The Affordable Care Act (ACA) was signed into law on March 23, 2010, enacting comprehensive health insurance reforms set to roll out over several years. Some provisions of the new health-care law apply only to large employers. Beginning in 2015, for example, large employers will have annual reporting responsibilities regarding the health insurance coverage offered to full-time employees.
Other provisions apply only to small employers. Small businesses will be eligible to purchase affordable insurance through the Small Business Health Options Program (SHOP) and may qualify for tax credits to offset the cost of benefits provided to staff.
Here you'll find answers to common questions about the new insurance process in the U.S., and what that means for you, your employees, and your business.
For more information, call your Cowan consultant today.
An employer's size is based on the number of its employees. Generally, an employer with 50 or more full-time employees, including full-time equivalents (FTEs), is considered a large employer. If you have fewer than 50 full-time employees or equivalents, you are considered a small employer.
Note, however, that if your business has fewer than 50 full-time employees, but is a member of an ownership group with 50 or more full-time equivalent employees, your company would then be subject to the rules for large employers, per the IRS.
The so-called employer mandate refers to the Employer Shared Responsibility Provisions of the new health-care law. Under this provision, large businesses that don't offer group health insurance coverage to full-time employees that meets certain standards may be required to pay a Shared Responsibility assessment.
Effective January 1, 2015, companies that employ 50 or more full-time employees, including full-time equivalent employees, must offer an affordable group health plan to their full-time employees (and dependent children up to age 26) or possibly be liable for a penalty.
Small businesses, those with fewer than 50 full-time employees, are not subject to this provision. In fact, small businesses have the option to purchase plans on state-run or federally run Exchanges and may qualify for tax credits to offset the cost of providing insurance coverage to employees.
Under the new regulations, plans offered by employers must meet the "minimum value" and "affordability" standards.
Minimum value means that the employer's group health plan must pay 60 percent of the total cost of a claim. That doesn't mean the employer pays that portion of the premium, but that the plan's share of the total cost of benefits is at least 60 percent. In general, the insurance carrier will inform a business as to whether its fully insured group health plan provides minimum value.
A group health plan is deemed affordable for an employee if his or her share of premium costs for employee-only coverage is less than 9.5 percent of the employee's household income for the year. Since employers usually won't know their employees' household incomes, they can avoid a penalty provided that the employee's share of the premium doesn't exceed 9.5 percent of annual wages as reported on a W-2.
Even if a full-time employee opts to include his or her family in the coverage, the affordability measure is based only on the employee-only contribution.
An employer may be required to pay an annual Shared Responsibility tax penalty if it fails to offer a plan with minimum essential coverage to at least 95 percent of full-time employees. An employer may be assessed a penalty if the coverage offered doesn't meet the minimum value and affordability requirements, and at least one full-time worker receives a premium tax credit when purchasing his or her own coverage on an Exchange.
Smaller employers -- those with fewer than 100 full-time employees -- may avoid the no-coverage tax penalty as long as coverage is offered to all but five or fewer full-time employees.
Large employers that don't offer coverage to at least 95 percent of full-time employees will pay an annual penalty of $2,000 multiplied by the number of full-time employees, minus the first 30, if any of their full-time workers receive a tax credit when buying their own insurance on an Exchange.
Employers will also be assessed a penalty if their offered coverage doesn't meet the minimum value and affordability requirements. This penalty is $3,000 multiplied by the number of full-time employees who receive a premium tax credit.
The $2,000 penalty based on full-time employees who receive a premium tax credit cannot exceed the $2,000 penalty for no coverage. Penalties will increase over time.
Beginning in 2015, large employers must track each employee's monthly status as full-time or part-time. The ACA defines full-time status as an average of 30 hours per week, or at least 130 hours in a month, including hours worked and hours not worked but for which an employee is still paid, such as vacation, holidays, sick leave, jury or military duty, or leave of absence up to 160 hours for a continuous period. (Special rules apply for certain situations.)
Hourly employees must be tracked on an actual hours-basis, but salaried employees can be tracked using days-worked and weeks-worked rules. Employers will be required to report their employees' full-time status to the IRS and keep such information as part of their tax records.
Yes. While the Employer Shared Responsibility Provisions were supposed to go into effect January 1, 2014, they have been delayed until January 1, 2015. Both the reporting requirements and the possible penalties have been put off for that additional year. The IRS has encouraged employers to begin complying with the provisions even in 2014, as the official rules are released, in anticipation of the changes effective in 2015.