No matter the size of your business, it is affected by Obamacare. While the impact it has on a self-employed individual versus a multibillion dollar corporation certainly varies, it is crucial to know how this legislation is affecting your company.
Before diving into exactly how Obamacare affects businesses, it is important to understand some background information.
Laws, as such, are written and passed by Congress, and the President either vetoes them or signs off on them. Generally when a law is passed, it is not arbitrarily suspended in parts, or in whole, at the discretion or whim of only one branch of government, but in this case it is. As such, this article is only as accurate as the information published at the time it was written, and that was by March 12, 2014. The author makes no claim to the continuing validity of the facts presented herein, as those facts keep changing and then bits and pieces become published, circulated, and reported.
It is important for all businesses, insurance companies, and individual citizens to understand that the delays in certain parts of this law are just that â€“ delays. The law as written was actually working perfectly as it was intended to work â€“ as it was written. The delays do not mean that the law wonâ€™t function as it was before the delays â€“ it just means that for some reason, the White House believes certain parts shouldnâ€™t take effect until 2015 and 2016, even though the law was written to take effect in 2014. In no part of the law is it written that certain parts are to be delayed. So all businesses, insurance companies and individual citizens need to be prepared for those parts to become active again by keeping an eye on the calendar to ensure all are either compliant with the law, or understand the penalties involved for non-compliance when the delays are up.
The ideas behind Obamacare start with the belief system that everyone has an obligation to make sure everyone else has medical insurance. So, the law forces everyone to buy insurance whether or not they want or need it so they can take the unused premiums and use those to pay for the people who do use it. In other words, premiums paid by people who donâ€™t use the insurance donâ€™t accumulate in a pile somewhere for when they do need it â€“ it goes to pay someone elseâ€™s medical bills, (similar to how social security works now.
Now, under Obamacare, everyone has the exact same minimum coverage as everyone else, (See my blog on one size fits all here).
For complete information on Obamacare and the details contained therein, visit www.healthcare.gov â€“ this is the government website and clearly the final authority of summarizing the Obamacare law.
To understand the law, and the parts that have been delayed, it is important to know the law has three areas of impact:
- Individual Citizens
- Insurance companies
This article addresses the third item, impact on businesses.
How Obamacare Affects Businesses
There are five categories of businesses
- Self-employed, one person; if this is you, then the individual mandate to purchase insurance or pay a penalty applies. If you had your insurance cancelled, the individual mandate has been delayed for you until 2016. You may be part of a group that is exempt from the law â€“ if you are incarcerated, or in the country illegally, for instance, you are exempt. Some religions are exempt. There are 14 other exemptions as well. See more information and the application for exemption here: www.healthcare.gov/exemptions/
If you are not exempt, the fine for being uninsured for 2014 will be either 1% of the annual household income which is above the tax filing threshold up to the maximum penalty which will be equal to the national average yearly premium for Bronze plans. OR, the fine could be $95 per person for the year and $47.50 per child under the age of 18. An additional impact item may be the new Medicare assessment on Net Investment Income. This assessment actually started January 1, 2013 and this part of the law assesses a 3.8% tax on net investment income such as taxable capital gains, dividend income, interest income, rents, royalties, etc. for taxpayers with a modified adjusted gross income over $200k for single filers and over $250k for married filers. Explore the SBA website for more information: www.sba.gov/content/self-employed
- Companies with fewer than 25 employees and do not pay an average annual wage of over $50k are exempt from the employer mandate, and may qualify for tax credits for purchasing insurance. Companies with fewer than 25 employees may be eligible for these credits through SHOP (Small Business Health Options Program). See www.healthcare.gov/marketplace/shop for more information on this.
- Companies with 25 to 49 full time employees are exempt from the employer mandate, but may not so readily qualify for the same tax credits as a company with fewer than 25 employees. This will need to be researched further by the company.
- Companies who employ from 25 to 99 employees, and have 50 or more full time equivalents are required to comply with the employer mandate or face a fine. The fine for not providing insurance at all is $2,000 per full time equivalent, with the first 30 head count exempted. Companies providing insurance that does not comply with the affordability part of the law and/or does not comply with the minimum coverages mandated in the law, will face a fine of $3,000 for each employee that purchases health insurance through the marketplace with premium credits. The employer mandate for this group has been delayed until 2016.
