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Small Business Employee Benefits and HR Blog

Health Care Reform Implementation FAQs

November 6, 2012
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1. As an employer, do I need to do anything in 2012 now that this is law?

The employer requirements for offering coverage and liability for penalties do not begin until 2014 and only apply to firms with 50 or more full-time employees.  All of the details are not yet known, and action by several federal agencies is required to further define some of these requirements.  Click here for quick guide to the employer penalties.health reform Faq

2. Is the value of health benefits employers report on W-2’s taxable?

No.  The value of the health benefits is reportable on the W-2, but it is not taxable.  Click here for quick guide to the W-2 Reporting requirements.

3. I heard there are small business tax credits available. When do they begin and am I eligible?

Beginning January 1, 2010, certain small businesses with up to 25 full-time-equivalent employees may qualify for a tax credit for contributing to their employees’ health coverage now. The IRS has issued guidance and tools to help small employers determine if they are eligible for the tax credit. Please note: the formula for calculating the small business tax credit FTEs is different than that used to calculate the 50 FTE threshold (see below). Click here for a guide to the small business health care tax credit.

4. I heard that some health plans are considered “grandfathered,” what does that mean?

Generally, grandfathered plans are those that were in existence as of March 23, 2010 when the bill was signed into law. 

5. If I have 3 separate companies, are they each considered separate employers under the health care law?

Not necessarily.  For the purposes of health care reform, a single employer is defined by the “Common Control” clause in the tax code [IRC Sections 414 (b), (c), (m), (o)].  Consult your tax advisor to see how this provision of the tax code applies to you.  If considered a single employer, all the employees must be combined together for purposes of calculating whether an employer is above or below the 50 full-time equivalent threshold.

6. Will I be required to offer health care to all my employees?

Employers with 50 or more full-time-equivalent employees (see calculation below) will have the option of providing their full-time employees with an affordable “minimum essential coverage” health benefits package starting in 2014 or pay a penalty for not doing so. Part-time employees’ hours are considered solely for the purpose of determining if a business is above or below the 50 FTE threshold. At no time does the law require employers to offer affordable minimum essential coverage or pay penalties for part-time employees.

7. Will small businesses be required to provide coverage too?

No. Employers who have fewer than 50 full-time-equivalents are not subject to the employer tax penalties. 

8. How do I know if I am considered a small business and therefore not subject to the employer mandate?

The threshold is determined by the following formula, which you would calculate on a monthly

  ___ Number of full-time employees (defined as those who average 30+ hours a week that month)

+ ___ All hours worked by part-time employees that month ÷ 120 hours basis:

= ___ Number of full-time equivalents.

9. Do I have to offer coverage for my part-time employees?

No. Part-time employees (those working less than 30 hours per week on average) are counted only in determining whether an employer meets the 50 full-time equivalent threshold for coverage under the law. The employer responsibility section of the law does not require employers to offer health care coverage to their part-time employees or pay healthcare penalties on their part-time employees.

10. How much will the new requirements cost me?

Cost will vary depending on your operation and how minimum coverage is defined through the regulatory process. 

11. If I choose to offer health care coverage to my full-time employees, how much will I have to provide?

Employers with more than 50 full-time equivalents will have to provide affordable “minimum essential coverage” with at least a 60 percent actuarial value to meet the requirements of the law. “Minimum essential coverage” will be defined through the regulatory process.  

12. What is a premium tax credit?

The law created a subsidy to be used by those with incomes up to 400% of the federal poverty level to obtain affordable coverage. The tax credit is used on the exchange to purchase coverage to satisfy the minimum essential coverage requirement of the individual mandate. The exchanges will play a central role in certifying individuals are eligible to obtain the premium tax credit.

13.  Are there penalties for employers subject to the law who do not offer coverage?

Yes, but only if the employer employs more than 50 full-time equivalents. An employer who does employ more than 50 full-time equivalents may choose not to offer coverage to their full-time employees, but if at least 1 employee uses a premium tax credit to access coverage on the exchange, the employer will be subject to a penalty of $2,000 per full-time employee annually (or $167 monthly). Employers may exclude the first 30 full-time employees in calculating their penalty. For example, a covered employer who has 60 full-time employees chooses not to offer coverage, and at least 1 employee uses a premium tax credit on the exchange, the employer would face an annual penalty of $60,000, assuming a constant workforce. [60 total full-time employees – 30 full-time employees excluded from the calculation = 30; 30 x $2,000 penalty = $60,000.]  However, it should be noted that the penalty is calculated and assessed on a monthly basis.

14. Are there penalties for employers who offer the required coverage but it is unaffordable to their employees?

Yes, but only if the employer employs more than 50 full-time equivalents. If an employer offers coverage to their full-time employees, but the employee’s contribution is more than 9.5% of their household income, and at least 1 full-time employee accesses coverage using a premium tax credit on the exchange, the employer is subject to a $3,000 annual penalty per full-time employee doing so (or $250 monthly).  The maximum amount of penalty is limited so that it can not be any greater than what the employer would be liable for if they did not offer coverage at all.

15. What is a free choice voucher?

If an employer does offer minimum essential coverage, but a full-time employee’s contribution is between 8% and 9.5% of their household income, then the employee can request a free choice voucher from their employer to purchase coverage on the exchange.  The voucher is the amount equal to the employer contribution for an individual plan (unless the employee elects a family plan).  The amount of the voucher is still tax deductible for employers as are the employer’s contributions for other employees on in their plan.  An employee can not use a premium tax credit and be eligible for a free choice voucher at the same time. 

16. How will I know my employee’s household income to determine if my plan is affordable or not?

It is anticipated that the exchange in each state, in consultation with the IRS, will verify an employee’s household income (wages and other taxable income, based on tax filings). The exchanges will also certify if an individual qualifies for a premium tax credit or free choice voucher. The law requires the states to set up at least one exchange in their state by 2014.

17. If I provide coverage, do I have to offer it to my new full-time employees on day one?

Those subject to the employer mandate (i.e. employers with 50 or more full-time equivalents) in the law are allowed a waiting period of 90 days without penalty beginning in 2014. On day 91 the employer must offer new hires minimum essential coverage or pay the penalty for not doing so.

18. What is the individual mandate?

The individual mandate requires everyone to obtain minimum essential coverage for themselves (and their dependents) or pay a penalty.  The penalty is phased-in to $695 per calendar year or up to 2.5% of income (as of 2016 and beyond).  There are income exemptions.  Only individuals under 30 can purchase a catastrophic plan to satisfy this mandate; the law does not allow an employer to offer a catastrophic plan and claim it to satisfy the requirement for minimum essential coverage.

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