employers and insurance carriers are
reducing benefits eligibility waiting periods down to “first of the month from date
of hire” in order to avoid this problem.)
Under the employer mandate, employers must provide benefits to people the
business determines to be full-time and to
employees who are determined to be full-time through the aforementioned complex measurement and stability process.
This process needs to be set in 2014, and
tracked through 2014, so that it can be applied in 2015. This process is complicated
enough to require its own article. Essentially, it works out to averaging hours
over a pre-determined period of time to
determine benefits eligibility for a predetermined period of time in the future.
The employer mandate includes two different penalties that might be assessed.
Both penalties require that at least one
employee receive a subsidy from the exchange.
The most obvious penalty is assessed
for not offering coverage. This penalty is
to be paid by employers who do not offer coverage at all, as well as employers
who offer coverage that does not meet
the ACA’s Ten Essential Health Benefits
(EHB) and Actuarial Value (AV) requirements. The EHB and AV requirements
will almost certainly be taken into account by insurance companies or brokers
when insurance plans are created, and
most employers will not need to take
these into consideration directly.
For employers not offering qualified
coverage, the penalty is $2,000 per full-
time employee minus 30 employees.
For example: 100 full-time employees
minus 30 equals 70; 70 times $2,000 is
$140,000. The penalty for this employer
to not offer coverage would be $140,000
per year. (The penalty is pro-rated
monthly for employees who may not
work the entire year.)
The other penalty is for employers
who offer coverage that is deemed to
be “unaffordable.” There are multiple
definitions of “affordable” throughout
the Affordable Care Act, and this one
has changed since it was originally
authored. For the purpose of this penalty, “affordable coverage” is defined as
costing less than 9. 5 percent of the employee’s income to participate as a single
employee on the employer’s health plan.
Dependent premiums are not a part
of this calculation. (If the employee’s
coverage is deemed affordable in this
calculation, the entire family becomes
ineligible for a subsidy, no matter how
expensive dependent premiums are or
low-income the family is.)
This penalty applies based on the
number of full-time employees whose
coverage is deemed to be unaffordable.
For each full-time employee who receives
a subsidy because coverage is deemed unaffordable, the employer will be assessed
a $3,000 penalty. The maximum penalty
for unaffordable coverage is the penalty
calculation for not offering coverage.
There is another very important
aspect of these penalties: they are
not a business expense that can be
written off of the company profit and
loss report. For owners of disregarded
entities, such as partnerships, LLCs,
and S-Corps, these penalties will pass
through as phantom income to the
owners, and the owners will be taxed
on the penalties as if they had actually
received the income. For C-corps, the
penalty will appear as corporate profits and then be taxed at the appropriate
level. It is imperative when calculating
the impact of accepting the penalties
associated with the ACA that this significant tax impact be included.
For smaller employers who are not
concerned with penalty implications,
many are asking themselves if they
should send employees to the exchanges.
We hear this often. For some companies,
it is a viable option. For others, especially
when there are low-income families who
would benefit greatly by having access to
subsidies, it is a great option.
There are some things to consider when
sending employees to the exchanges.