April
2, 2010
Dear
Client,
The
recently enacted health overhaul legislation requires certain employers to
offer and contribute to their workers' health insurance or pay a penalty. Under
the new law, effective for months beginning after Dec. 31, 2013, a large
employer that does not offer coverage for all its full-time employees, offers
minimum essential coverage that is unaffordable, or offers minimum essential
coverage that consists of a plan under which the plan's share of the total
allowed cost of benefits is less than 60%, is required to pay a penalty if any
full-time employee is certified to the employer as having purchased health
insurance through a state exchange with respect to which a tax credit or
cost-sharing reduction is allowed or paid to the employee. Here are the
details:
Who is subject to the employer mandate? Only an
“applicable large employer,” defined as someone who employed an average of at
least 50 full-time employees during the preceding calendar year, is subject to
the requirement to offer coverage. Most small businesses, since they have fewer
than 50 employees, are thus exempt from the employer requirement. In counting
the number of employees for purposes of determining whether an employer is an
applicable large employer, a full-time employee (meaning, for any month, an
employee working an average of at least 30 hours or more each week) is counted
as one employee and all other employees are counted on a pro-rated basis.
However, even an employer with 50 or more employees isn't subject to the
penalty for not offering coverage if the employer doesn't have any full-time
employees who are certified to the employer as having purchased health
insurance through a state exchange with respect to which a tax credit or
cost-sharing reduction is allowed or paid to the employee. In other words, if
an employer doesn't have any full-time employees who have a lower income that
might qualify him or her to receive a subsidy when purchasing a health plan in
the proposed health insurance exchange, the employer will not pay a “pay or
play” penalty.
Penalty for employers not offering coverage: An
applicable large employer who fails to offer its full-time employees and their
dependents the opportunity to enroll in minimum essential coverage under an
employer-sponsored plan for any month is subject to a penalty if at least one
of its full-time employees is certified to the employer as having enrolled in
health insurance coverage purchased through a state exchange with respect to
which a premium tax credit or cost-sharing reduction is allowed or paid to the
employee. The penalty for any month is an excise tax equal to the number of
full-time employees over a 30-employee threshold during the applicable month
(regardless of how many employees are receiving a premium tax credit or
cost-sharing reduction) multiplied by one-twelfth of $2,000. For example, if an
employer fails to offer minimum essential coverage and has 60 full-time employees,
ten of whom receive a tax credit for the year for enrolling in a state exchange-offered
plan, the employer will owe $2,000 for each employee over the 30-employee
threshold, for a total penalty of $60,000 ($2,000 multiplied by 30 (60 minus
30)). This penalty is assessed on a monthly basis.
Penalty for employers that offer coverage but have at least one
employee receiving a premium tax credit: An applicable large
employer who offers coverage but has at least one full-time employee receiving
a premium tax credit or cost-sharing reduction is subject to a penalty. The
penalty is an excise tax that is imposed for each employee who receives a
premium tax credit or cost-sharing reduction for health insurance purchased
through a state exchange. For each full-time employee receiving a premium tax
credit or cost-sharing subsidy through a state exchange for any month, the
employer is required to pay an amount equal to one-twelfth of $3,000. The
penalty for each employer for any month is capped at an amount equal to the
number of full-time employees during the month (regardless of how many employees
are receiving a premium tax credit or cost-sharing reduction) in excess of 30,
multiplied by one-twelfth of $2,000. For example, if an employer offers health
coverage and has 60 full-time employees, 15 of whom receive a tax credit for
the year for enrolling in a state exchange-offered plan, the employer will owe
a penalty of $3,000 for each employee receiving a tax credit, for a total
penalty of $45,000. The maximum penalty for this employer is capped at the
amount of the penalty that it would have been assessed for a failure to provide
coverage, or $60,000 ($2,000 multiplied by 30 (60 minus 30)). Since the
calculated penalty of $45,000 is less than the maximum amount, the employer
pays the $45,000 calculated penalty. This penalty is assessed on a monthly
basis.
Requirement to offer “free choice vouchers”: After
2013, employers offering minimum essential coverage through an eligible
employer-sponsored plan and paying a portion of that coverage will have to
provide qualified employees with a voucher whose value could be applied to
purchase of a health plan through the Insurance Exchange. Qualified employees
would be those employees: who do not participate in the employer's health plan;
whose required contribution for employer sponsored minimum essential coverage
exceeds 8%, but does not exceed 9.8% of household income; and whose total
household income does not exceed 400% of the poverty line for the family. The
value of the voucher would be equal to the dollar value of the employer
contribution to the employer offered health plan. Employers providing free
choice vouchers will not be subject to penalties for employees that receive a
voucher.
I
hope this information is helpful. If you would like more details about these
provisions or any other aspect of the new law, please do not hesitate to call.
Very truly yours,
Gosling & Company, P.C.
Certified Public Accounts