“With over 2000 pages and some 450 provisions, the Patient Protection and Affordable Care Act (otherwise known as Health Care Reform, or “Obamacare”) is one of the most complex pieces of legislation ever signed into law. The ACA touches every sector – from individual citizens, to small businesses, to large corporations, to the Federal government itself.
With numerous unanswered questions, employers are understandably overwhelmed –
- What laws apply to them?
- What do they need to do?
- How will it impact their bottom line?
- How can they prepare for the impending legislation?
Below we present over a dozen important Health Care Reform questions, with simple, easy-to-understand answers, explaining their impact on small business.
1: What is a “Health Benefit Exchange”?
Each state is charged with establishing, as a governmental agency or nonprofit entity, an American Health Benefit Exchange. These Exchanges have two functions:
- To facilitate the purchase of qualified health plans
- To provide for the establishment of a Small Business Health Options Program (referred to as a “SHOP Exchange”). A SHOP Exchange will assist employers in enrolling employees in small group qualified health benefits plans. States may establish a single Exchange that performs both functions, or create separate Exchanges.
Grants will be made available to states by the Department of Health and Human Services (HHS) for planning and establishing an Exchange. However, by 2015, Exchanges must be self-sustaining and may generate revenue through assessments or fees. The HHS will also provide technical assistance to states on facilitating participation of small employers in SHOP exchanges.
If a state chooses not to establish an exchange, the Federal government will set up federal health insurance exchanges.
2: What are the non-discrimination requirements for employer provided plans?
PPACA includes a requirement that employer provided benefit plans can not discriminate in eligibility, waiting period, benefits or contributions in favor of highly compensated employees. This provision of PPACA was to be effective in 2010, but has been delayed.
PPACA references the self funded employer non-discrimination requirements of section 105 (h) of the IRS code and applies them to insured group health plans. Failure to comply carries a penalty of $100 per individual for each day the plan does not comply.
3: What are the penalties for employers who do not offer coverage?
Beginning in 2014, an employer with 50 or more full-time equivalent employees during the preceding calendar year, will be penalized if any of their full-time employees are not offered coverage (and obtains a premium credit through the exchange). PPACA provides a formula to help employers calculate full-time equivalent, according to its definition (see question #6 below). In 2014, the monthly penalty per employee will be equal to the number of full-time employees, minus 30, multiplied by $166.66 ($2,000 per year, divided by 12) for any applicable month.
For example, an employer with 80 employees will be subject to a penalty of $8333 per month (80-30 = 50 X $166.66). After 2014, the penalty payment amount would be indexed by the premium adjustment percentage for the calendar year.
The amount of the penalty will increase in subsequent years.
4: Could an employer who does offer coverage still be subject to penalties?
Even in some circumstances, employers with 50 or more full-time equivalent employees that offer insurance may still be subject to a penalty. This applies when the employer’s plan does not meet PPACA’s definition of “affordable” (see question #8 below), or if the employer’s plan pays for less than 60% of the covered expenses. If an eligible employee then obtains a premium credit in an exchange plan, the employer is subject to a penalty.
5: What are the individual penalties?
Beginning in 2014, PPACA requires individuals to maintain health insurance, with some exceptions. Most individuals will be required to maintain minimum essential coverage. Those who do not comply, and who are not exempt, will be required to pay a penalty per individual and tax dependent equal to the greater of the following:
- $95 or 1.0% of adjusted income in 2014
- $325 or 2.0% of adjusted income in 2015
- $695 or 2.5% of adjusted income in 2016
6: How does PPACA calculate full-time equivalent employees?
The new federal definition sets the standard of a full-time equivalent at 30 or more hours of actual time worked during a typical week, average over the month. It is based on the prior 12 months, which will be the 2013 year. Seasonal employees working less than 120 days during the prior year are excluded. Additionally, the law takes the hours worked by part-time employees into the calculation when considering the number of full time employees.
For example: a company employs 35 full-time workers (working on average of more than 30 hours per week) and 20 part-timers (working on average 24 hours per week, or 96 hours per month). These 20 PTE are the equivalent of 16 FTE. (20 x 96 / 120 = 16). So for calculation purposes, this employer has 35 + 16= 51 full-time equivalents.
7: What is being suggested for employers that do not have health care plans in place to do at this time to prepare for the upcoming changes?
Each employer should begin collecting the necessary information to determine if they have 50 or more full time equivalent (FTE) employees. If an employer has fewer than 50 full time employees, the law does not require the employer to offer coverage. If the employer has 50 or more FTE’s then there are several parts of PPACA that need to be evaluated to determine the impact to the employer. It is recommended to consult with a professional familiar with the law and its implications to the business.
8: What is the meaning of “affordable insurance” with respect to an employer’s obligation to provide “affordable health insurance”?
Affordable coverage means the plan has an actuarial value of at least 60% of required health care covered expenses and the employee cost is less than 9.5% of household income.
9: What is a “Cadillac Health Plan”?
The PPACA imposes a 40 percent excise tax on “Cadillac” health insurance plans. This new tax will apply to health plans valued in excess of $10,200 for individuals and $27,500 for families. Those thresholds will grow annually by inflation plus 1 percent. The tax takes effect in 2018 and is projected to raise $32 billion by 2019.
10: Not only does the cost of a health plan need to be affordable … don’t maximum deductibles and out of pockets apply too?
Yes, PPACA requires small group plans limit deductibles to $2,000 per individual and $4,000 per family. These amounts will be indexed to health care premium inflation.
11: How does Healthcare Reform affect COBRA elections and cost to the employee?
This is not clear at this time. COBRA may no longer be needed if individuals have access to coverage through the state exchanges. However, if the state exchanges are higher cost the employee may elect COBRA.
12: What happens to a person that is unemployed and cannot afford the penalty/coverage?
The individual would likely be eligible for premium subsides or the expanded eligibility for Medicaid.
13: What are the employer W2 reporting of health coverage cost requirements?
PPACA requires that employers report the value of health plan coverage on Form W2 for each employee. This includes both the employer and employee share of the cost of health coverage, but excludes dental and vision coverage under separate policies. Reportable amounts also exclude contributions towards Health Savings Accounts (HSA) or employee contributions to health flexible savings account (Health FSA).”