Kelly Sloan, The Business Times
With more provisions of federal health care reform legislation scheduled to take effect next year and key deadlines approaching fast, business owners and managers are asking questions about how the law will affect their operations.
A Western Colorado coalition set out to provide some answers during a day-long meeting in Grand Junction devoted entirely to the Affordable Care Act and health care.
A large part of the Club 20 fall meeting was set aside for presentations by Jennifer Pierotti, manager of health care policy for the U.S. Chamber of Commerce. Pierotti discussed how various provisions of so-called “Obamacare” will affect small and large businesses.
Pierotti said the first thing business owners and managers need to know is that a crucial deadline is quickly coming up. On Oct. 1, all employers regardless of size must provide employees a notification explaining the health insurance exchange system in their state, what coverage is available and how employees can obtain coverage. A sample exchange notice is available online from the U.S. Department of Labor website at www.DOL.gov.
Oct. 1 also marks the first day health insurance exchanges around the country will begin open enrollment, including Connect for Health in Colorado.
On Jan. 1, a provision of the Affordable Care Act requiring individuals to obtain health insurance or face a penalty will go into effect. Qualified insurance plans will be available for purchase through exchanges on that date as well.
A provision of the law requiring some businesses to offer insurance to employees or pay fines has been delayed until 2015. But business owners and manager should start preparing now, she said.
The first step, she said, is determining whether or not the so-called employer mandate applies to their operations. Businesses with the equivalent of 50 or more full-time employees will be required to provide coverage.
The law defines full- time employees as those who work an average of 30 hours or more a week over the course of a month, rather than the 40-hour workweek that traditionally defines full-time employment, Pierotti said.
Since the law refers to full-time equivalent employees, hours worked by part-time employees averaged over the course of a month also are included in the determination.
Small business owners should be careful if they attempt to avoid the employer mandate threshold by separating their operations into segments. Under the Affordable Care Act, all operations of a company under common ownership will be considered together in calculating the number of full-time employees.
Using independent contractors offers an option in avoiding the employer mandate, but businesses must maintain records to prove contractors aren’t actually employees.
Business owners should consult with a lawyer familiar with the new health care law before making employment decisions, Pierotti said.
Even if businesses are exempt from the employer mandate based on the number of employees working what’s considered the equivalent of full-time hours, the new law still will affect their operations, Pierotti said.
State health exchanges offer the Small Business Health Option Program as a way for small businesses and individuals to shop for insurance. In Colorado, the program is called the Small Business Marketplace.
A business qualifies to use the marketplace if it has a Colorado location, the equivalent of between two and 50 full-time employees and offers health insurance to all of its full-time employees. The open enrollment period for this program will begin Oct. 1.
In some cases, a small business that qualifies to shop in the exchange may also qualify for the small employer health care tax credit. This credit is available to businesses with fewer than the equivalent of 25 full-time employees who earn an average annual income of less than $50,000 and cover at least half of employee insurance premiums. Pierotti said she expects few businesses to actually qualify for the credit, however.
Other provisions of the Affordable Care Act that will affect small businesses include various tax increases incorporated into the law, Pierotti said. A health insurance tax imposed on health insurers is based on yearly net premiums. Self-insured plans are exempted, so the tax will mainly affect small businesses that purchase plans in the fully insured marketplaces in the form of higher premiums. It’s estimated the tax will cost $101.7 billion in the first 10 years, she said.
So what if a business employs the equivalent of enough full-time employees to become subject to the employer mandate?
Once the determination is made that a business exceeds that number, the next question concerns what type of insurance coverage must be offered, Pierotti said.
An employer must offer what is termed “minimum essential coverage,” Pierotti said. The law requires that coverage must be affordable. For low-income employees whose household earnings falls below 400 percent of the federal poverty level, premiums may not exceed 9.5 percent of their household incomes.
Employers also most provide insurance with a minimum value — an actuarial value of at least 60 percent.
Coverage must be offered to all full- time employees and their dependents — not including spouses, but including children up to age 26.
Employers that don’t offer insurance could have to pay a penalty of $2,000 for each full-time employee over the equivalent of 30 full-time employees. Employers who offer coverage that fails to meet minimum requirements face a penalty of the lesser of $2,000 for each full-time employee over the equivalent of 30 full-time employees or $3,000 for each employee receiving health care tax credits.
The penalty is triggered when a low-income employee receives a subsidy in the form of a tax credit to purchase insurance. This is often referred to as the “free rider” trigger.
While the employer mandate has been delayed until Jan. 1 2015, several components of the law affecting business haven’t been delayed, Pierotti said. That includes the exchange notice to employees due Oct. 1 and the requirement to report health care costs on W-2 forms.
While most other reporting requirements have been delayed, business owners and managers should take note of what those requirements will be, she said. Large employers will have to prepare an annual statement to submit to the IRS that includes:
- Whether or not health insurance coverage is offered to full-time employees and dependents.
- The coverage waiting period.
- The premiums of the least-costly plan.
- The number of full-time employees for the previous calendar year.
- Other employee-specific information.
Still other issues that could affect larger businesses include the potential for rising health care costs both in terms of increased premiums and from what is known as a “re-insurance fee” of $64 on insurers and self-insured health plans, Pierotti said.
There are also concerns about limitations and restrictions that could be placed on Flexible Savings Accounts and Health Savings Accounts, she said.
More information about the effects of the Affordable Care Act on businesses is available from the U.S. Chamber of Commerce at www.uschamber.com/health-reform.