The Affordable Care Act - "What Employers Need to Know."
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?
The health plan is considered "affordable" if the employees share of the monthly premiums for the lowest-cost self-only coverage that meets the minimum value standard is less than 9.83% of the employee's income.
If our business does not offer health insurance, are my employees required to buy coverage?
No, the individual mandate was repealed for 2019. Therefore, individuals that do not have health coverage will not be subject to a tax penalty. However, some states have an individual health insurance mandate that requires individuals to have health coverage or pay state taxes. If you live in a state that requires you to have health coverage and you don't have coverage, you will be charged a fee when you file your state taxes.
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?
Under Affordable Care Act (ACA), employers were not allowed to directly reimburse employees for the cost of individual market health insurance. This was true for both small and large groups, and employers could be fined for noncompliance.
As of Jan. 1, 2020, employers can offer an individual coverage health reimbursement arrangement (ICHRA), which means they can reimburse employees tax-free for health insurance purchased on the open market. This allows the employer to essentially provide health insurance benefits without maintaining a conventional group health insurance plan.
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' is the Affordable Care Act's 40 percent excise tax on high-value health care plans. Congress passed a 2-year delay on this law until 2022.
However, in December 20, 2019, as part of the year-end appropriations bill, the Affordable Care Act's (ACA) "Cadillac Tax" was finally, after much lobbying and other efforts by sponsors and health care payers, put to an end with a full repeal.
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:
- You have fewer than 25 full-time equivalent (FTE) employees.
- Your average employee salary is about $50,000 per year or less.
- You pay at least 50% of your full-time employees' premium costs.
- You offer SHOP coverage to all of your full-time employees. (You don't have to offer it to dependents or employees working fewer than 30 hours per week to qualify for the tax credit.)
- Coverage must be purchased through SHOP (Small Businesses Health Options) marketplace athttps://www.healthcare.gov/small-businesses/
Higher benefits for smaller businesses
The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit.
For additional information regarding small business healthcare tax credits visit:https://www.healthcare.gov/small-businesses/provide-shop-coverage/small-business-tax-credits/
To determine if your business may qualify view Small Business Health Tax (PDF)
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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