Changes in employee medical coverage requirements are on the way – here’s what you need to know to get ready.
It’s been three years since the Patient Protection and Affordable Care Act was signed into law, setting in motion some of the most sweeping changes in health coverage. It’s been called into question on constitutionality, challenged and defied by individual states. And though the future isn’t set in stone, as the current legislation stands, one thing’s for certain.
It’s coming. You need to be ready for it.
Though lots of parts of the issue are still up in the air, there are a few steps every business needs to take to get started, says Bob Graboyes, senior fellow for health and economics for the National Federation of Independent Business Research Foundation and advisor on healthcare policy.
1. Pay attention.
There’s no doubt the PPACA is enormous, with more than 1,000 pages of law and 13,000 pages of regulation so far. And legislators arguing over those stipulations as the law goes into effect is likely to make those numbers go up. It’s tough to keep on top of the changes, but ignoring it isn’t going to make it go away.
“The first thing I stress is this thing is huge,” says Graboyes. “It’s changing, it’s complex, it’s bigger than any one adviser. Employers are scared to death of it, but I don’t know if they’re aware yet of how scared they ought to be of it.”
Several of the provisions of the act are already in effect, including insurance coverage extended to dependents living with parents until age 26 and some preventive care coverage. But as more of those changes impact small business, it gets both tougher and more important to stay ahead of the game. Keep in touch with your accountant, your broker and your attorney regularly to make sure you’re in compliance with current rules, and get updates on changes to make the best decisions, especially as states determine response to the law and how the individual exchanges will work.
“It’s going to differ from state to state,” he says,” and they need to have those eyes and ears working for them.”
2. Keep records.
The size of the company determines where an employer falls with respect to the employer mandate, with the magic number landing right at 50 full-time equivalent (FTE) employees. As of 2014, an employer with 50 or more FTE employees is a “large” employer and must either offer minimum essential coverage to full-time employees and their dependents or pay a penalty, and a full-time employee works on average 30 hours per week or 130 hours per month.
Full-time equivalent and part-time employees muddy that water for many green industry employers, since each of those counts toward that 50-employee total.
The magic number
Of all of the PPACA’s coming changes, the employer mandate levels some of the heaviest impacts at business. While some of the specifics of a full-time equivalent (FTE) employee are still being determined, the difference between a “small” and “large” business cuts off at 50 full-time employees, or full-time equivalent employees. Depending on where your business falls around that mark determines how the mandate applies, and what penalties might be on the way if employees aren’t properly covered. Here are the scenarios:
- More than 50 FTE employees and the business does not offer insurance to the full-time employees, with one or more full-time employees receiving premium subsidies because their income falls between 138 percent and 400 percent of the federal poverty level. The penalty is $2,000 per full-time employee (minus the first 30 full-time employees).
- More than 50 FTE employees and the business offers insurance with one or more full-time employees receiving premium subsidies because their share of the self-only portion of the premium exceeds 9.5 percent of their income. The penalty is the lesser of $3,000 per subsidized full-time employee or $2,000 per full-time employee (minus the first 30 full-time employees).
- More than 50 FTE employees and the business offers insurance, with no full-time employees receiving premium subsidies. There is no penalty on the employer. All non-grandfathered and exchange health plans are required to meet federally mandated levels of coverage.
- Fewer than 50 FTE employees. No penalty or requirement to offer insurance. Those who qualify for the small employer tax credit must purchase a plan from the SHOP exchange. If an employer chooses to offer health insurance, it must cover the essential health benefits package.
For example, under the current ruling, an employer with 50 or more FTE employees working fewer than 120 days of the calendar year as seasonal employees slides in as a “small” business. Part time employees are counted through a calculation of all hours worked by non-full-time employees and dividing the total by 120. The result is the number of additional FTE employees, and that could put an employer just over the mark.
Some employers are trying to figure out how to break up companies to avoid the number, but the IRS is increasingly clear that separating departments or finding workarounds with independent contractors or temps won’t work, says Graboyes. Employers will have the ability to determine that size through a still-undefined “lookback period” of the previous year. Some employers are just letting go of employees to get under that 50-FTE mark.
But regardless whether the business is labelled as a large or small company, the IRS and the Department of Labor are going to want to know how those numbers were determined, and that means more than a general office headcount. Save employee paperwork and be ready to fill out more forms, even if the staff total dodges the mandate outright.
