Maximizing Health Care Dollars for Small Employers

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Is your business ready for health care reform? The Patient Protection and Affordable Care Act enacted comprehensive health insurance reforms that may have a profound impact on your business operations. In Affordable Care Act – Maximizing Health Care Dollars for Small Employers, attorney Michael James examines the requirements and options under the ACA for businesses, including health care tax credits and penalties, the Pay or Play Mandate, health insurance exchanges, SHOPs and much more. Health care reform requires employers to make strategic decisions related to their operations that could ultimately impact their human capital, costs, and long-term success. The Health Care Department of Fraser Trebilcock is ready to be your strategic partner in health care reform.

To find out more about the impact of health care reform on your business, contact attorney Michael James at mjames@fraserlawfirm.com, 517-377-0823 or www.fraserlawfirm.com. Michael James, a senior attorney at Fraser Trebilcock, provides representation and counseling related to all facets of business enterprise and healthcare matters.

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Maximizing Health Care Dollars for Small Employers

  1. 1. MAXIMIZING HEALTH CAREDOLLARS FOR SMALLEMPLOYERSMichael P. James, JD, MBA, CSSGBPhone: (517) 377-0823(313) 237-7300Email: mjames@fraserlawfirm.comwww.linkedin.com/in/MichaelJamesLaw© 2013 Fraser TrebilcockDavis & Dunlap, P.C.
  2. 2. The Patient Protection &Affordable Care Act (ACA) Became law in March 2010. Supreme Court upholds constitutionality of ACAJune 2012. ACA creates: Small Business Health Care Affordability Tax Credits; Individual Health Insurance Mandate; and Employer Responsibility Requirements.
  3. 3. Current Small BusinessHealth Care Tax CreditsPotential Tax Credits 2013For-ProfitUp to 35% of employercontribution toemployees’ healthinsurance premiumNon-ProfitUp to 25% of employercontribution toemployees’ healthinsurance premium
  4. 4. Current Small BusinessHealth Care Tax CreditsRequirements< 25EmployeesAverageEmployeeWages< $50,000Employer mustcontribute at least50% of premiumcost
  5. 5. Current Small BusinessHealth Care Tax CreditsRequirementsMaximum credit available to employers with 10 orfewer FTEs and average annual wages of $25,000 orless. For each FTE above 10 FTEs, the credit is reduced by 1/15. For each $1,000 above $25,000 in average wages, the creditis reduced by 1/25.
  6. 6. Current Small BusinessHealth Care Tax CreditsWhich Employees Count? Seasonal Workers Leased Employees Owner of Business Family Members of Business Owner
  7. 7. Current Small BusinessHealth Care Tax CreditsMembers of a controlled or an affiliated service group aretreated as a single employer for tax credit purposes.Which Employees Count?
  8. 8. Current Small BusinessHealth Care Tax CreditsCalculating the Number of EmployeesCalculating FTEs for Tax Credit Purposes - Three Methods:1) Actual Hours Worked + Paid Leave Limit of 2,080 hours per employee, per year2) Days-Worked Equivalency + Paid Leave 8 hours for each day3) Weeks-Worked Equivalency + Paid Leave 40 hours for each weekAdd up the total hours of service the employer pays wages toemployees and divide by 2,080. Round down.
  9. 9. Current Small BusinessHealth Care Tax CreditsExample: Number of EmployeesIn 2013, Employer paysfive employees wages for2,080 hours each, threeemployees for 1,040hours each and oneemployee wages for2,300 hours. If theemployer uses the“Actual Hours WorkedMethod,” how manyFTEs does the employerhave?5 Employees: 10,400 (5 x 2,080)3 Employees: 3,120 (3 x 1,040)1 Employee: 2,080 (max 2,080for each employee)Total Hours: 15,600Total FTEs: 7.5 (15,600 / 2,080)Employees for Tax Purposes: 7
  10. 10. Current Small BusinessHealth Care Tax CreditsCalculating Average Employee Wages1) Add up the total wages paid by employer during the tax year.2) Divide total wages by the number of FTEs for the year.3) Round down the result to the nearest $1,000.The employer’s average wages are $24,000 ($245,786 / 10 =$24,578.60, rounded down to the nearest $1,000).Example: In 2013, an employer pays a totalof $245,786 in wages and has 10 FTEs.
