Large employers: Play or pay
The main thing most business owners need to know is whether they’re subject to the shared-responsibility provision, commonly referred to as “play or pay.” It applies to “large” employers, defined as those with at least 50 full-time employees or the equivalent (factoring in part-time employees).
To avoid the risk of penalties, large employers must offer actual full-time employees and their dependents minimum essential health care coverage that is “affordable” and provides at least “minimum value.”
Coverage is considered “affordable” if the employee’s share of the premium for his or her coverage only (not the dependents’ coverage) is less than 9.5% of the employee’s annual household income. Because employers usually don’t know their employees’ total household income, they can instead use a safe harbor based on employees’ annual W-2 wages. (Two other safe harbors also are available.) And coverage is considered to provide at least “minimum value” if the plan covers at least 60% of the cost of covered services.
If a large employer doesn’t offer such coverage to at least 95% of its full-time employees (70% in 2015) and at least one full-timer receives a tax credit for purchasing coverage through a Health Insurance Marketplace, the employer will incur a $2,000 penalty for every full-timer after the first 30. If the employer offers coverage but that coverage doesn’t meet the affordability or minimum value tests, the employer is at risk of that same penalty or a penalty of $3,000 per full-timer receiving a tax credit (whichever is less). Unlike your contributions to employees’ health care premiums, these penalties aren’t tax-deductible.
The play-or-pay provision was originally to have gone into effect in 2014, but it was deferred until 2015. And if you employ between 50 and 99 full-time employees or the equivalent and meet certain additional requirements, you have a respite from play-or-pay until 2016. But beware that there’s no respite from the information-reporting requirements for large employers.
Small employers: SHOP and tax credits
If you have fewer than 50 full-time employees or the equivalent, you can compare and purchase group insurance plans for your employees on the federal government’s Small Business Health Options Program, or SHOP. By creating a large pool of buyers, this marketplace is designed to offer small employers the kind of buying power that only large employers have had in the past.
If you obtain a qualified health plan through SHOP, you must make a nonelective contribution on behalf of each employee who enrolls in the plan. This contribution must be a uniform percentage of at least half of the cost of the health plan.
In addition, if you have 25 or fewer full-time equivalent employees (FTEs, calculated by totaling the number of employee hours for the year, dividing by 2,080, and then rounding down) you may be eligible for tax credits of up to 50% of your total contributions to employees’ premiums. To qualify, you must pay at least half of your employees’ premiums and your employees’ average annual wages can’t exceed $51,600 in 2015 (adjusted annually for inflation). The size of the tax credit is phased downward if you employ more than 10 FTEs and/or their average wages exceed $25,800 in 2015 (adjusted annually for inflation). Keep in mind that you can take the credit for only two years and they must be consecutive.
More changes coming?
More changes related to the health care reform law could be forthcoming. Therefore, keep a close eye on these and other developments to see how employer ACA requirements might evolve.