Marketplace rather than thru their employer. However, if the insurance offered thru the employer meets the minimum standards of the ACA policy and costs the employee less than 9.5% of their income, they will not qualify for any subsidy. There is a “catch” in the program that also seems to indicate that if either spouse has affordable coverage thru their employer; neither spouse qualifies for the subsidy, even if not covered thru the spouses’ policy.
So what if a person chooses to just ignore this law?
The IRS will be the enforcement agency for this law. If a person has not purchased an insurance policy for at least nine months of 2014, they will be assessed either $95 per adult and $48.50 per child with a family maximum of $285 OR 1% of their income, whichever is greater. This is the amount at the bottom of the first page, not the amount after deductions. Not to make anything easy, it is also calculated by first subtracting $9,750 for an individual or $19,500 for couples as an income threshold.
In 2015, the penalty increases to $325 per adult and $162.50 per child with a family maximum of $975 OR 2% of income above the threshold, whichever is greater.
In 2016 the penalty increases again to $695 per adult, $347.50 per child with a family maximum of $2,085 OR 2.5% of income above the threshold, whichever is greater.
If a person has insurance for a portion of the year, the penalties are pro-rated on a monthly basis. Some people are exempt from the requirement to purchase insurance. The list is a bit long, but the ones most notable for this area are anyone enrolled in a tribe and anyone making so little that they are not required to file income taxes.
This is getting long, are we almost finished?
If you have less than 50 FTE, have sent the insurance notification letter and do not offer insurance as an employee benefit, you are now in compliance. If you are not interested in the remaining details, please do read the last paragraph for some important tax information that may apply to you.
We have always offered insurance for our employees and want to continue:
First, check with your insurance agent to determine if your policy is “grandfathered”. This is a policy that has been in place since 2010 in substantially the same form. There are some limits on premium increases to employees that apply as well. If you are “grandfathered”, there are a few of the new requirements that you do not have to meet. Your agent can define those.
Second, check with your agent to make absolutely certain that your policy meets all of the minimum ACA requirements. If a business offers a policy to their employees that do not meet these minimum requirements, they could face a $100/day/employee penalty. Get this in writing.
Third, if you have been taking advantage of the tax credit available for small businesses offering health insurance, this will now only be available if you purchase your insurance thru the Marketplace “SHOP” (Small Business Health Options Program). However, it does increase to a 50% credit for those that fully qualify.
Before switching to a SHOP policy remember that this tax credit will only be good for two more years and only firms with less than 10 employees averaging less than $25,000 and paying at least 50% of the premium get the full benefit. Firms with up to 25 employees and average wages up to $50,000 are eligible for the credit but it is at a reduced amount.
Number Four. Unless you have a grandfathered policy, it is no longer allowable to pay different insurance benefits for different classes of employees. For example, all managers have their premiums fully paid, while all other employees have 50% of their premiums paid. A business may offer different levels of insurance coverage (deductibles, dental, etc.) as long as each policy meets the minimum requirements AND the business pays the same amount toward any premium for all employees.
And Five. All new employees must be covered within 90 days of employment. Many businesses may have to change their benefits package a bit for this requirement. However, this may trigger that $100/day non-compliance so it is VERY important. Work with your insurance agent to ensure that there are no gaps that an employee could fall into. For instance, if you simply adopt a 90 day waiting period for insurance, a new hire could start on September 15th; December 15th would seem like the date benefits would begin. However, your policy likely only adds enrollment on the first of the month. By January 1st, the employee would actually have been hired for 107 days and you would be out of compliance.
Finally, if your business offers a hybrid benefits program where you offer pre-tax dollars for individual premiums or a health savings account, please visit with your accountant soon. The regulations on these changed somewhat and are fairly case specific so they can’t be well explained here.
For those that skipped to the bottom:
Beginning in 2013 a .9% tax (Hospital Insurance Tax) will be levied on all income in excess of $250,000 on joint returns; $125,000 on married filing separately; and $200,000 on individuals. BUT be aware that the IRS will be including any pass thru entities and closely held corporations in your calculations. If the total of all of your business interests plus your personal taxes reaches this threshold, you should visit with your accountant about your options.
Beginning in 2018, there will be a 40% excise tax on “Cadillac Policies”. This is defined as an individual policy whose premiums are more than $10,200 annually or a family policy costing more than $27,500. If your current insurance premiums exceed this amount and you are not over 55 or in a high risk profession, you need to visit with your insurance agent soon. The 40% tax will apply to the amount in excess of these numbers and be assessed on the insurance company to pass thru.
As an employer, you need to be aware that an end of the year bonus could have serious financial costs for your employees. When applying for insurance on the exchange, your employee estimated his 2014 income and his subsidy was based on this amount. If the bonus is unexpected and increases his pay to an amount that would have resulted in a lower insurance subsidy, the employee may be liable to repay the entire subsidy on their 2014 taxes. Please take this into consideration when offering bonuses in 2014.
When assessing the prices of the ACA policies you will discover that although premiums cannot be increased for prior conditions, they can assess up to a 50% surcharge for tobacco use. Many states have limited this to a lesser amount but Montana has not taken any action so the full amount can be assessed.
The information for this article was gathered from presentations offered by the American Beverage Licensees, the Amusement Machine Operators’ Association, Patty Nelson, CPA, Anderson Zurmeuhlen and State Auditor Monica Lindeen. Further information was gathered from the Department of Labor, HealthInsurance.About.com, Healthcare.gov, Coventry Health Care, Lexology.com, Hinkle Law Firm LLC and Forbes.com. Many of the detailed lists of requirements and exemptions can be found on these websites.