Healthcare.jpgThis blog post was authored by Jessica R. Frier

It’s a myth that the Affordable Care Act (“ACA”) only applies to “large employers” (defined under the Act as those employers with 50 or more full-time employees, including full-time equivalents).  In reality, ACA consists of thousands of pages of rules and regulations affecting businesses of all sizes—including small and midsize employers.  All employers, including small employers, should start preparing now to meet ACA’s legal requirements.  Below are answers to some commonly asked questions:

I want to offer coverage.  What options do I have? – Starting in 2014, businesses with fewer than 100 employees can shop in an “Affordable Insurance Exchange”—a competitive marketplace where individuals and small businesses can buy affordable, qualified health benefit plans.  The goal is to give small businesses purchasing power similar to what large businesses have, resulting in better choices and lower prices for employee coverage.  In California, the Small Business Health Options Program (“SHOP”) will offer approximately 375,000 small businesses access to various health coverage options for their employees starting in the fall of 2013.  For more information, visit www.CoveredCA.com.    

What if I have 25 employees or less? – You may be eligible for a small business healthcare tax credit if you cover at least 50% of healthcare insurance costs for your employees, based on the single-person rate.  This credit, specifically designed for small businesses with lower income workers, applies to employers with 25 or fewer full-time equivalent employees.  The average annual wages of your employees must be less than $50,000 per person.  Businesses can claim the tax credit by filing IRS Form 8941 with their business tax returns.   The small business tax credit provides an offset of up to 35% (up to 25% for non-profits) against the cost of providing health insurance.  Starting in 2014, the small business tax credit goes up to 50% (up to 35% for non-profits) for qualifying businesses.

Do the Employer Shared Responsibility payment provisions (i.e. penalties) apply to me? –The Employer Shared Responsibility provisions apply to all large employers (50 or more full-time employees, including full-time equivalents).  Employers will need to count their employees to determine whether they qualify as a “large employer” for purposes of the penalties that may be imposed starting January 1, 2014.    

  • How do I count my employees? – You will use numbers from last year to determine the number of full-time and full-time equivalent employees.  To determine the total, count the number of full-time employees for each month, add to that the number of full-time equivalent employees for each month, and divide the total by 12.  Full-time employees are those employed on average at least 30 hours per week, or 130 hours in a calendar month.  To determine the number of full-time equivalents, divide the total number of hours worked by all non-full time employees by 120.
  • What if I have 50 full-time employees or more? – You may be subject to penalties if you do not offer affordable health coverage that provides minimum value to your full-time employees and their dependent children up to age 26.  A full-time employee is defined as an employee who averages at least 30 hours of service per week.  You may be subject to an affordability penalty if your employees are required to spend more than 9.5% of their pre-tax income on the healthcare coverage you offer (a plan is considered affordable if the employee’s contribution to the lowest cost self-only plan is less than 9.5% of the employee’s household income).  For more information on ACA regulations applicable to large employers and available safe harbors, please see our February Client Update: http://www.lcwlegal.com/83997.

Must I report the value of the health benefits I provide on my employee’s W-2 form? – Employers who issue 250 or more Forms W-2 must report the aggregate cost of employer-sponsored health coverage (excluding stand-alone dental and vision plans) on an employee’s Form W-2 each year, as of January 2013.  The cost of coverage generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax or after-tax contributions.  The reporting requirement is intended to be informational and provide employees with greater transparency into health care costs.  The amounts reported are not taxable.  Form W-2 reporting is currently optional for smaller employers, but we expect it to be required when the IRS issues future guidance.

What parts of ACA apply to all employers, small and large? – No matter how many employees you have, the following ACA provisions apply to all employers:    

  1. Notice of Exchange – A written Notice of Exchange informing employees about the Health Insurance Marketplace and the availability of health insurance premium tax credits must be provided to all current employees by October 1, 2013, and thereafter to new employees within 14 days of hire.  Model notices are available at the following link: http://www.dol.gov/ebsa/healthreform/index.html.
  2. Dependent Coverage to Age 26 – Plans that provide coverage for dependents are required to extend the offer of coverage to dependents (including adult children) up to age 26, regardless of their eligibility for other insurance coverage.  Plans must provide coverage to all eligible dependents, including those who are not enrolled in school, not dependents on their parents’ tax returns, and those who are married.  Plans are not required to provide coverage to spouses of dependents.
  3. Limitations on Waiting Periods – For plan years beginning on or after January 1, 2014, group health plans and insurers—regardless of grandfathered status—are prohibited from requiring otherwise eligible participants and beneficiaries to wait more than 90 days before coverage becomes effective.
  4. Summary of Benefits and Coverage – Health insurance issuers and group health plans must compile a Summary of Benefits and Coverage (SBC) that “accurately describes the benefits and coverage under the applicable plan or coverage.”  The SBC must be provided to employees upon application, at renewal, and upon request.  Health insurance issuers and group health plans may incur fines for failure to provide the SBC.  Employers therefore need to designate a person who can provide the SBC to employees within 7 days upon request.
  5. Medical Loss Ratio Rebate – ACA requires health insurers to issue rebates to policyholders if less than a specified percentage of the premium dollars collected is used to provide medical care.  Employers must then allocate the rebates for the benefit of current participants, and have three options for doing so, including reducing future premiums for all participants in the plan, reducing future premiums only for those in the plan’s option that generated the rebate, or making a cash refund to those enrolled in the plan option that generated the rebate. 
  6. Cap of $2,500 on Health FSA contributions – ACA imposes a $2,500 cap on healthcare flexible spending accounts.  Employees can only divert a maximum of $2,500 in pre-tax salary into these accounts to cover qualifying out-of-pocket healthcare expenses.

What Reporting Requirements Will Apply?

  • Large Employer & Offering Employer Reporting Requirements – Beginning in 2015, both large employers and “offering employers” must report certain data (including the number of months employees and dependents were covered under the plan, certification of offers to enroll, and number of full-time employees) on a monthly basis to the IRS per Internal Revenue Code section 6056.  Offering employers are defined as those that require employee contributions for self-only coverage that exceed 8% of the wages they pay to the employee.  Employers required to report to the IRS must also provide written notice to each full-time employee of the information that was reported.
  • Employers with Self-Insured Plans – Beginning in 2015, sponsors of self-insured plans that provide minimum essential coverage to an individual must report certain data (including the employer’s portion of the premium and dates of coverage).  The IRS may allow large employers and offering employers to coordinate this reporting with the required reporting under Internal Revenue Code section 6056.

Additional Information – Small and large employers can find additional information and resources on the U.S. Department of Health & Human Services’ webpage under the section entitled Health Insurance Basics at the following link: http://www.healthcare.gov/using-insurance/employers/index.html