Obamacare: What Contractors Need To Know About Health Care Now
The Affordable Care Act, also known as Obamacare, is slowly being implemented after becoming law on March 23, 2010, and withstanding a Supreme Court challenge on June 28, 2012.
Various segments of the wide sweeping reform of the health care system have already been enacted, including the coverage of dependent children on a parent’s plan until the age of 26, a prohibition of lifetime coverage limits, and changes to the way health savings accounts and flex plans work.
The biggest changes are on the horizon though. On January 1, 2014, the “individual mandate” kicks in, requiring all Americans to obtain health insurance or pay a penalty. But since many individuals get coverage through their jobs, what does this mean for employers?
If you provide some form of coverage to a few or all your employees, then you need to be aware of the implications of the individual mandate for employers, regardless of the number of employees that work for you.
The individual mandate says, with few exceptions, all individuals must obtain coverage from somewhere: either their employer, through the newly expanded Medicaid program, from a private insurance program, or through one of the state sponsored “Exchanges.”
In some cases, employers may face a penalty if they do not provide a qualified level of coverage and one of their employees winds up using one of the public options.
Do You Need To Provide Coverage To Your Employees?
The short answer to that is no, however, if you employ 50 or more full time employees and full time equivalent employees (FTEs) and you do not offer any health insurance coverage, you could face a penalty. Be careful not to confuse full time employees and FTEs.
In order to see if you could face a penalty for not providing health insurance coverage to your employees, there are a few questions you need to ask about your business and the coverage you offer.
- Do you provide coverage now?
- Do you employ more than 50 full time employees & FTEs?
- If not, do you plan to grow your business and some day employ 50 or more full time employees & FTEs?
First, determine the number of full time employees that work at least 30 hours a week. This should be a whole number.
Next, calculate the number of FTEs you have (this may not be a whole number). To determine the number of FTEs you employ, multiply the total number of hours worked by employees who worked less than 30 hours a week by the aggregate number of hours of service (not more than 120 hours of service) for that month, and then divide the total hours of service by 120. This is the number of FTEs for the calendar month.
In determining the number of FTEs for each calendar month, fractions are taken into account. For example, if for a calendar month employees who were not employed on average at least 30 hours of service per week have 1,260 hours of service in the aggregate, there would be 10.5 FTEs for that month. However, after adding the monthly full-time employee and FTE totals, and dividing by 12, all fractions would be disregarded. For example, 49.9 full-time employees (including FTEs) for the preceding calendar year would be rounded down to 49 full-time employees (and thus the employer would not be a large employer in the current calendar year).
When you add together the total number of full time employees and the total number of FTEs you employ, you get what Obamacare considers your total number of employees. If that number is at least 50, AND you do not provide your employees the opportunity to enroll in minimum essential coverage AND at least one of your full time employees receives a premium tax credit established by the law or cost sharing reduction, then you will be required to pay a penalty equal to $2,000 times all full-time employees (those averaging at least 30 hours a week), but not the FTEs whose hours were included in the calculation of whether the employer is a “large employer.” The large employer can subtract the first 30 full time employees from the penalty payment calculation. The new law allows businesses to go over the 50-employee limit for 120 days when using seasonal employees, without triggering the potential assessment liability. The penalty is not tax deductible by the company.
If you employ less than 50 FTEs, you will not face a penalty for not offering healthcare coverage to your employees. However, by not providing this benefit, you could put yourself at a competitive disadvantage when hiring or retaining quality employees.
What Does It Mean That The Coverage Must Be Affordable?
Part of the mandate states that employers need to provide affordable health care insurance to their employees. The term “affordable” is one that could mean different things to different people, so the government defined what that meant in terms of Obamacare:
Cost to participate in the program is less than 9.5% of the employee’s income.
The value of the coverage is at least 60%.
So, what happens if your coverage doesn’t meet those requirements? Employers will pay a penalty of $250 per month for each employee that goes to the Exchange or obtains coverage with a tax credit subsidy.
What Exactly Are Public Exchanges?
Unfortunately, the health care exchanges that are an option have yet to be created. States were supposed to begin offering exchange programs by January 1, 2014; however, this has been delayed by a year. So, exactly what they are and how they will work are yet to be seen. However, they have been described as:
Exchanges — An Exchange is a State-based entity which will serve as a one-stop shop where individuals will get information about their options, be assessed for eligibility for the Exchange programs, tax credits for private insurance, or programs like the Children’s Health Insurance Program, and enrolled in the plan of their choice. Small businesses will also have the option to purchase insurance through a program offered by each Exchange.
The main functions of an Exchange include:
- Certifying, recertifying, and decertifying health plans offering coverage through the Exchange, called qualified health plans;
- Assigning ratings to each plan offered through the Exchange on the basis of relative quality and price;
- Providing consumer information on qualified health plans in a standardized format;
- Creating an electronic calculator to allow consumers to assess the cost of coverage after application of any advance premium tax credits and cost-sharing reductions;
- Operating an internet website and toll-free telephone hotline offering comparative information on qualified health plans and allowing consumers to apply for and purchase coverage if eligible;
- Determining eligibility for the Exchange, tax credits and cost-sharing reductions for private insurance, and other public health coverage programs, and facilitating enrollment of eligible individuals in those programs;
- Determining exemption from requirements on individuals to carry health insurance, granting approvals to individuals relating to hardship or other exemptions; and
- Establishing a Navigator program to assist consumers in making choices about their health care options and accessing their new health care coverage, including access to premium tax credits for some consumers.
So, What Effect Does All This Have On Insurance Coverage?
One of the principle reasons for Obamacare was to help make health care coverage affordable for all U.S. citizens. However, as is common, there are some unintended consequences of this law.
For many healthy individuals, the cost of insurance coverage may be much higher than any penalty, or tax, they will have to pay for not being covered, so they will forego opting into any health insurance program altogether. And since the law eliminated pre-existing condition exclusions, some individuals may simply wait until they need insurance to purchase it.
The same may be true for some employers. Since only employers with more than 50 full time equivalent employees face the possibility of a penalty, some employers may find the penalties for not providing affordable health insurance to employees may be less than providing the benefit.
Premiums for health insurance may actually go up, at least short-term, if not permanently, because increased taxes for insurance companies, pharmaceutical companies, and other healthcare product manufacturers. However, the hope is that with so many people searching for health insurance that a healthy competition between companies will arise, driving down costs.
The Affordable Care Act, or Obamacare, is pretty confusing for most people and unfortunately there are still a lot of unknowns. ACCA is watching what is going on and looking into the impact it will have on small business.
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