How Does the Affordable Care Act Impact Your Business?

March 25, 2013 -

What is PPACA?

PPACA is the Patient Protection and Affordable Care Act. It is also known as Obamacare or the Affordable Care Act.

What Does the Affordable Care Act Mean for Employers?

Large employers will be required to offer employees health insurance plans that meet minimum standards or face tax penalties.

Who Must Comply with the Affordable Care Act?

Large employers. Large employers are businesses with 50 or more full time or full-time equivalent employees. A full-time employee has worked on average 30 hours a week. Part-time employees, who work less than 30 hours a week, are counted as well. To calculate your full-time equivalent employees, add the number of hours part-time employees worked (include paid vacation, sick pay, holiday, layoff, jury duty, military leave, or leave of absence) in a month and divide that number by 120.

Your status as a large employee is based on your employment statistics for the previous year. For instance, you would consider the average number of employees you had in 2013 to determine whether you are a large employer in 2014. If you are a new company, reasonable expectations of employment will govern this determination.

When Will the Penalty Start?

Jan. 2014. Except that an employer who takes steps during plan year beginning in 2014 toward offering dependent coverage will not be liable solely for failure to provide dependent coverage.

Who Will Get Penalized?

An employer who does not offer minimum essential coverage to substantially all of its full time employees and their dependents (kids under 27) will be subject to the penalty IF an employee obtains subsidized exchange coverage. “Substantially all employees” means 95% of full-time employees (or, at least 5 employees).

An employee may obtain subsidized coverage if his or her household income is between 100-400 percent of the federal poverty level and is not eligible for Medicaid and his or her employer offers coverage that fails to meet the minimum value or affordability test or his or her employer does not offer coverage. The minimum value test is met if your plan covers at least 60% of the total allowed cost of expected benefits. An IRS calculator is expected to be created for this purpose. The affordability test requires that your employee pay no more than 9.5% of his or her household income for his or her own coverage (not including coverage of dependents). Since employers do not know what an employee’s household income is, the IRS has stated that employers may use an employee’s W-2 reported wages as a safe harbor.

How much is the Penalty?

If You Provide Insurance:

If you provide insurance but one or more of your employees obtains subsidized coverage, you will be subject to a tax penalty. In 2014 the penalty will be $2,000 x number of full-time employees in excess of 30. However, it will be the LESSER of that calculation and $3,000 multiplied by the number of full-time employees who have obtained subsidized coverage (per year). Before the penalty is assessed, proposed regulations indicate that you will receive notice that your employee receives subsidized Exchange coverage and have an opportunity to respond.

If You Do Not Provide Insurance:

If an employee receives subsidized coverage, you will pay $2,000 per employee (minus the first 30 employees). In either case, the penalty will grow each year for the first several years.

Medicare Changes:

High income taxpayers pay 3.8% Medicare surtax in 2013. High income = married taxpayers with over $250,000 modified adjusted gross income, or single individuals making over $200,000. These high-income Taxpayers will pay an additional .9% on income above the threshold amount. That is, a single taxpayer making $250,000 will pay 1.45% Medicare tax and his company will pay 1.45% Medicare tax on his income to $200,000. The taxpayer will then pay 2.35% Medicare tax on $50,000 of his income.