Preparing for the Affordable Care Act – A Brief Guide for the Small Business
October 1, 2013
9/30/2013 by Susan Baker of Niles, Barton & Wilmer, LLP
The steps a small business should take to prepare for the Patient Protection and Affordable Care Act (“ACA”) vary greatly depending on the size of the business and how many employees it has. Small businesses with fewer than 50 “full time equivalent” employees do not have to change their insurance plans or insure any employees the business doesn’t already insure. The ACA requirements imposed on these small businesses are generally limited to providing employees with certain written notices regarding the availability of health insurance coverage. Businesses with more than 50 “full time equivalent” employees (defined as “large employers” in the ACA) are subject to the ACA’s employer mandate or “play or pay” rules under which the business must offer health insurance coverage to full time employees or pay a penalty. Many businesses that fall within the ACA’s definition of “large employer” already provide coverage to employees. These businesses need to review existing health plans to ensure the plans meet the ACA’s standards for health insurance coverage. Such businesses must also develop systems to enable compliance with the reporting requirements imposed by the ACA. Preparation for the ACA will be most challenging for businesses with more than 50 “full time equivalent” employees that do not currently provide health insurance coverage.
The Obama administration’s recent postponement of the employer mandate and certain reporting requirement provisions of the ACA from January 1, 2014 to January 1, 2015 was especially good news for these small businesses as the delay provides the small businesses with additional time to consider strategies aimed at minimizing exposure to “play or pay” penalties through work force realignment in compliance with the ACA. The postponement of the employer mandate and reporting requirements did not affect the October 1st deadline for all small businesses with more than $500,000 in annual dollar volume of business to provide all employees (both part time and full time) with written notice describing options for purchasing health insurance through the insurance exchanges being formed in each state. The notice must be provided to new employees within 14 days of the date of hire. The Department of Labor has prepared two model notices for use by businesses.
There is one model notice for employers who offer coverage to some or all employees and another notice for employers who do not offer coverage. Employers may modify the notices as long as the required information is provided. Businesses with up to 100 employees are eligible to purchase insurance for employees through the Small Business Health Options Program and businesses with fewer than 25 employees may receive a tax credit of up to 50% of the employer’s premium contribution. Large employers with 50 or more “full time equivalent” employees that already provide insurance should review the coverage with legal and employee benefit advisors to ascertain that the coverage meets the affordability and minimum value requirements in the ACA.
A health care plan is “affordable” under the ACA if the employee’s share of the premium for employee only coverage does not exceed 9.5% of the wages reported in Box 1 on the employee’s W-2. The coverage meets the “minimum value” requirement in the ACA if the plan pays at least 60% of the expected health care costs of the covered employee. With the delay in the reporting requirements, employers have another year to develop systems for assembling and reporting information about their employees and the coverage provided by the small business. The Internal Revenue Service has said it will be issuing regulations later this summer regarding the reporting requirements. It is hoped the regulations will simplify the reporting requirements. For small businesses with close to 50 employees, the postponement of the employer mandate until January 1, 2015 provides certain planning opportunities. This is especially true for businesses with many seasonal or temporary employees. Under the ACA, a business will be a “large employer” subject to the employer mandate if it averaged 50 or more “full time equivalent” employees during the prior calendar year. The calculation of “full time equivalent” is quite complex. Although “full time” is defined as working 30 or more hours a week, even hours worked by part time employees must be counted –and then divided by 120 per month-to determine the number of “full-time equivalent” employees. The “full time equivalent” employees are then added to the full time employee count. For example, a business with 45 full time employees and 10 part-time employees who averaged 15 hours per week would be treated as having 50 FTE employees and would therefore be a “large employer” subject to the employer mandate. A business that uses seasonal employees may be able to avoid the “large employer” label and therefore the employer mandate even if the average work force of the business exceeded 50 over the course of an entire year. The ACA provides that an employer will not be deemed a “large employer” if, during the prior calendar year, 1) an employer’s full time employee work force (including FTEs ) exceeded 50 employees on 120 or fewer days and 2) the employees in excess of 50 who were employed during that period of not more than 120 days were “seasonal employees.” The definition of “seasonal employee” for ACA purposes is one used by the Secretary of Labor which includes retail employees and migrant workers.
The January 1, 2014 effective date meant that the year in which the number of employees was to be counted was 2013. Now that the year in which the number of employees will be calculated is 2014, businesses will have a chance to review work force requirements to determine whether hours worked by employees may be structured in such a way that the business does not fit within the definition of “large employer” under the ACA. Some employers are exploring the use of staffing agencies to supply employees. These types of solutions should be approached with caution. The IRS has indicated it will be reviewing the use of part time employees to ensure that employers are not circumventing the employer mandate. It is also very important that any restructuring occur in compliance with the Employment Retirement Income Security Act (“ERISA”) which prohibits actions that interfere with an employee’s attainment of a right or benefit.