“Your annual penalties may be highly sensitive to how you structure your workforce,” says Graboyes. “You’re going to have to do paperwork, and that doesn’t go away even if you decide to drop coverage and take the penalties. And if you’re offering 100 percent coverage of the insurance, you’re not going to get hit with penalties. Your life is probably a little simpler in that respect, but there are still going to be issues.”
3. Start talking.
It’s not just important to keep open communication with the professionals outside the office. Keep employees informed of how the healthcare changes will affect the company. Steer clear of the politics, but remind employees that the adjustments aren’t the company’s decision.
“You’ll want to tell them, ‘I just want you to know, there are a lot of changes coming. You’ll like some of them and you’re not going to like some of them. But you need to understand it’s not my fault,’” says Graboyes.
On top of coverage changes, employees will need to know about plan changes that involve government subsidies, which can kick into effect for employees who make less than four times the federal poverty level. They’ll also need to hear about the state’s individual plans for insurance exchanges as those develop – it might be helpful to arrange presentations by your attorney or accountant on the legal issues that the company and the employees individually will face.
The Patient Protection and Affordable Care Act has already started to make its mark on the business landscape. Here’s a quick look at what’s happened since it was signed into law in 2010, and what’s still on the way.
Source: NFIB Healthcare Playbook
- A temporary small business tax credit became available for six years for certain small businesses that provide qualified health coverage.
- In June, early insurance reforms began. Temporary high-risk pools were created for uninsured adults with pre-existing conditions. There were prohibitions on lifetime and annual benefit spending limits, non-group plans were not allowed to cancel coverage, plans cover most preventive care, and dependents were allowed to remain on their parents’ policies until age 26.
- The penalty for using Health Savings Accounts (HSAs) for non-qualified purchases doubled to 20 percent.
- Businesses would have been required to send additional Form 1099s for every business-to-business transaction of $600 or more, but this provision was repealed in 2011. Previous Form 1099 reporting requirements still exist.
- Employers were required to provide a Summary of Benefits and Coverage to employees during open enrollment season.
- Employers must determine size, whether they will considered “large” or “small,” for the requirements of the employer mandate. Penalties will not occur until 2014, but a large employer is defined as an employer who employed an average of at least 50 full-time equivalent (FTE) employees on business days during the preceding calendar year. For 2014, the preceding calendar year is 2013.
- Employers must determine whether employees are full-time employees. Employers may measure monthly hours or utilize a look-back period of 3-12 months to determine whether average employee hours exceeded 30 hours per week (130 hours per month).
- Employers must notify each employee at the time of hiring written notice of exchange availability: informing the employee of the existence of an exchange, description of exchange services and exchange contact information; and notifying the employee if the employer’s plan is below 60 percent actuarial value.
- Flexible Spending Accounts (FSAs) will be limited to a maximum of $2,500 annual contribution.
- Employers will be required to report the cost of employee health benefits on W-2s for tax year 2012 (both employer and employee contribution). Until the IRS issues additional regulations, employers that file fewer than 250 Form W-2s will not be required to report this information.
- Health insurance exchanges open to individuals and small businesses with up to 100 employees, although states may limit the small employer definition to no more than 50 employees until 2016.
- Premium credits kick in, and the federal government begins subsidizing the purchase of health insurance for individuals with incomes up to 400 percent of the federal poverty level.
- Employer mandate begins, requiring growing firms to provide insurance or pay penalties. The penalties are based on the number of full-time employees during the preceding calendar year; whether the firm offers coverage to full-time employees; whether coverage is “affordable” and meets “minimum value;” and whether one or more full-time employees qualify for a government subsidy. A full-time employee qualifies for a subsidy if his or her household income is between 138 and 400 percent of the federal poverty level and the employee’s share of the self-only portion of the premium exceeds 9.5 percent of their income.
- Insurance reforms take effect, and insurers cannot impose coverage restrictions based on pre-existing conditions. Modified community rating standards go into effect for individual or family coverage based on geography, age and smoking status. Insurers must offer coverage to anyone. The law also limits out-of-pocket cost-sharing, and small group and individual market insurance plans must include government defined essential health benefits and multiple coverage levels.
- Small business health insurance tax rises to $11.3 billion.
- Individual mandate tax penalty increases to $325 or 2 percent of income, whichever is greater.
- Small business health insurance tax remains at $11.3 billion.
- Small business (SHOP) health insurance exchanges must open up to businesses with up to 100 employees.
- Small business health insurance tax increases to $13.9 billion.
- States may allow large employers to enter the exchange.
- Small business health insurance tax rises to $14.3 billion.