This column is about health care. Specifically, it tries to shed some light on the Affordable Care Act (ACA), also known as “Obamacare.” This landmark legislation is, in large measure, designed to achieve health-care equality for all Americans, particularly the 50 million of us who are currently uninsured. Uninsured Americans include the unemployed, part-time employees, […]
This column is about health care. Specifically, it tries to shed some light on the Affordable Care Act (ACA), also known as “Obamacare.” This landmark legislation is, in large measure, designed to achieve health-care equality for all Americans, particularly the 50 million of us who are currently uninsured. Uninsured Americans include the unemployed, part-time employees, and minimum wage / low pay jobs, as well as those employed by employers who cannot or choose not to offer an employee health-insurance benefit.
Keep in mind that, as you read this column, the United States is the only industrialized nation on the globe that does not have some form of national health-insurance benefit. In my studies of Russia, France, the United Kingdom, Canada, and South Africa, I can assure you that there are no perfect systems yet designed and operational. However, most Americans fail to recognize that we do have national health-insurance programs for the poor and indigent population (Medicaid), our elderly and disabled (Medicare), as well as military veterans (Tricare).
I met recently with Leah Powell, a tax partner in the commercial division of our firm and resident expert on the Affordable Care Act. We agreed that confusion and lack of understanding of the requirements of this landmark legislation continue to befuddle both employers and employees as well as the current uninsured population.
The recent announcement by the Obama Administration that the “employer mandate” penalty provision of the ACA was to be delayed until Jan. 1, 2015, has added to this confusion. Therefore, Leah and I discussed 10 questions that are designed to clarify the uncertainty and offer certain recommendations and strategies for nonprofit employers and their employees. I found the discussion with Leah to be helpful in clearing up some confusion I had about the law. Hopefully you will find the same result.
What do “transition relief” and the deferral of the “employer mandate” really mean?
The transition relief does not affect other provisions in the Affordable Care Act. Individuals will continue to be eligible to enroll in a qualified health plan through the “health-insurance exchanges” and can qualify for the premium tax credit if their household income is within a specified range and they are not eligible for other minimum essential coverage. Individuals are still required to have minimum essential coverage beginning Jan. 1, 2014. In the absence of obtaining coverage, individuals may still be assessed a penalty on their 2014 federal tax return.
The requirement that large applicable employers offer qualifying health-insurance coverage to its full-time employees or be subject to a nondeductible penalty has been delayed one year, as well as the stringent reporting requirements.
What should employers and employees know about the insurance through the health-insurance exchanges?
Beginning Jan. 1, 2014, consumers, the self-employed, and small businesses are scheduled to have access to affordable coverage through the new health-insurance exchanges, also known as the marketplace. Under the Affordable Care Act, generally firms that have at least one employee and at least $500,000 in annual dollar volume of business must provide notification to their employees of coverage options through the exchanges. Open enrollment for health coverage through the health-insurance marketplace launches on Oct. 1 and will be a viable option for individuals to consider in making their health-care decisions.
Anyone can enroll in an exchange plan. Employers will only be penalized, beginning in 2015, if their employer-sponsored plan does not meet the minimum value and affordability requirements and have an employee enroll in an exchange plan who qualifies for a premium tax credit or cost-sharing reduction.
What is an applicable large employer?
The term “applicable large employer” means, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees (FTE)) on business days during the preceding calendar year. This applies to common-law employers, including government entities, tax-exempt organizations, and churches.
Who is an employee? What is a full-time equivalent (FTE)?
The term employee means an individual who is an employee under the common-law standard. This means those who receive Form 1099 instead of a W-2 may be an employee for purposes of determining whether an employer is an applicable large employer.
In determining whether an employer is an applicable large employer, the number of FTEs it employed during the preceding calendar year is taken into account. All employees, including seasonal workers, who were not employed on average at least 30 hours of service per week for a calendar month in the preceding calendar year, are included in calculating the employer’s FTEs for that calendar month.
Therefore, if you determine that you are an “applicable large employer” and you offer health-insurance coverage for your employees, you need to ensure that it meets the minimum essential coverage, minimum value, and affordability requirements to avoid the assessable payment penalty.
What is minimum essential coverage?
The term minimum essential coverage (MEC) means coverage under a government-sponsored program, an eligible employer-sponsored plan, a plan in the individual market, a grandfathered health plan, or other health-benefits coverage.
What is minimum value?
If the coverage offered by an applicable large employer fails to provide minimum value, an employee may be eligible to receive a premium tax credit and thereby subject the employer to a penalty. A plan fails to provide minimum value if the eligible employer-sponsored plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.
What makes an employer-sponsored plan affordable?
Coverage for an employee under an employer-sponsored plan is affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income for the taxable year.
How does an employer know an employee’s household income?
Fortunately the IRS has provided three safe harbors.
Who is eligible to receive an applicable premium tax credit or cost-sharing reduction?
If an employer offers coverage but an employee enrolls in an exchange-offered plan and is eligible to receive an applicable premium tax credit or cost-sharing reduction, then the employer is subject to the assessable payment penalty of $250/month for each respective employee.
Some individuals who obtain their health-insurance coverage by enrolling in a qualified health plan through a health exchange (or “health-insurance marketplace”) may be eligible for a premium assistance credit, based on their income level in relation to federal poverty levels.
Clearly, the cost of providing qualifying coverage versus letting employees gain health insurance through a health-insurance exchange depends on several factors. This analysis is the crux of the analyses for each and every employer dependent upon the demographics of its employees.
What employee notice is required regarding the employer’s 2014 health-care offerings and the “exchanges”? What are the additional employer reporting requirements?
As the health-insurance exchanges are offering coverage for individuals (who do not benefit from the one-year delay afforded to employers) beginning in 2014, the notice to be given to employees regarding the existence of the health-insurance marketplaces is likely still required.
Currently, guidance requires employers that are subject to the FLSA to provide the applicable notice to employees no later than Oct. 1, 2013, if they are current employees as of Sept. 30, 2013.
Keep it simple and use the DOL’s notice, the model for employers who offer a health plan to some or all employees is available at http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf. A model notice for employers that do not offer a health plan is available at http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf.
Additional information reporting will be due to the IRS. Most employers will need to report on 2013 Form W-2 the value of the health-care coverage provided. This would include both the portion paid by the employer and the portion paid by the employee.
I greatly appreciate my partner Leah’s interest in and willingness to understand the complex provisions of the ACA. Leah maintains a blog that can be found at http://www.bonadio.com/blog.
Gerald J. Archibald, CPA, is a partner in charge of the management advisory services at The Bonadio Group. Contact him at (585) 381-1000, or via email at garchibald@bonadio.com