A look at the penalties and options available when the individual and employer mandates of the Affordable Care Act become effective in 2014 and 2015.
The employer mandate will go hand-in-hand with the individual mandate, which requires all American citizens to have health insurance to ensure that all citizens have access to health care in the United States. However, while the individual mandate starts on Jan. 1, 2014, the employer mandate is effective a year later.
On Jan. 1, 2015, applicable large employers will be required by the Patient Protection and Affordable Care Act (ACA) to offer health care insurance to their employees and their dependents. A monthly penalty will be imposed on applicable large employers that fail to provide health care coverage to employees or those employers that provide inadequate coverage and whose employees partake in an outside coverage plan.
Applicable employers have an average of at least 50 full-time employees on business days during the preceding calendar year. A full-time employee is defined as one who works, or is entitled to be paid even when no work is performed, on average at least 30 hours per week. Employers may disregard seasonal workers from the average count if those workers’ employment is, ordinarily, “the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year.”
Section 414(b), (c), and (m) of the Internal Revenue Code will further clarify what an applicable large employer is as defined by law. The subsections collectively state that all employees who are under common ownership are defined as being employed by a single employer. This means that if two separate companies, in two different fields, have a high degree of common or overlapping ownership then those companies are counted as one employer, employing the same employees.
Employees who purchase outside health coverage and take the tax credit for the monthly premiums will be a determining factor in whether a company will be penalized or not. An employee will only have the option to seek coverage on the Health Insurance Marketplace if the coverage provided by the employer is “unaffordable” or does not provide minimum coverage. The ACA defines unaffordable as worker-only coverage that costs more than 9.5% of household income and minimum coverage as a plan that will cover at least 60% of medical-benefit costs. The plan the employer offers does not have to include family coverage. The company can avoid the penalty if they offer an affordable, minimum coverage plan only for the worker with no option for the family.
The non-deductible penalty is divided into two separate categories based on whether the applicable large employer offers health insurance or not. Small employers, those with 50 employees or fewer, are not required by law to provide health care to their employees and not subject to penalties.
Applicable large employers who do not offer health insurance will pay a penalty of $167 per month per full-time employee if:
• One full-time employee purchases outside health insurance and receives tax credit for it.
• The employer does not offer health insurance coverage.
This results in a maximum penalty of $2,000 per employee for the year. For companies not offering health care, the first 30 employees can be disregarded in the penalty calculation. For example, if the company does not provide health insurance and employs 80 full-time workers (only 50 count toward penalty), then the monthly penalty would be $8,350, adding up to a yearly penalty of $100,200. Remember, this is a non-deductible expense.
Applicable large employers who do offer health insurance will pay a penalty of $250 per month per full-time employee who:
• Purchases outside health care and receives tax credit for it
• Is offered health insurance coverage, but
— The coverage is unaffordable, or
— The coverage does not meet minimum value requirements
This results in a maximum penalty of $3,000 per employee for the year. Additionally, the employer is not allowed to disregard the amount of employees in the penalty calculation. In this example, the company does provide health insurance and employs 80 full-time workers, but 15 of them seek outside health coverage for various, applicable reasons. The company will pay the penalty only on those that enroll in outside coverage and received a tax credit for it. The monthly penalty will be $3,750, resulting in a yearly non-deductible penalty of $45,000.
Individuals, such as retirees or employees at small-sized companies, who don’t have access to employer-related plans still will be able to benefit from the new changes. The ACA has modernized the health care landscape in America by requiring all citizens to be covered by a health care plan. In order to help cover the costs of premiums and other out-of-pocket costs, the government has created four levels of plans and the Advance Premium Tax Credit.
The four levels of plans that will be offered in the new program are Bronze, Silver, Gold, and Platinum. All plans must offer the same set of essential health benefits required by the government, differing only in the amount of coverage the provider would pay for on health care costs. Bronze would cover 60% of the costs with the lowest monthly premiums; Platinum would cover 90% of the costs with the highest monthly premiums. Silver (70%) and Gold (80%) will be median values of the previous two.
Section 36B explains who will be able to qualify for the Advance Premium Tax Credit and how much they will receive. A person (or couple) can only apply for the credit if: the minimum value plan offered by the employer is not deemed affordable or provides minimum coverage, coverage is purchased through the marketplace, they have an income within the range, they are not eligible for coverage through a government plan (Medicaid, Medicare, etc), they are not claimed as a dependent, and if married, they must file a joint return.
Citizens and legal resident families, who meet all other criteria, with modified adjusted gross income between 100% to 400% of the poverty line will be eligible to receive the credit. The ranges are:
• $11,490 to $45, 960 for individuals
• $15,510 to $62,040 for a family of two
• $23,550 to $94,200 for a family of four
The amount of the tax credit varies with income such that the premium a person would have to pay for the second lowest cost silver plan would not exceed a specified percentage of their income. An excerpt of the table is below: (% of poverty line; Premium as a % of Household income):
A non-dependent individual makes $22,980 (200% of the poverty line). He does not have access to an employer plan and does not qualify for a government plan, so he must purchase his health care coverage on the Marketplace. The amount he would qualify for the Advance Premium Tax Credit would be any amount over $1,447.74.
Eventually, regulators imagine concise, workable resolutions over the economic taxes household income supplies. Until then, the government will need to supply the American population with credits and other incentives to modernize our health care system. The ACA s a step in the right direction and will require the assistance of companies and the public to bring America into the new era of health care.
Mike C. Manoloff, PC, a Houston CPA firm, is a full-service accounting, tax planning, tax preparation, payroll and business advisory firm which includes doctors and physician groups, oral health and dentist, home healthcare, cost reporting and medical arts. We partner with you to identify the goals and objectives you have for your business and work with you to achieve those goals. Mike may be reached at 713-774-7766 or at email@example.com.
Mike C. Manoloff, PC, is also a proud member of the National CPA Health Care Advisors Association. HCAA is a nationwide network of CPA firms devoted to serving the health care industry. Members provide proactive solutions to the accounting needs of physicians and physician groups. For more information contact the HCAA at firstname.lastname@example.org.