Under federal health insurance legislation, some employers will owe penalties for not offering health plans or for offering unacceptable plans to employees. This portion of the law was scheduled to take effect in 2014, but the Obama Administration has delayed any penalties until 2015. Thus, business owners have an extra year to become familiar with the coming rules and their possible effects.

Who will be covered
The relevant legislation, passed in 2010, is commonly known as the Affordable Care Act (ACA). The ACA will impose penalties on large employers that fail to meet health plan requirements. To be a large employer, a company must have employed at least 50 fulltime employees in the previous calendar year.

Full time, for this purpose, is 30 hours a week. Thus, companies with 50 or more employees working at least 30 hours a week are considered large and subject to possible penalties.

Companies with fewer full timers may still qualify as large, if they use part-time employees. (Seasonal employees in some cases will be excluded.) Employers must convert hours worked by part timers into the equivalent of full-time employees to see if their inclusion brings them up to 50 full timers. In the calculation, overall hours worked by part-time employees during a month are added up, and the total is divided by 120.

Example 1: ABC Corp. has 40 full-time employees. In addition, ABC has 24 part timers who all work 65 hours a month. Thus, the part timers work a total of 1,560 hour a month (24 multiplied by 65). Dividing 1,560 by 120 equals 13, which is the number of full-time equivalent employees. With 40 full timers plus 13 full-time equivalent employees, ABC has a total of 53 full timers, which makes the company subject to possible health plan penalties.

Acceptable coverage
Companies that are defined as large, by the standard just described, must provide employees with health insurance that is affordable and provides minimum value. Such coverage must be offered to employees and their children under age 26. (The insurance does not have to cover spouses.)

The IRS has indicated that health insurance will be considered affordable if an employee’s required share of the premiums does not exceed 9.5% of the employee’s income. A worker earning $40,000 in 2015, for example, must not be required to pay more than $3,800 (9.5% of $40,000) in premiums, in order for the company to avoid a penalty. Employer provided health insurance will be considered to provide minimum value if the plan is structured to pay at least 60% of the actuarial value of the cost of the benefits.

 

Paying the penalty
Calculating the health plan penalty a large company may owe can be complex. Companies that offer no coverage will owe different amounts than companies that offer expensive or inadequate plans. Generally, the total penalty for an employer in 2015 will be as much as $2,000 for each full-time employee (those working at least 30 hours a week) in excess of 30.

Example 2: ABC Corp. has the equivalent of 53 full-time employees, as noted, including 45 who work full time. In 2015, the company does not offer a health plan to its employees. ABC may owe $20,000 in penalties in 2015: 40 full-tie employees minus 30 is 10; multiply by $2,000 to get $20,000.

More details on this complicated topic probably will emerge in 2013 and 2014.

 
Source: Kane & Company PA