Steps to Keep Your Business Affordable Care Act Compliant
Attention local business owners. Take heed: According to the article Warning: Affordable Care Act Penalties Start This Year, appearing in the April 17th issue of Entrepreneur, “Beginning this year, Internal Revenue Code (IRC) Section 4980H is requiring that certain ‘large employers’ offer health coverage to their full-time employees or risk being subject to tax penalties.”
In other words, today’s small business owner now has gained yet another challenge: understanding the Patient Protection and Affordable Care Act (PPACA), also known as “ObamaCare.”
Fear of the Unknown
Meet attorney and Registered Health Underwriter, Janet S. Dumont, a shareholder with Riggs, Abney, Neal, Turpen, Orbison & Lewis, Inc. in Oklahoma City, a LegalShield provider firm. Janet primarily practices in the areas of employee benefits and human resources law. With over 30 years of industry experience, she is widely recognized as a leading authority on the ACA.
“This is a very complex topic of law and I encourage all employers to work with knowledgeable insurance brokers, tax advisors and attorneys,” says Janet. “This is the majority of what I do, and it still took me 15 hours to fill out the new employer reporting forms when I was as completing them as if I were an employer. I honestly don’t know how small business owners can do it alone.”
Good News for Small Businesses
Janet explains the primary concern among employers is related to “Pay or Play,” the concept that employers are required to either “play” by offering the minimum required coverage to their employees or “pay” a fee to the government to fund subsidies for those without access to affordable coverage.
For most small business owners, Janet’s response is simple: “If you have fewer than 50 full-time employees under the threshold test during 2014, you don’t have to worry about Pay or Play for 2015. You will owe no penalties.”
“A small employer really doesn’t have that many obligations but they still have a lot to consider. Their options are basically limited to should we offer health insurance to our employees, and if we do, should it be employer-based through the private market, or through an individual or small group public exchange (called the Marketplace). They can often work with the same insurance agent or agency who provides their general liability and other employee benefits to learn about their options and compliance requirements under the ACA.”
For applicable large employers (“ALE”) with 50 or more full-time employees (including full-time equivalents), Janet recommends six key action steps. To illustrate, let’s use the example of Jim Johnson, the owner of two successful companies. Company One employs 35 full-time employees; Company Two employs 40 or more full-time employees. Both companies also employ a large number of part-time and contract employees, none of whom work more than 29 hours per week on average.
6 Key Action Steps for Employers
1. Don’t Go It Alone! Janet would recommend Jim work with a knowledgeable agent/broker or consultant/attorney. She explains “that is the most effective way to stay up-to-date on ACA changes, delays, special rules and regulations, and updates to implementation. These professionals can also provide you resources to comply with annual employer reporting requirements to IRS and can help your accountant/tax advisor to determine if you qualify for available tax credits for small employers.” For example, the Small Business Health Care Tax Credit can provide small employers (e.g., those with fewer than 25 full-time employees) with a tax credit of up to 50 percent of premiums paid.
2. Determine Your Real Company Size. This isn’t as easy as it sounds. The number is based on averages over the course of the year, not a single point in time such as the end of the year. This is particularly complicated in Jim’s case, since he has two companies. Individually, neither of Jim’s companies qualify for Pay or Play as an ALE since they each have fewer than 50 full-time employees. However, Janet explains “that the term ‘ALE’ applies to companies under common ownership that jointly employ more than 50 full-time employees.” So, In Jim’s case, his two separate companies are treated as a single entity with 75 employees since they are owned by the same person. As such, Jim will likely be considered as a single ALE and would be subject to Pay or Play under the ACA.
3. Pick Whether to Pay … or to Play. In Jim’s case, since he qualifies as an ALE, he now must either offer “minimum essential coverage” to his full-time employees (and their dependents) or pay the penalty. His tax liability is only triggered if one of his full-time employees enrolls in the Marketplace and receives the premium tax credit.
Importantly, Janet would recommend Jim evaluate his employees’ contribution levels and work with a professional advisor to adjust them using “special safe harbors,” which can help him to avoid penalties. Jim should also ask this professional about his eligibility for the mid-size employer (50-99) “transition relief” for 2015, which may provide him with an additional year to prepare and strategize before Pay or Play comes into effect for his companies.
4. If You Play, Follow The Rules! In Jim’s case, it would not be enough to simply purchase the cheapest plan available for his employees. According to Janet, he is required to provide a plan that meets “minimum value” (“MV”) in order to avoid penalties. According to HealthCare.gov, the coverage that Jim provides must “pay at least 60% of the total cost of medical services for a standard population” in his company. This would ensure his plan meets the standard for “affordable” and “minimum value” coverage, thereby allowing him to avoid penalties. There are new self-insured products being marketed to smaller employers that are supposedly compliant, and Janet definitely recommends Jim work with knowledgeable agents if Jim decides to self-insure as there are additional financial risks for any employer that self-insures.
5. Consider Encouraging Lower-Income Employees to Enroll through the Marketplace Instead of Accepting Employer-Paid Benefits. By law, Jim could face potential pay or play tax penalties if he doesn’t offer affordable, minimum value coverage to at least 70% (95% beginning in 2016) of his full-time employees. Even if he does offer the minimum value coverage to all his full-time employees, this still may not necessarily be affordable for his lower-income employees. However, the individual mandate and premium tax credit could significantly affect these lower-paid workers (as well as part-time employees working 29 hrs/week or less). In the case of Jim’s companies, these lower-paid employees may be better off not receiving benefits from their employer. Instead, if they purchase their own coverage for themselves and their families through the Marketplace, they could be eligible to receive the premium tax credit. This would allow them to save even more money than if they received benefits from their employer. Furthermore, this strategy could also save Jim’s companies a significant amount of money; while they would have to pay the “under offer” penalty ($250/month) for each employee who purchased coverage through the Marketplace, this penalty would likely be less than the cost of providing benefits to those employees. In this way, Jim could create a win-win situation for his companies and his lower-paid employees.
6. Explore Cost-Shifting from Dependents to Employees. Finally, let’s assume Jim has been providing coverage to his full-time employees and their dependents. Janet suggests, working with a professional, he consider shifting his company’s contributions away from dependents and towards additional contributions for the employees themselves. While not guaranteed, this might be an effective way to make the employees’ current health plans “affordable” under the law.
While this advice applies to every business in the country, it is important to note each state has its own nuances. In nearly half of the nation, states also offer their own exchange. The ACA law is in a constant state of flux, so Janet’s most important piece of advice to an employer like Jim is to retain professional advice. “This is the best way to keep up with the new guidance on ACA rules changes and ensure that you can stay compliant.” LegalShield’s unique SmallBiz100 plan gives affordable access to legal advice for those companies with up to 100 employees.
The content of this article is intended for general information purposes only, and is not legal advice. Readers should be aware that while certain principles outlined on this site may be similar to principles followed in their own state or province, laws can vary considerably. © Copyright 2015 Pre-Paid Legal Services, Inc. d/b/a LegalShield℠ One Pre-Paid Way, Ada, Oklahoma 74820 www.mylegalshield.com