Health Care Reform, Part II

The Affordable Care Act of 2010 was a massive overhaul of the U.S. Health Care System.  Its provisions have far-reaching effects for the business and individual sectors. 

This is the second of three discussions by us on this topic.

 One of the most controversial aspects of the Affordable Care Act of 2010 is the shared responsibility provision that relates to businesses.

So what does this provision entail?

The employer shared responsibility mandate, originally set to begin in January of 2014 and now set to begin in 2015, requires large employers – those with 50 or more full-time (or full-time equivalent) for the preceding year- to offer affordable, minimum-value health care coverage for their full-time employees or possibly pay a penalty.

There a couple of issues here:

1)      Although the penalty, if assessed, begins in 2015, because it draws from the previous year’s data, the coverage actually needs to be in place in 2014.

2)    50 or more employees sounds like an easy statement and also sounds like it eliminates many businesses. In fact, there is much more to it. A worker is considered a standard full-time employee if he/she works more than 30 hours per week. Additionally, part-time hours come into play. The calculation for part-time workers (who can possibly add to the full-time total) involves taking the total number of part time hours and dividing it by 120. This total is then added to the number of full-time workers.

 Of course, there are a couple of exceptions here. An exemption applies when a business does not exceed this full time equivalent number for more than 120 days and the employees in excess of 50 were seasonal. Also, the first 30 employees are subtracted from this total when calculating a possible penalty.

In short, your business may be subject to the health care mandate provisions.

How does an employer know if the coverage that it offers is affordable?

If an employee’s share of the premium for employer-provided coverage would cost the employer more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee.

If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost option that also meets the minimum value requirement.

What are the potential penalties for an employer?

1)     A no-coverage penalty can exist where an employer does not offer minimum essential coverage to at least 95% of its full-time workers.

2)    A lacking minimum value or affordable penalty can exist if the insurance is unaffordable of lacks minimum value.

So, what options are available for an employer?

1)    Split up entities to keep below the 50 FTE.

2)   Discriminate on insurance/pay –insurance policies.

3)   Consider the possibility of leasing companies for employee needs.

4)  Keep employees below the 30 hours per week with the knowledge that the full-time equivalent calculation will still be needed.

5)  Consider the use of independent contractors.

All of the above options are not without their own tax considerations.

Kasperek and Company Accountants would be happy to discuss the tax considerations of your health care concerns.