With the New Health Care Act Upheld, Employers Must Prepare for Future Challenges

The recent Supreme Court decision upheld almost all of the Patient Protection and Affordable Care Act (PPACA). Although many of the provisions of the PPACA are already in effect, businesses, large and small, need to prepare as more provisions of the Act are implemented over the next few years. While many of the provisions of the PPACA impose new requirements for larger businesses, the Act will impact small employers as well. This article will attempt to highlight those provisions of the Act that are of special concern for employers.

 

Large Employer Requirements

 

If an employer qualifies as a large business (defined as having 50 or more full-time equivalent employees), then the employer must either provide employees with employer-sponsored coverage that meets specified requirements or pay certain fees. The coverage requirements are too detailed to explain in this article, but they provide minimums as to the coverage amount and the scope of the coverage. These requirements include non-discrimination for pre-existing conditions, coverage to children until the age of 26 (with certain exceptions), and more. In addition, the coverage must be affordable. Health care coverage is affordable if:

  1. the insurance plan pays for at least 60% of the covered expenses for the typical population; and
  2. none of the employees pay more than 9.5% of the family income   for the employer’s coverage.

You can access more information on the other requirements for group health plans at the IRS newsroom – http://www.irs.gov/newsroom/article/0,,id=227943,00.html.

 

A large employer which does not provide for access to group health plans will be subject to certain fees. For instance:

  • If the employer does not offer affordable coverage and has at least one employee receiving a premium tax credit or cost sharing subsidy in a state-run insurance exchange (where the employee can choose a state-approved plan), then the employer must pay an annual fee of $2,000 multiplied by the number of full-time employees minus 30. If an employee’s household income is equal to or less than 250% of the federal poverty line, then the employee may receive a cost sharing subsidy whereby the federal government helps fund deductibles and copayments. The aforementioned premium tax credit is available to anyone that:
  •  
    • has a household income that is equal to or less than 400% of the federal poverty line;
    • partakes in an employer-sponsored plan that requires a contribution of more than 9.5% of the employee’s household income; or
    • partakes in an employer-sponsored plan that covers less than 60% of the total benefits cost under the plan.
  • If the employer does not offer affordable coverage, then the employer is subject to an annual fee of $3,000 for each full-time employee with a tax credit, with a maximum fee of $2,000 times the number of full-time employees minus 30. For example, if a business has 60 full-time employees, all of whom receive a tax credit, then the employer is subject to a fee of $60,000 (60 employees minus 30 x $2,000). This is because the fee of $3,000 per full-time employee receiving a tax credit would exceed the maximum of $2,000 per full-time employee minus 30.

All penalties increase proportionally with the rise in cost of the insurance premium for the employees.

 

Effects on Small Employers

 

Employers with fewer than 50 full-time equivalent employees are exempt from the requirement to offer such coverage. However, there is a small business tax credit to encourage small businesses to offer affordable health care coverage. To be eligible for the tax credit, the employer must:

  1. have 25 or fewer full-time equivalent employees;
  2. pay the employees less than $50,000 in average annual wages; and
  3. pay at least 50% of the employee’s health insurance premium.

Currently, this tax credit covers a maximum of 35% of the employer’s contribution towards the insurance premiums. In 2014, this tax credit will increase to a maximum of 50%. If the small employer is tax exempt, then the tax credit is up to 25% currently and will go up to 35% in 2014. Even if the tax exempt employer has no taxable income, the employer may receive this credit as a refund if it does not exceed the employer’s Medicare tax liability or income tax withholding.

 

Timeline for the Implementation of PPACA Provisions

 

The employer penalties described above do not take effect until January 1st, 2014. However, the small business tax credit is already in place. Many of the other requirements of PPACA currently in place relate to changes in the Medicare and Medicaid programs. In order to follow the implementation of PPACA in its entirety, please visit: http://healthreform.kff.org/Timeline.aspx. This link provides a timeline and other vital information regarding what will be implemented each year.