It’s time to pay attention to the new health law
Businesses should start thinking now about how the Affordable Care Act will affect them
The most significant provisions of the Patient Protection and Affordable Care Act take effect in 2014. That’s why it’s important for businesses with 50 or more employees to be aware of penalties they might pay if they don’t offer affordable coverage.
Changes in the insurance market also mean more options for insurance coverage for small employers and tax credits available to small employers who provide health insurance for their employees.
Coverage and penalties
Employers that have an average of at least 50 full-time equivalent (FTE) employees must offer their full-time employees affordable, “minimum essential” health coverage. Otherwise, they will have to pay a penalty.
“Minimum essential” health coverage means that the coverage offered must cover at least 60 percent of the actuarial value of the services covered by a benchmark plan, which in New Hampshire is Anthem’s Matthew Thornton Blue plan. The 60 percent refers only to the value of benefits paid by the insurer, taking into account copays, cost-sharing, and deductibles (but not premiums).
If an employer with at least 50 FTE employees does not offer full-time employees such coverage, and a full-time employee obtains subsidized health insurance through the new health insurance exchange, the monthly penalty applies, calculated as follows: (Number of FTEs-30) x $166.67.
Employers that offer “minimum essential” coverage must pay a penalty for each employee if the employer-provided coverage is not affordable and the employee obtains subsidized health insurance through the exchange.
For coverage to be affordable, an employee’s share of his or her premium (for a self-only plan) cannot exceed 9.5 percent of the employee’s household income. (You cannot ask an employee to disclose his or her household income, but you can use wages on the most recent W-2 as a “safe harbor.”)
Employees who are not offered affordable, “minimum essential” coverage can obtain subsidized insurance from the exchange, provided that they are not eligible for Medicaid and their household income is less than 400 percent of the federal poverty level (is currently $44,680 for a single person plus $15,840 for each additional household member).
If any employees obtain subsidized health insurance through the exchange, then the employer will have to pay a monthly $250 penalty for each such employee. The maximum penalty cannot exceed the penalty that would be imposed if the employer did not provide coverage.
Note as well that, because employees eligible for Medicaid are not eligible for subsidized coverage from the exchange, no penalty will be assessed for employees who enroll in Medicaid.
The law contains provisions prohibiting employers from discriminating or retaliating against an employee based on the decision to purchase health coverage through the exchange.
Determining who is covered
The rules for determining whether an employer has at least 50 FTE employees can be quite complex. An employer cannot, for example, avoid the penalty by splitting a multi-location business into different corporations for each location.
The number of FTE employees is determined by looking at average employment during the preceding calendar year. For new businesses, the current calendar year will be used. Every employee who averages 30 hours per week or more counts as full time. For part-time employees, aggregate hours of monthly service are divided by 120, and the result is added to the number of full-time employees.
Employers who employ seasonal workers for 120 or fewer days in a calendar year are exempt if they otherwise have fewer than 50 FTE employees. Independent contractors are not considered at all.
Starting on Jan. 1, 2014, an employee’s full-time status will be considered by looking back over an employer-defined “measurement period” of three to 12 months. Because the initial measurement period will involve looking back into 2013, employers may wish to take these provisions into account in establishing work hours for their employees during 2013.
Starting in 2014, New Hampshire businesses with 50 or fewer FTE employees that elect to cover full-time employees will be eligible to purchase insurance through the new health insurance exchange. Several regulatory changes will curtail the ability of insurers to charge small businesses differential rates:
• Insurers must consider enrollees in all health plans in the small employer group market (except for “grandfathered” plans), whether purchased through an exchange or not, to be part of a single risk pool.
• Rates for new plans can only vary based on age, geographic area, individual or family enrollment and tobacco use.
• Except pursuant to wellness programs, insurers cannot limit eligibility or vary premiums based on health-status related factors, such as claims experience, medical conditions or history, genetic information or disability.
Insurers will generally be required to accept every employer that applies for coverage and to renew coverage already in force.
These factors, and the option to purchase insurance through the exchange, should make more affordable insurance options available to small employers.
Employers with fewer than 25 FTE employees, whose average compensation is not greater than $50,000, and where the employer pays more than 50 percent of the cost of self-only coverage for their employees, are entitled to receive a tax credit for a portion of premiums paid.
For the 2010-2013 tax years, such employers can claim up to a 35 percent tax credit for premiums paid (up to the average cost of premiums in the small group market). Starting in 2014, an employer must obtain insurance through the exchange to claim the tax credit, which is available at a rate of up to 50 percent of premiums paid for the first two tax years in which the employer offers a plan through the exchange. Tax-exempt employers can get the credit, although at lower rates. The credit phases out for each full-time employee in excess of 10 employees and for each $1,000 that average compensation exceeds $25,000.
Cinde Warmington, a shareholder at the law firm of Shaheen & Gordon, is chair of its Health Care Practice Group. Benjamin Siracusa Hillman, an associate at the firm, is a member of firm’s Health Care Practice Group.