Updated: July 6, 2016
Whether you call it Obamacare, health care reform, or the Affordable Care Act (ACA), changes in the way people get health insurance are on the horizon. According to the UC Berkley Labor Center, health care reform is not only expanding coverage to uninsured people though Medicaid and individual subsidies, but it's also affecting many of the 150 million citizens who already get insurance from their employers.
As an employer, it's important to stay up to date on what this legislation means for your business and the way your employees get health insurance. In this article, we'll go over the potential fees, taxes, and penalties associated with the reform, and how they could affect employers.
A new public health insurance marketplace, also known as an exchange, offers a variety of affordable plans and became available in each state on October 1, 2013. This is especially helpful if you own a small business — you'll be able to help your staff find coverage through the government’s Small Business Health Options Program (SHOP) marketplace. Through 2015, small businesses were defined as up to 50 or 100 employees, and throughout the remainder of 2016 that number goes up to 100 employees. After 2017, states will be able to open the marketplace to larger companies.
The Washington Post reported that the original plan for the SHOP marketplace was to have employers contribute a certain amount of money that allowed their workers to pick any plan they wanted. However, technical problems caused a delay in this functionality for another year. Be sure to check with your state, as some have their own marketplace with varying rules.
Not interested in the exchange? Employers are still able to obtain coverage outside of the online marketplace.
Taxes and penalties
Contrary to some assumptions, employers are not specifically required by the ACA to provide insurance to employees or their dependents, but if you're an applicable large employer (with 50 or more full-time and full-time equivalent employees) with at least one full-time employee (defined as working at least 30 hours per week) who gets subsidized insurance through a federal or state marketplace, you may face a penalty.
There are two types of penalties that may be assessed to an applicable large employer for not complying with health care reform guidelines, depending on whether the employer does or does not meet the Minimum Essential Coverage (MEC) offer test. When an employer does not meet the MEC offer test and at least one full-time employee receives a premium subsidy through a federal or state government health insurance exchange, the annualized penalty will be the number of full-time employees minus 30 x $2,080.
If the MEC offer test is met, there could still be a penalty if the employer:
- Does not offer coverage that meets the minimum value, or
- Does not offer affordable coverage to at least one full-time employee, and
- There is at least one full-time employee who obtains a premium subsidy through a marketplace.
The annualized penalty will be $3,120 for each applicable full-time employee who receives a premium subsidy through a marketplace. The payment cannot exceed the payment for not having offered health insurance (number of full-time employees minus 30 x $2,080).
There's also the Cadillac tax, which begins in 2018. Insurers of employer-sponsored plans or companies that self-insure their own plans will have to pay a 40 percent excise tax for benefits in excess of the threshold. The annual threshold for 2018 is $10,200 for individuals and $27,500 for families. High-risk professions and retirees have an increased threshold and the tax is in the amount in excess of the threshold and not the entire amount. The tax is assessed on the benefits monthly.
The newly created Patient-Centered Outcomes Research Institute (PCORI) will gain funds from fees assessed on issuers of certain health insurance plans and large companies that self-insure through October 2019. The IRS says that the fee will be equal to the average number of individuals (employees and dependents) covered during the policy year or plan year multiplied by the applicable dollar amount for the year.
Beginning in January 2014, the transitional reinsurance program requires health insurance issuers, employers, and sponsors of self-funded health plans to pay a fee for a three-year period. According to the Society for Human Resources, this money will fund reinsurance payments to health insurance issuers who cover high-risk individuals in the individual market.