Healthcare Reform FAQ: Business Over 50 FTE Employees

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HEALTHCARE REFORM ROADMAP

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Healthcare Reform FAQ: Business Over 50 FTE Employees

  
  
  

Q.  Am I required to offer insurance to my employees?
A.  No.  However beginning in 2014 new tax rules will apply that could require you to pay a penalty if your employees are not offered coverage.  If an employee becomes eligible for a premium subsidy under the new insurance exchange, the new legislation requires a payment of $2,000 per full time employee over the first 30 employees.

Q.  How does an individual become eligible for a premium subsidy?
A.  The person must have income between 133% and 400% of the individual or family federal poverty limit and not be covered by a qualified plan.

Q.  If I have a plan now or offer coverage to my employees do I have to pay any penalties?
A.  Not necessarily, it will depend on the level of coverage offered and the level of employee contribution required.  Beginning in 2014, if a full time worker is determined to be eligible for a subsidy and enrolls in the insurance exchange because the employer contribution exceeds 9.5% of income or the employer plan does not meet the minimum creditable benefit standard, you must pay the lesser of $3,000 for each full time worker who receives a premium subsidy or $2,000 for each full time employee.

Q.  What is a “voucher”?
A.  The legislation requires that, beginning in 2014, employers over 50 that offer coverage must provide employees who do not enroll in the employer plan a voucher equal to what they would have spent if the employee had enrolled.  To qualify for a voucher an employee’s household income must be below 400% of the federal poverty limit and the employer contribution is between 8% and 9.8% of income. 

Q.  How is the voucher treated from an income tax perspective?
A.  Vouchers are excludable from employees’ income to the extent used for health care and likewise deductible by the employer just as premiums are deductible. Any excess over the cost of purchasing through the health care exchange is taxable income.

Q.  Are employees receiving vouchers included in calculating my penalty?
A.  No.  Employees receiving vouchers are not eligible for a subsidy nor do they trigger the penalty.

Q. What impact will Health Care Reform have on a large employer (500+) who allows employees to opt out of the employer's health plan even if they don't have other insurance?
A. I don’t see any direct consequences to the employer in the Act based on employees who don’t purchase/enroll in a healthplan.  The IRS will be responsible for enforcing the individual mandates beginning in tax year 2014.  Employers will be reporting participation to the IRS. However, these circumstance may have several other impacts to the employer over time.  Beginning immediately with participation requirements, employers will need to be concerned about meeting participation requirement and or the adverse selection element caused by opting out.  In 2014  the law eliminates medical underwriting, introduces the exchanges, premium subsidy for qualified plans and mandates that individuals purchase health insurance or the payment of a penalty.  People will be required to demonstrate they are in compliance through public programs, the military, employers, the individual market or the insurance exchanges.  Also beginning in 2014, employers with more than 50 full-time equivalent workers who offer coverage that does not meet the minimum creditable benefit standard or if the employee contribution exceeds 9.5% of income, the company must pay the lesser of $3,000 for each full-time worker who receives a premium subsidy through the exchange or $2,000 for each full-time employee minus the first 30 employees.  Lastly, employers are required to offer free choice vouchers to employees with incomes below 400 percent of the federal poverty level when the employers plan would cost the employee between 8 and 9.8 percent of their income.  (The 9.8 may become 9.5 to be consistent with the subsidy upper limit)  Presumably employees that opt out and have no coverage are likely to be low income and may be eligible for a subsidy or free choice voucher.

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