NOTE: ON JULY 2, 2013, THE GOVERNMENT ANNOUNCED A ONE-YEAR POSTPONEMENT ON THE LARGE EMPLOYER HEALTH CARE MANDATE DISCUSSED BELOW. FOR MORE DETAILS ON THIS POSTPONEMENT, PLEASE SEE THE ARTICLE HERE.
Patient Protection and Affordable Care Act:
With the “Obamacare” act fast approaching its fruition in 2014, we need to become more aware of how this will affect us as individuals and as businesses. Understanding this complicated bill is paramount for a successful transition into the New Year.
The California Exchange: It states in the passage of the bill that every state must have an “exchange” that can help individuals and employers pick the right type insurance that fits their needs. The exchange offers four levels of coverage: Platinum, Gold, Silver and Bronze. You can learn more information about the exchange and the different levels of coverage at http://www.coveredca.com.
Individual: Individuals must have insurance or face a penalty. The penalty phases in over the next three years. For 2014 the penalty is the greater of 1% of the individual’s income or $95 dollars. In 2015 the penalty is the greater of 2% of income or $325 dollars. Lastly, in 2016 the penalty is 2.5% of income or $695 dollars.
Several groups are exempt from the requirement to obtain coverage or pay the penalty, including:
- People who would have to pay more than 8 percent of their income for health insurance
- People with incomes below the threshold required for filing taxes (in 2012, $9,750 for a single person and $27,100 for a married couple with two children)
- People who qualify for religious exemptions
- Undocumented immigrants
- People who are incarcerated
- Members of Native American tribes
Tax credits are available to help pay for coverage for employees who are between 100% and 400% of the federal poverty level and enroll in coverage through an Affordable Insurance Exchange.
Businesses: Businesses will be broken into two groups, large businesses and small businesses. Small businesses do not have to offer health care to their employees but can get a credit if they have no more than 25 employees and meet certain requirements.
To calculate if you are a large business you must divide the sum of the total number of full-time (FT) and full-time equivalent employees for each calendar month in the preceding calendar year by 12 and if the result is not a whole number, round down to the next lowest whole number. If the result is greater than or equals 50 the employer is a large employer.
A large employer is not technically responsible for offering their employees’ health care, but they must make a shared responsibility payment if they do not or possibly even if they do. There are two situations where a large employer is subject to shared responsibility payments:
- Failure to offer coverage, or offers coverage to less than 95% of its employees (and after 2014, their dependents). Payment = $2,000/12 x (# of FT employees for that month – 30)
- Employer offers minimum essential health coverage to at least 95% of its FT employees (and after 2014, their dependents), but at least one FT employee receives a tax credit.
- Individuals can receive a tax credit if:
- They are not offered coverage
- The coverage is unaffordable
- Coverage does not provide minimum value.
- Payment = $3,000/12 x (# of FT Employees for that month enrolled in a qualified health plan for which a premium tax credit or cost-sharing reduction is paid or allowed.)
- No more than 25 full-time equivalent employees.
- Average annual wages of these employees is less than or equal to $50,000 (for 2013).
- Employer has a qualified health care contribution arrangement. A qualifying arrangement includes:
- Employer makes non-elective contributions
- Non-elective contribution of at least 50% of the premium cost made on behalf of each employee enrolled in the plan.
- Contribution is considered non-elective as long as it is not part of a salary reduction arrangement.
- For tax years beginning in 2013 employer needs to make non-elective contributions towards healthcare. After 2013, must participate in an insurance exchange to claim the credit.
For a more thorough understanding of these changes that are fast approaching, please do not hesitate to call our offices.