After nearly a year of political wrangling, last month President Obama signed the Patient Protection and Affordable Care Act, touted as legislation which provides historic and sweeping health care reform. Regardless of your political views, this legislation will impact businesses large and small. How will it affect your business? Below is a summary of just a few of the provisions which apply to employers and their employees.
For "Big" Business
If your company has 50 or more employees and does not provide health insurance coverage, the new law assesses a fee of $2000 per employee (after the first 30 employees) if even one employee receives premium tax credits to purchase insurance through one of the new health insurance exchanges. A family of four making $88,200.00 per year qualifies for a premium tax credit - thus, the chances are good your "big" business will be subject to this fine if it doesn't offer coverage.
If your company does offer group health insurance, that coverage must be "affordable" meaning that the employee's contribution cannot exceed 9.8% of that employee's household income. Penalties are assessed if the coverage does not meet the definition and if at least one employee purchases insurance through the exchanges and receives a premium tax credit to do so. In that scenario, the company will pay a penalty of $3,000 for each employee who receives the premium tax credit or $2,000.00 per full-time employee, whichever is less. For example, if your company has 65 employees, 25 of whom receive premium tax credits, and the coverage is deemed "unaffordable," you will owe a fine of $70,000 (35 employees (65 less credit for first 30) times $2,000.00 per employee). Therefore, while the new law does not mandate that employers provide coverage, it strongly encourages them to offer "affordable" coverage to avoid what could be significant monetary penalties.
For "Small" Business
If your company has 25 or less employees, with average annual wages of less than $50,000, the rules are different. Importantly, these companies are exempt from the penalties discussed above. In addition, between 2010 and 2013, small businesses are eligible for tax credits of up to 35% of the company's contribution toward the employee's premium, provided the company contributes at least 50% of the total premium cost. The smallest companies with the lowest wages will be allowed the entire 35% credit, which phases out for larger companies with higher average wages.
Beginning in 2014, if a small business purchases employee coverage through a health exchange, the tax credit increases to up to 50% of the employer's contribution. This credit is subject to the same requirements discussed above and again phases out as company size and wages increase. The credit, however, is only available for two years and companies must go through the state health exchanges to be eligible for it. It is unavailable to businesses which provide coverage through the private insurance market.
For All Business
Other provisions of the legislation impact all businesses, regardless of size. For example, if your company offers health savings accounts (HSAs) or flexible spending accounts (FSAs), beginning in 2011, employees will no longer be able to use those funds to purchase over-the-counter drugs not prescribed by a doctor. In addition, in 2011 the tax on distributions from HSAs not used for qualifying medical expenses will increase from 10% to 20%. And, starting in 2013 FSA contributions will be capped $2,500.
Beginning in 2014, employers of all sizes must offer what have been termed "free choice vouchers." These are vouchers provided to employees with income less than 400% of the federal poverty level ($88,200.00 for a family of four) whose share of the premium is between 8% and 9.8% of their income and who purchase coverage through an exchange. The voucher is equal to the premium amount the employer would have contributed for the employee had the employee participated in the employer-sponsored plan. Thus, if a married employee with two dependents, making $88,200.00 has to pay $661.50 per month for coverage under the employer plan and instead chooses to go to the exchange, the employer must give the employee a voucher for the amount it would have paid to cover the employee under its plan.
The so called "Cadillac" tax will also impact employers and their employees. This is a nondeductible 40% excise tax assessed on insurers and plan administrators (including self-funded plans) of employer plans with values in excess of $10,200 for individuals, $27,500 for family coverage. The tax is on the value of the plan that exceeds the threshold amount. The value of the plan includes the cost of the plan itself as well as FSA reimbursements, employer contributions to HSAs and any supplementary health insurance coverage, excluding vision and dental. While the tax is imposed on the insurer itself, there is every reason to believe this tax will be passed directly to the employer in the form of increased premiums and/or to employees in reduced benefits. The tax will be imposed starting in 2018.
Conclusion
While the dust is still settling on the how this legislation will be implemented, it is clear that it will impact all employers to some extent. Businesses large and small need to evaluate their individual situations and determine what changes need to be made to minimize/eliminate exposure to penalties or to take advantage of credits that may be available. If you have any questions or would like any additional information, please feel free to contact us.