- Companies with 100 or more full time equivalents are required to comply with the employer mandate or face the same fines of $2,000 or $3,000. The employer mandate for this group has been delayed until 2015, and then by 2015 this group of employers will have to offer compliant insurance coverage to only 70% of the full time employee base, and then 95% in 2016 to avoid penalties. This group, as well as the group of companies with an employee count from 50 to 99 employees, will have to adhere to new reporting requirements containing insurance details for each covered employee. If the companies do provide insurance, they will have to report the employer provided annual cost for each employee on the W2s issued for that year.
Seven interesting items that impact companies
- Businesses had to provide notices to employees on or before October 1, 2013 informing employees of the healthcare exchanges, about possible tax credits or subsidies they might qualify for, about possible consequences if individuals do not have or buy insurance, and how to buy insurance through the Marketplace. (Employers with fewer than 25 employees did not have to provide this information unless their companies had a profit of $500k or more for the year.)
- Employers with up to 100 employees will have access to buy insurance from the SHOP program but wonâ€™t be eligible for the tax credits.
- Employers that provide insurance must give employees a summary of benefits and coverage disclosure. This is something that has usually been provided by employers and their benefits brokers in the past.
- Employersâ€™ group plans cannot stipulate a waiting period beyond 90 days from the day the employee becomes eligible for coverage. Employers traditionally had a much broader say as to the waiting period for their plans, but the waiting period was usually something regulated by the State and by the insurance company.
- Additional Medicare withholding taxes on employees with incomes over $200k for single filers and $250k for married filers must be controlled and withheld and remitted by the employer. So, for wages paid above those baselines, the Medicare tax increased to 2.35% from 1.45%.
- If a business buys another business and elects to maintain the new business as a separate legal entity, the law will look at the combined employee headcount of both companies to determine the category the business falls in when calculating full time employees. This is because of the common ownership structure. And, that calculation includes part time employeesâ€™ hours.
- It is still unknown whether one business buying another business also becomes liable for the acquired companyâ€™s fines and penalties it may incur as a result of non-compliance with Obamacare. For instance, if Company A buys Company B, and Company A complies with any applicable mandates of the Law, but Company B did not, and Company B will then incur penalties for non-compliance, it is unknown whether the Law forces Company A to pay those penalties, or if the penalties are to be paid from the proceeds received by Company B.
Calculating Full Time Equivalents
Determining full time equivalents is a key component to realize which parts of the law apply to a particular company. The calculation is an aggregate of total full time employees and a formula using the total number of hours worked by part time employees. Since the penalties for not having insurance or providing non-compliant coverage actually are charged per month, and not annually, and because employers are required to report, month by month, their total full time equivalents, the formula for part time employeesâ€™ hours uses a divisor of 120. If a company were calculating this week by week, one would use a divisor of 30.
The calculation for determining full time employees or full time equivalents is: take the number of full time employees, for example 20. Then take all the part time employees, for example maybe there are 35 part time employees each working 20 hours a week. Over the course of a month, that is 2,800 hours. Divide the 2,800 hours by 120 (the 120 is stipulated in the law.). The result is 23.33. Per the law, drop the fraction and round down. So the company has an additional 23 full time equivalents from their part time employees. Add the 23 to the 20 full time employee head count, and this company has a total full time equivalent of 43 employees. The company does not need to comply with the employer mandate.
However, if this company buys another similarly structured company and even keeps it as a separate legal entity, the law will do the same calculation for the combined total employee headcount to determine if the company needs to comply with the law or not. If the combined total equals or exceeds 50 full time equivalents, then each individual company will need to comply with Obamacare, even though separately, each individual company falls below the threshold.
The Patient Protection and Affordable Care Act, or Obamacare as it has come to be known, will continue to teach us new things about the law as more and more information becomes readily available through publication, circulation, and general reporting. This Writer reads something new every day about how Obamacare affects businesses, and recommends that every company, every business, no matter what the size or how many employees it has, ensures that it has someone to keep abreast of new knowledge and changing requirements regarding Obamacare. Whether you subscribe to automatic updates and breaking news items on the law, or if you delegate someone to go out and research it on the daily, this is a law that is important to the business climate as a whole, to employees of these businesses, and to citizens in general.