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PPACA Five Critical Factors Part I

June 28, 2013

in Compliance, Employee Benefits, Health Care Reform

Originally posted by Benefit Mall on

With the majority of PPACA mandates becoming effective in 2014, we know the thousands of pages of rules, almost daily rulings and repeated attempts to modify the legislation can be overwhelming. Many employers are scrambling to figure out if they will be impacted by the law. To answer to that question is yes! Every employer in the United States will be affected in some way by PPACA. But that doesn’t mean that any two employers will be alike or will be impacted in the same way.

There are many factors that need to be considered when figuring out how your company may be affected. With that, we have identified 5 Critical Factors that every employer needs to understand.

Five Critical Factors

  1. Business Size and Employer Mandate Applicability
    Many PPACA provisions apply based on the size of an employer’s workforce. This section will explain how to determine if the employer is an applicable large employer for purposes of the shared responsibility provisions. It will discuss the role of the “look back” period and how controlled groups factor in determining business size and the applicability of the Employer Mandate.Employers with 50 or more full-time equivalent employees
    An employer is only subject to the Employer Mandate to offer health insurance or pay a penalty if they employ a combination of full-time and part-time employees that equals 50 or more “full-time” equivalent employees.If the Employer Mandate applies to your business, you are potentially subject to penalties if you do not offer your full-time employees and their dependents (children up to the age of 26) to enroll in coverage or the coverage you offer your full-time employees does not meet the Affordability or Minimum Value requirements. Calculating the number of full-time employees you employ is crucial to calculating your potential liability.

    Regulations allow an employer to calculate an employee’s full-time status based on a look-back measurement period of up to 12 months. This approach allows employers to use a longer period of time to ensure employees are in fact full-time employees.

    This also limits the impact the Employer Mandate might have on their business by limiting the number of full-time employees they employ and thus the number of employees they must provide benefits to or pay a penalty.

    If the employer owns multiple businesses; common ownership rules and impact apply.

    If an employer determines they are subject to the Employer Mandate and does not offer its full-time employees (and their dependents) the opportunity to enroll in coverage that meets PPACA’s requirements, they are subject to a tax penalty based on the number of full-time employees the employer employed.

    To assist, utilize these guidelines and our FTE Worksheet to help your business determine these answers.

  2. Small Business Tax Credits
    PPACA provides significant tax credits to certain small employers. The law has different size requirements for not-for-profit and for-profit small employers. This section will discuss what small employers must do to qualify for the tax credit.Employers with fewer than 25 full-time employees
    For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers. On January 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.
    To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time employees that have an average wage of less than $50,000 per year.

    To claim the credit, you must use Form 8941, Credit for Small Employer Health Insurance Premiums. For detailed information on filling out this form, see the Instructions for Form 8941.

    If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return.

  3. Plan Affordability
    Applicable large employers must meet two major thresholds to avoid paying a significant tax penalty for offering health benefit coverage that does not meet the requirements of the law. This section will explain how an employer can compute the affordability of the health benefit plan and avoid an employee going to a health insurance marketplace that has a federal premium subsidy, which triggers a penalty.Employers with 50 or more full-time employees
    A plan is “affordable” if the employee’s cost for self-only coverage is less than 9.5% of the employee’s household income.Recent guidance provided three safe harbors that employers may use to ensure the coverage they offer meets the PPACA’s affordability requirements. Perhaps the most commonly used safe harbor will allow an employer to look at an employee’s annual wages, as reported in Box 1 of the employee’s W-2, to determine affordability. Under this safe harbor, affordability will be met if the cost of benefits does not exceed 9.5% of an eligible employee’s annual wages. If an employer offers multiple health care coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement.

    If the coverage offered is not affordable, the employer will be assessed a penalty equal to the number of full-time employees who received a premium tax credit for that month x 1/12 of $3,000.

  4. Plan Value
    Secondly, to avoid a tax penalty, the plan offered by the applicable large employer must provide “Minimum Value” to the employee. Failure to understand and address this threshold proactively could expose an applicable large employe to liability; for example, if a full-time employee receives a federal premium subsidy because the benefits offered by the employer were of inadequate value, the employer would be forced to pay a tax/penalty.Employers with 50 or more full-time employees
    Recently released regulations provide that an employer-sponsored plan provides Minimum Value if the percentage of total allowed costs of benefits provided is no less than 60 percent. The easiest way to determine if the employer sponsored health benefit plan meets minimum value is to have the insurance company certify that such is the case.

    You can use the Minimum Value Calculator provided by The Department of Health and Human Services to determine Minimum Value for your health benefit plan(s).

  5. New Reporting Requirements
    PPACA places substantial reporting requirements on employers of all sizes. Employers need to understand these requirements and take a proactive approach to fulfilling them. This section will explain the major reporting requirement being imposed on all employer groups.Mostly large employers
    Examples of new reports or communication pieces:
    • Annual federal reporting on their employees and the types of benefits they receive as well as the employer’s compliance status under the Employer Mandate
    • Reporting the cost of medical benefits on W-2s for large employers
    • Creating and communicating a Summary of Benefits and Coverage (SBC) and uniform glossary to enrollees at various points in the enrollment process. The Uniform Glossary provides a list of common coverage terms, such as deductible and copayment
    • Employers subject to the Fair Labor Standards Act (generally larger employers) also must provide notice to employees informing them of their coverage options inside and outside of Health Exchanges

Many changes and challenges are on the horizon, but the first step to being prepared is to understand the legal requirements. Employers that review the above mandates in detail will be in the best position to successfully make the transition.

Any U.S. Tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. 

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