Tax

Requirements of the Affordable Care Act’s Employer Mandate

December 2012
Author:  Scott Humphrey

Scott Humphrey

Senior Manager

Construction & Real Estate, Manufacturing & Distribution

910 E. St. Louis Street, Suite 400
P.O. Box 1900
Springfield, MO 65806-2523

Springfield
417.831.7283

The Patient Protection and Affordable Care Act put in place, effective for the month beginning after December 31, 2013, a nondeductible excise tax for large employers that do not offer health care coverage for all of their full-time employees, offer minimum essential coverage that is unaffordable or offer insurance not meeting the definition of "minimum essential coverage."

Minimum essential coverage includes coverage under government-sponsored programs, employer-sponsored plans, plans in the individual market, grandfathered health plans and other coverage in coordination with the Secretary of Health and Human Services. Employer-sponsored minimum essential coverage must be affordable—meaning the cost of employee-only coverage is less than 9.5 percent of the employee’s household income—and provide minimum value, i.e., cover more than 60 percent of plan costs.

One key aspect to remember is no penalty is assessed unless one of the full-time employees is certified to the employer as having enrolled in a qualified health plan with respect to an applicable premium tax credit or a cost-sharing reduction is allowed or paid with respect to the employer.

Definition of a Large Employer

Under the Affordable Care Act, a large employer is one that employed an average of at least 50 full-time employees or full-time equivalents on business days during the preceding tax year. A full-time employee is any employee who works at least 30 hours a week. Under a full-time equivalent rule, an employer on a monthly basis will have to include the total number of hours worked by employees who do not meet the definition of full time divided by 120, e.g., 1,200 hours worked in a particular month by employees not defined as full time would be 10 full-time equivalent employees. An employer will not be considered large if they employed at least 50 full-time employees for 120 days or fewer during the calendar year and the employees in excess of 50 employed during the 120-day period were seasonal workers, i.e., employees defined as seasonal by the Secretary of Labor. When determining who the employer is, be sure to consider the aggregation rules or related businesses, as the 30-employee reduction discussed later in this article only will apply to one employer.

Individuals Qualifying for Premium Tax Credits or Cost-Sharing Assistance

For tax years ending after December 31, 2013, there will be a refundable tax credit to qualifying taxpayers who obtain health insurance coverage in a qualified health plan through a state exchange. Applicable taxpayers whose household income is between 100 percent and 400 percent of the federal poverty line that do not receive affordable health insurance under an employer plan are allowed a refundable tax credit for premiums paid during the tax year. The tax credit will be paid directly to the insurance plan; the individual will receive the benefit through reduced insurance premiums. The cost-sharing portion of the plan will be reflected in reduced deductibles, co-payments and other out-of-pocket costs for those at or below 400 percent of the federal poverty line.

Excise Tax on Employers Not Offering Health Insurance & Qualifying for Premium Tax Credits or Cost-Sharing Assistance

Large employers will be subject to the excise tax for not offering health insurance if both of the following apply:

  1. They fail to offer to full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for that month.
  2. At least one full-time employee of the applicable large employer has been certified to the employer as having enrolled for such month in a qualified health plan for which an applicable premium tax credit or cost-sharing reduction is allowed or paid for the employee.

The excise tax is calculated monthly by taking the number of full-time employees for the month, reduced by 30, and multiplying by 1/12 of $2,000 (adjusted for inflation after 2014). The Secretary of Labor will determine whether the penalty is paid annually, monthly or on some other periodic basis.

Example:  Company A is considered a large employer and has 50 full-time employees. No health insurance coverage was provided at any point during the year. At least one employee of Company A has been certified as having enrolled in a qualified health plan for which an applicable premium tax credit or cost-sharing reduction is allowed or paid for the employee. The excise tax will be calculated as follows:
(50 – 30) x $2,000 = $40,000

Excise Tax on Employers with Employees Qualifying for Premium Tax Credits or Cost-Sharing Assistance

Large employers will be subject to the excise tax for full-time employees qualifying for premium tax credits or cost-sharing assistance if both of the following apply:

  1. They offer to full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for that month.
  2. At least one full-time employee of the employer has been certified to the employer as having enrolled for that month in a qualified health plan for which an applicable premium tax credit or cost-sharing reduction is allowed or paid for the employee.

The monthly excise tax is determined by taking the lesser of the excise tax calculated by multiplying the number of employees subject to a premium tax credit or cost-sharing reduction by 1/12 of $3,000 (adjusted for inflation after 2014) or the amount of excise tax calculated if the employer did not offer health insurance.

Example:  Company A is considered a large employer and has 50 full-time employees. Health insurance coverage was offered to employees throughout the entire year. Ten employees of Company A did not elect to utilize the employer’s coverage because it was unaffordable and have been certified as having enrolled in a qualified health plan for which an applicable premium tax credit or cost-sharing reduction is allowed or paid for the employee. The excise tax will be calculated as follows:
10 x $3,000 = $30,000
(50-30) x $2,000 = $40,000

The actual excise tax imposed would be $30,000, as the excise tax paid is the lesser of the amount calculated as though no health coverage was offered or the amount when health coverage was offered, but an employee qualified for premium tax credits or cost-sharing assistance.

This article is intended to provide an overview of the employer mandate; it is not a comprehensive discussion of the regulations affecting health insurance coverage and the penalties employers may face. Due to the complex rules related to the employer mandate, be sure to contact your BKD advisor to assist with penalty projections and structuring health coverage plans.



Download the 2012 Year-End Tax Advisor here!

BKD LinkedIn BKD Twitter BKD Youtube BKD Google Plus