Since its affirmation by the Supreme Court in June of 2012, the Patient Protection and Affordable Care Act of 2010 (the “Health Care Law”) has been in the forefront of long-range planning for businesses of all sizes. The requirements of the Health Care Law have been implemented in phases, with the Employer Mandate scheduled to begin January 1, 2014. The U.S. Department of Health and Human Services has created a website (www.healthcare.gov) to assist business owners in planning for the implementation of these phases.
The Employer Mandate is a provision within the Health Care Law which requires certain businesses to provide health care insurance coverage for their employees or face a penalty, on the one hand, and, on the other hand, offers some businesses tax credits for providing such coverage. In order to be in compliance with the Health Care Law, some employers will be required to provide unlimited lifetime and unlimited annual coverage for employees, including the dependent children of their employees without regard for pre-existing conditions and including dependent children until age twenty-six (26). The effects of the Employer Mandate depend upon the number of “full-time” employees employed by the particular business.
Under the Health Care Law, “Full-time Employees” include both standard full-time employees who work thirty (30) or more hours per week, averaged over one (1) month based on the prior twelve (12) months, as well as part-time employees, whom each count as a “partial” full-time employee. The part-time worker calculation is a fraction, the numerator of which is the number of hours worked by a part-time worker in an average month multiplied by the number of part-time workers employed by the business. The numerator is then divided by a denominator of one-hundred and twenty (120), which is the number of days a seasonal worker may work without constituting a part-time employee. Independent contractors are not considered part-time workers. This calculation is vitally important for the classification of a business in terms of the Health Care Law.
The following overview highlights some of the changes employers can expect as the Employee Mandate is implemented. These changes are directly related to the number of employees employed by the employer.
Self-employed business owners or sole proprietors are eligible for a tax credit for the cost of health care for themselves and their families if they earn less than four (4) times the poverty level. Such credit can no longer be used to off-set self-employment taxes, and now, must be taken against income.
Small Businesses- Up to Twenty-Five (25) Employees
Businesses with less than twenty-five (25) employees that provide at least fifty percent (50%) of the health care coverage for their employees, provided the employees make aggregate annual wages of less than fifty thousand dollars ($50,000), are eligible for tax credits. The salaries of the business owner and any family members of the owner are not considered in the calculation of the aggregate annual wages of employees.
Businesses in this category will need to file IRS Form 8941 in order to claim the applicable tax credit. For tax year 2013, the tax credit is up to thirty-five percent (35%) or twenty-five percent (25%) for nonprofits. For tax year 2014, the tax credit will increase to up to fifty percent (50%) or thirty-five percent (35%) for nonprofits, provided the employer purchases qualifying coverage on the SHOP exchange, as described below. The self-employed and sole proprietors are not eligible for these tax breaks.
Medium-Sized Businesses- More than Fifty (50) Employees
Beginning in 2014, businesses with more than fifty (50) employees will be assessed a penalty if such businesses fail to provide “affordable” health care to employees. Health care insurance is “affordable” under the Health Care Law if the coverage provided by the employer covers at least sixty percent (60%) of covered health care expenses, and employees are not forced to contribute more than nine and one half percent (9.5%) of their family income for such coverage. This penalty is assessed against the business if the employees of the business receive tax credits to purchase affordable health care coverage on their own. If the business fails to provide “affordable” health care coverage, a penalty of $2,000 per employee after the business’s first thirty (30) employees will be assessed.
In order to avoid this penalty, in providing affordable health care coverage, employers must provide an acceptable health care plan that satisfies the Health Care Law. A health care plan is acceptable if it offers “essential health benefits” and satisfies the sixty (60%) minimum expenditure and affordability requirements described above. The “essential health benefits” include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse services, rehabilitative services, laboratory services, preventive and wellness services, chronic disease management and pediatric services.
Medium-sized businesses with up to one hundred (100) employees, beginning in January 2014, will have a new market in which to purchase health care insurance for their employees. The Small Business Health Options Program (“SHOP”) exchange, which will officially open for enrollment in October of 2013, will offer a variety of qualified health plans (“QHPs”) that will allow employers to choose health care coverage that meets the requirements of the Health Care Law, but falls within a specified budget.
Large Employers- Over Two Hundred (200) Employees
Employers with more than two hundred (200) employees are required to automatically enroll new employees as they join the company in company-offered health care insurance plans. The burden is on the employee, then, to opt out of such coverage.
Large Employers- Over Two Hundred Fifty (250) Employees
Beginning with tax year 2012 and now going forward, employers with more than two hundred fifty (250) employees are required to report health care insurance premiums on employee W-2 forms.
Attorneys in Obermayer’s Business & Finance Department are available to provide guidance and assistance on these issues.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.