The Affordable Care Act (ACA) has already changed the landscape for businesses and employees, but the changes are far from finished. In 2015, penalties are set to rise for companies that fall under the ACA’s Employer Mandate, a change that was originally slated for 2014 but was delayed a year to give businesses time to comply. Individuals who choose to exempt themselves from both employer-offered health care and the ACA’s Insurance Marketplace will also face fines. For some corporations and individuals, the fines may be the less expensive choice.
The Employer Mandate
By January 1, 2015, employers with 50 or more full-time or full-time equivalent employees will be required to offer health coverage to those employees and their children up to age 26 who are not otherwise insured via their own places of employment, educational institutions or the Insurance Marketplace. Small companies are exempt from the Employer Mandate, and some larger organizations can defer participation beyond that date if they operate on non-calendar-year plans. However, these exceptions are rare; check with a financial advisor to understand your company’s status and ensure compliance.
One factor that many employers may overlook is the definition of “full-time equivalent” work. According to the ACA, employees who work an average of 30 or more hours per week qualify as full time. Salaried workers typically count as full-time equivalent workers, but independent contractors and freelance workers do not require coverage under the Employer Mandate.
Another potential exemption or deferment employers should be aware of is available for certain mid-sized businesses with 50 to 100 full-time or full-time equivalent employees. These companies may be exempt from penalties in 2015 if they maintained the size of their work force and did not cut staff to qualify for the exemption and retains the same level of coverage offered in 2014. Employers must also certify their eligibility requirements to the Internal Revenue Service to qualify for relief in this way.
Play or Pay?
Once you have spoken to your CPA and determined that your company falls under the Employer Mandate, determine which course of action is most economical for you and best for your personnel. The theory behind the play-or-pay model puts penalties from companies that opt out toward improved health care for those who are not covered through other means.
Employers incur fines in one of two ways: by not offering coverage or by offering coverage that does not meet minimum ACA standards. The specific wording of the act calls for “affordable” coverage that offers a “minimum value,” terms that a financial advisor or legal team can help define more precisely for each organization. Because health care pricing and costs of living vary throughout the country, what registers as affordable in some regions may not meet standards for others, so it is imperative to get specific definitions of these terms as they apply to your company.
In the first case, that of companies offering no coverage, penalties begin at $2,000 per full-time or full-time equivalent employee per year beyond the first 30 employees. In other words, if a company with 48 employees opted out of coverage, the Employer Mandate penalty would be a minimum of $36,000, $2,000 for each of the 18 people past the first 30. These numbers are projected to rise with increasing health care costs over time, so the figures cited here are minimum amounts.
For companies that offer health care that does not meet ACA definitions of affordability and minimum value, penalties are $3,000 per year per employee but apply only to those personnel who are also not eligible for coverage through the ACA Marketplace. Employees who are eligible but choose not to buy coverage through the Marketplace will pay penalties individually. This measure ensures that a company offering partial coverage will pay no more in penalties than it would have paid for no coverage at all.
To determine which option makes more financial sense for you and your company, speak to a financial advisor and understand your full range of options. The Affordable Care Act is still altering the health care landscape for employers and their personnel, so work with a CPA who can chart a new map for your organization.
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