The Affordable Care Act - "What Employers Need to Know."¹
The Patient Protection and Affordable Care Act or “Obamacare”, was signed into law by President Barack Obama on March 23, 2010. The purpose of this law was to expand the quality, affordability, and availability of health insurance in the US. Yet many years later, employers are still confused about how it affects their business.
The Affordable Care Act can impact employers in many ways, depending upon the number of full-time or part-time individuals employed. Below is a list of most frequently asked questions and important facts that will help provide the basics of what employers need to know.
What is required of employers?
- Employers with 49 or less FTE’s (full-time employees or full-time equivalents) are not required to offer coverage.
- Employers with 50 + FTE’s (full-time employees or full-time equivalents) must offer coverage to at least 95% of their full-time workers.
- Employers should inform all employees by letter of coverage availability at the state exchanges. Notification to new employees should be given within two weeks of their start date and must be given regardless of hourly status or whether they are enrolled in your current health plan.
- Employers are required to provide employees with a “Summary of Benefits and Coverage” form explaining in detail their coverage and costs.
- Employers are required to report annually to the IRS, the coverage and costs offered to their employees and their dependents.
What constitutes a “full-time employee” vs. “full-time equivalent employee”?
A full-time employee (FTE) is defined as working an average of at least 30 hours per week, per month. However, an employer must calculate all FTE's plus the full-time equivalent of its part-time employees. To do this, add the number of hours worked by part-time employees and divide by 120. The number of FTE's plus the full-time equivalent of the part-time employees is the total used.
- Example: 35 FTE’s and 20 part-time employees that work 24 hours per week or 96 hours per month. The part-time employees’ hours are equivalent to 16 full-time employees, based on the following calculation: 20 part-time employees x 96 hours = 1920 / 120 = 16
- This company would be considered a “large employer,” based on a total of 35 (full-time) + 16 (full-time equivalent) = 51
What is the “Employer Mandate”?
“Employer Mandate” is a requirement that businesses with over 50 FTE's provide health insurance to at least 95% of their employees or pay a penalty, also known as the “Play or Pay” mandate.
Does a business have to offer health insurance?
No business has to offer health insurance. Small employers (less than 50 FTE’s) will not be penalized for choosing not to offer coverage to employees. However, if a business has more than 50 FTE’s it will face a fine if they do not offer coverage.
If I do not provide insurance am I subject to pay a penalty?
Some employers with 50 or more FTE employees who don’t offer insurance, or who offer coverage that is not considered to be affordable, are subject to Employer Shared Responsibility provisions. These employers may be required to pay a penalty if at least one of their full-time employees enrolls in a plan through the Health Insurance Marketplace and receives a premium tax credit.
The Internal Revenue Service offers additional information regarding the Employer Shared Responsibility provisions at: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions
How do you know if employer coverage meets the affordability requirements?
If the premium cost the employee more than 9.69% (adjustable over time) of that employee’s annual household income, then the coverage is not considered affordable for that employee.
If our business does not offer health insurance, are my employees required to buy coverage?
Yes. All individuals must purchase "qualified" health insurance. If they do not, they are subject to a penalty. The penalty has been increased every year, to discourage individuals from going without health coverage. Those who fail to enroll are subject to a penalty. Each child without insurance is also an additional penalty.
Do employers need to offer the same coverage to all employees?
Individuals within the same employment-based classification must be treated equally, such as full- and part-time employees.
Can employers reimburse employees for the premiums paid toward their health insurance policies?
No. Employers cannot reimburse an employee for some or all of the premium expenses incurred for an individual health insurance policy. This is a violation of the Affordable Care Act and could be subject to a penalty of $100/day per employee. An employer-sponsored arrangement where the employees may choose either cash or an after-tax amount to be applied toward health coverage is permissible.
If I am self-employed how will my health insurance be affected?
Individuals who are self-employed have access to the small group market and guaranteed-issue individual health insurance policies. Self-employed individuals are also able to take tax deductions for premiums on their individual 1040. If you are self-employed, medical and dental expenses are deductible including 100% of premiums.
How does the ACA affect FSA (Flexible Spending Accounts) and HSA (Health Savings Accounts)?
Flexible Spending Accounts and Health Savings Accounts have been impacted by the ACA. One of the primary changes is that the law now requires a prescription for health saving and spending account reimbursements. If you have a flexible spending account, the proper reimbursement form must be submitted with a prescription and receipt. This new rule does not apply to reimbursements for the cost of insulin.
What is the Cadillac Tax?
The “Cadillac tax” which is not scheduled to take effect until 2020, places a 40% non-deductible excise tax on certain high-cost employer-sponsored coverage that is over the threshold amount.
Are there any tax credits for small businesses?
Yes. The maximum credit is 50 percent of premiums paid by small employers and 35 percent for non-profits. The following are the requirements for a small business to be eligible for the healthcare tax credit:
- Fewer than 25 full-time equivalent employees
- Wages on average less than $51,600 a year
- If you pay at least half of employee health insurance premiums
- Coverage must be purchased through SHOP (Small Businesses Health Options) marketplace at https://www.healthcare.gov/small-businesses/
To determine if your business may qualify view Small Business Health Tax (PDF)
What are the employer requirements for Workplace Wellness Programs?
Employers that have wellness and tobacco cessation programs in their health insurance benefits may be entitled to incentives from 30 percent to 50 percent of the cost of health coverage, depending on the program and its rules.
What is required under the Employer Information Reporting Mandate?
Under the Affordable Care Act, all large employers (50 or more FTE or full-time equivalents) are required to annually report to the IRS the healthcare coverage offered and costs to their employees and dependents. Reporting should be completed on the IRS Form 1095-C and 1094-C.
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