Health Care Reform – Like it or not, here it comes

After all the debate and political jockeying, the health care reform law – also known as the Affordable Care Act and Obamacare – will roll out in just a few months beginning on January 1st, 2014.

Some aspects of the health reform law have already occurred. Open enrollment for the special health insurance exchanges, or marketplaces, provided by the government will begin this October, while individuals who do not have health insurance coverage will be required to obtain coverage by the end of this year.

Steve Cornelison specializes in employee benefits and retirement programs, taxes, and other aspects of business law – including the new Healthcare Reform law.  Steve is a partner with Stewart, Melvin & Frost – an uncommon practice and one of the region’s oldest and largest law firms.

Question: It’s doubtful that anyone can profess to know or understand every detail of the new Health Reform law. Can you give us an idea of its complexity?

Steve: The healthcare reform law is truly complex and evolving. Many questions still remain to be resolved and interpreted. The law itself is nearly 1,000 pages long. There are reported to be another 20,000 pages of regulations that could grow to literally a million or more as the law is further refined and implemented.

Question: Let’s hit some of the high spots of the new Healthcare Reform law. First, is small business exempted?

Steve: That is true to some extent. The government defines a small business as a company with less than 50 full-time employees. Consequently, if you meet this classification as a small business, then you are not required under the Affordable Care Act to offer health insurance.

However, if a small business does offer health insurance, then you’re not quite off the hook. You are required to notify employees about health exchanges or marketplaces that offer additional options for health insurance. And in regard to your company’s existing health insurance plan, small business owners must provide their employees with a full summary of benefit coverages.  Usually your insurance company will provide this summary to you to distribute to your employees.

Question: Are there any rewards or tax incentives for a small business to provide health insurance to their employees?

Steve: Businesses will still receive a tax deduction for payment of health insurance premiums for their employees.

However, there will also be a new tax credit available to certain small employers. This tax credit will be more impactful to the smaller businesses with average salaries of $25,000 or less. There will also be a special insurance exchange for companies under 100 employees that will offer group policies with potentially lower premiums.

Question: Let’s shift our focus to larger companies. What are the main requirements of large businesses under the Affordable Care Act?

Steve: Large businesses – those with more than 50 employees – are required to provide “affordable” health insurance to their employees. “Affordable” is calculated based on the employee’s share of costs for insurance coverage for himself or herself. It may not exceed 9.5 percent of the employee’s income as reported on their W-2 statement.

Of course, this requirement is a moot issue if the company picks up the full cost of employee coverage under its insurance plan. A large business must also offer “minimum essential coverage.” That means that the company’s health insurance plan must cover at least 60 percent of the average person’s healthcare expenses.

Question: What is the penalty for large businesses that do not meet these requirements?

Steve: There are actually two different penalties. First, if the employer does not offer a health insurance plan – or does not offer it to at least 95 percent of full-time employees  (those working 30 or more hours per week) – then there is a penalty if at least one lower-income employee must use a federal subsidy to purchase coverage from one of the new insurance exchanges.

This penalty will amount to $2,000 for each full-time employee after subtracting the company’s first 30 employees. In other words, if the company has 70 full-time employees, then the penalty would apply to 40 employees (70 minus 30) – for a total of $80,000. Furthermore, this penalty is not tax deductible, so the real cost to the business is much higher at about $120,000 in this scenario.

The second penalty applies if the employer does not offer an “affordable” insurance plan to the employee – which I defined earlier as being no more than 9.5 percent of the employee’s W-2 income. In this case, for each full time lower income employee whose cost of coverage exceeds 9.5 percent and who qualifies for and uses federal subsidies to purchase health insurance on the exchange, then the penalty is $3,000.

Question: There has been some controversy about Obamacare. What if an individual simply refuses to purchase health insurance?

Steve: For next year, there will be a penalty of $95 or 1 percent of the individual’s income, whichever is higher. By 2016, that penalty increases to $695 or 2.5 percent of income. The government will likely enforce this penalty through your tax returns – for example, by reducing the amount of your tax refund.

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