There are a variety of issues and considerations for individuals and employers, both large and small, regarding the Affordable Care Act (“ACA”), or Obamacare, going into 2014. These include the implementation of the individual mandate, Small Business Health Options Program (“SHOP”) Exchanges available for small businesses and the tax credits that may be available for employers participating in SHOP, as well as the continuing requirement to provide Notice of Coverage Options to newly hired employees. Furthermore, employers that may be considered large employers may well need to evaluate their work force in 2014 to determine whether they may be subject to the employer mandate in 2015.
The individual mandate, or individual shared-responsibility provision, as part of the ACA, requires an individual, his or her children, and anyone else who is considered a dependent of that individual to have health insurance in 2014 and beyond or pay a penalty.
The health insurance coverage may be provided by an employer, by Medicare or Medicaid, or directly through an insurer or in the online Health Insurance Marketplace or exchange run by the state or federal government.
The penalty for failure to obtain coverage in 2014 is $95 per adult and $47.50 per child or 1 percent of household income, whichever is greater. However, the penalty increases over time, with the amount of the penalty in 2016 being $695 per adult and $347 per child or 2.5 percent of household income, whichever is greater. However, there is a cap on the maximum amount of penalty that may be charged per household. This cap is 300 percent of the adult penalty, per household. By 2016, this results in a cap of up to $2,085 per family.
The amount owed will be prorated based upon the number of months without coverage. Proposed regulations provide that a taxpayer will be required to report liability for the penalty on the taxpayer’s federal income tax return for the taxable year that includes the month in which the individual or his or her dependents did not have coverage (e.g., a calendar-year taxpayer would report liability for March 2014 on his or her 2014 income tax return filed in 2015).
There are certain exemptions from the mandate that are available. Individuals who cannot afford coverage because the cost of premiums exceeds 8 percent of their household income or those whose household incomes are below the minimum threshold for filing a tax return are exempt. Individuals who experience certain hardships may also be exempt.
Other exempt groups include Native Americans eligible for care through the Indian Health Care Service, nonresident aliens and illegal immigrants, individuals whose religion objects to having insurance coverage, members of a health care sharing ministry and prisoners. Furthermore, individuals who experience a short coverage gap of less than three consecutive months will also not have to pay the penalty.
The SHOP Exchange or Marketplace is part of the Health Insurance Marketplace where employers can purchase employee health insurance. Currently, SHOP won’t be available online until November 2014. However, employers may still apply for SHOP plans via paper applications.
Currently, SHOP is open to employers with 50 or fewer full-time-equivalent (“FTE”) employees. Starting in 2016, SHOP will be open to employers with up to 100 FTEs. Generally, a full-time employee is an employee who works 30 or more hours per week.
To determine the number of FTEs for eligibility in SHOP, during the most recent year, count the number of people who worked an average of 30 or more hours a week. Add to this the number of hours worked per week by non-full-time employees divided by 30. This number should be rounded down to the nearest whole number. Seasonal employees who work fewer than 120 days per year are to be excluded.
In order for an employer to qualify for coverage under SHOP, coverage must be provided to all full-time employees (generally those who work on average 30 hours or more per week). Furthermore, in many states, 70 percent of full-time employees must actually enroll in the SHOP plan. However, from Nov. 15 to Dec. 15 each year, an employer may obtain coverage through the SHOP Marketplace without having to meet this minimum participation requirement.
Furthermore, a tax credit may be available to employers who obtain coverage for their employees through SHOP.
Small Business Health Care Tax Credit
An employer who has fewer than 25 full-time-equivalent employees who make an average of $50,000 a year or less may qualify for the Small Business Health Care Tax Credit (the “Tax Credit”).
In order to qualify for the Tax Credit, the employer must pay for at least 50 percent of the employee premiums and provide coverage through a SHOP plan obtained in the SHOP Marketplace. In 2014, the Tax Credit may be worth up to 50 percent of the employer’s contribution toward employee premiums.
The Tax Credit available is on a sliding scale, with the Tax Credit beginning to be phased out for employers with more than 10 full-time-equivalent employees and average wages over $25,000. Therefore, the smaller the business, the bigger the Tax Credit the employer will receive.
Notice to Employees of Coverage Options
Under the ACA, on Oct. 1, 2013, most employers (those covered by the Fair Labor Standards Act) were required to provide notices to their current employees of the coverage options available to them through the Health Insurance Marketplace.
The Notice requirements under the ACA continue for new hires after Oct. 1, 2013, and will be deemed timely delivered if provided to a new employee within 14 days of the employee’s start date.
Employer Mandate and Other Employer Considerations
While the employer shared-responsibility provisions, or employer mandate, under the ACA have been delayed until 2015, large employers should be aware that the size of their work force in 2014 will be used to determine whether such employer is an “applicable large employer” and therefore subject to the mandate. Therefore, employers must evaluate and adjust their work force and consider plan changes in anticipation of the 2015 implementation of the employer penalty. Furthermore, large employers will want to prepare for the additional reporting requirements that will be enacted in 2015.