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Health Care Reform (ACA)

Some key issues employers should know about health care reform (ACA) and the changes which will occur in the next few months.

1. Which employers are affected most?

All employers need to review the changes but large employers who qualify under the large employer – 50 FTE formula must be especially aware. For purposes of the penalties under the employer shared responsibility mandate, full-time is defined as an employee that works an average of 30 hours or more a week.

Small businesses with less than 50 FTEs will be exempt from the employer coverage “mandate”. A small employer is eligible for the tax credit if it has between 10 and 24 “full-time equivalent employees” with respect to any taxable year. Small businesses are eligible to receive up to 35 percent of their contributions toward their employees’ health insurance premiums if they contribute at least 50 percent of the total premium cost.

2. What is the large employer 50 FTE formula?

Any employer with 50+ full-time equivalents (FTE) is considered a large employer. This includes all part time employees and the hours they work each month. It is calculated adding the total hours worked in a specific month by all part-time employees and dividing by 120 to arrive at the FTE number. Add that back to your full-time employee count to arrive at total FTE employees to see if the employer goes over the 50 person level.

Note: Seasonal employees are not counted if working less than 120 days a year

3.  What should employers do to avoid penalties?

Beginning in 2014, large employers will pay penalties if they fail to offer health coverage to full-time employees or offer coverage that is either unaffordable or does not provide minimum value. These penalties can be significant.

Coverage is affordable for a particular employee if that person’s required contribution does not exceed 9.5% of the employee’s household income for that taxable year. Because an employer likely will not know an employee’s household income, the IRS has created a safe harbor providing that an employer will not be subject to a penalty if the coverage offered was affordable based on the employee’s Form W-2 wages as reported in Box 1.

4. How much are the penalties?

Two types of penalties will be imposed starting in 2014:

No Coverage Penalty: Applies if an applicable large employer fails to offer each of its full-time employees (and their dependents) group health coverage and at least one full-time employee receives premium assistance to purchase health coverage through a health insurance exchange.

Amount: $166.67 per month for each full-time employee ($2,000 per year), excluding the first 30 such employees from the calculation.

So an employer of 75 FTE employees could pay a penalty of (75-30=45 times $2000 or $90,000).

Unaffordable Coverage Penalty: Applies if the health coverage offered by an applicable large employer is unaffordable or does not provide minimum value and at least one full-time employee receives premium assistance to purchase health coverage through a health insurance exchange.

Amount: $250 per month for each full-time employee receiving premium assistance ($3,000 per year), but not to exceed the amount of the no coverage penalty calculated for that month.

For further discussion on ACA and how it might affect employers, please call UNICO Midlands 402-434-7257.

Mick Sibbel provides Group Benefit and Insurance Plans via UNICO Midlands which is jointly owned by UNICO Group Inc and Midlands Financial Benefits. These guidelines should not be the only source a business owner uses to make a decision and should not be considered legal or tax advice.