  11. 11. Current Small BusinessHealth Care Tax CreditsCalculating Employer Contributions1) Employer must pay at least 50% of coverage.Employer pays at least 50% of the premiumsfor each employee enrolled in healthinsurance coverage offered by the employer.Uniformity Requirement: The employer is not required to pay the same percentage of thepremium for each employee. Required to be at least 50% of the premium for singlecoverage; does not have to pay 50% of premium for moreexpensive coverage options.
  12. 12. Current Small BusinessHealth Care Tax CreditsCalculating Employer ContributionsUniformity Requirement Example:Employer has 9 employees: 6 enrolled in single coverage. 3 enrolled in family coverage.Premium Single: $ 8,000Premium Family: $14,000Employer pays $4,000 peremployee:• 50% of the premium forsingle coverage for eachemployee enrolled insingle or family coverage.• Employer has satisfieduniformity requirement.
  13. 13. Current Small BusinessHealth Care Tax CreditsCalculating Employer Contributions2) Payments must be made under a qualified arrangement.Only premiums paid to a health insurance issuer. Major medical plan, dental, vision, etc. Each plan must meet requirements.Payments that do not count: Portion paid by employees; Premium payments under a salary reductionarrangement; Employer contributions to HRAs, FSAs, and HSAs.
  14. 14. Current Small BusinessHealth Care Tax CreditsCalculating Employer Contributions3) Cap on the amount of employer’s premium payments thattoward tax credit.Employer’s premium payments may not bemore than the average premium for thesmall group market in the state where theemployer offers coverage.2012 Michigan: Average Premiums forSmall Group Markets Single: $ 5,334 Family: $ 12,936
  15. 15. Current Small BusinessHealth Care Tax CreditsCalculating Employer ContributionsCap on Premium Payments Example:# ofEmployeesType ofCoverageTotalPremiumsMI Avg.PremiumEmployerPays 50%50% of MIAvg.4 Single $6,000 $5,334 $3,000 $2,6675 Family $14,000 $12,936 $7,000 $6,468The premium payments for each employee exceed 50% of theaverage premium for the small group market in Michigan.The value of premiums that can be used to compute the creditis: $43,008 [($2,667 x 4) + ($6,468 x 5)].
  16. 16. Summary1) Determine the employees who count toward the credit.2) Calculate the hours of service for these employees.3) Calculate the number of the employer’s FTEs4) Calculate the average annual wages paid per FTE.5) Calculate the relevant employer contributions.Initial Amount of Credit (Contribution x Percentage)- Reduction for FTE in excess of 10- Reduction for avg. wages in excess of $25,000Total Small Business Health Care Tax CreditCurrent Small BusinessHealth Care Tax Credits
  17. 17. Current Small BusinessHealth Care Tax CreditsHow to Claim the Credit Tax-exempt employer: Form 990-T with attached Form 8941 showing calculation of credit. Other employers: Claim the credit on income tax return, use attached From 8941 showingcalculation of credit. Credit may be able to be used to offset Alternative MinimumTax liability. The tax credit can be reflected in determining estimated taxpayments for the year. The credit affects an employer’s allowable deduction for healthinsurance premiums; deduction is reduced by amount of credit. Credit does not affect employer’s employment tax payments.
  18. 18. ACA Individual HealthInsurance Mandate The individual health insurance mandate requires nearly allAmericans to purchase and maintain health insurance. Qualified coverage evidenced through tax returns.
  19. 19. Health InsuranceMarketplaces / Exchanges Health Insurance Marketplaces / Exchanges. Open enrollment: October 2013 Plans go into effect: January 2014 Michigan will have a federally-facilitated health insurancemarketplace.
  20. 20. Small Business HealthOption ProgramsSmall Business Health Option Programs(SHOP) Open to all small businesses in 2014. Must have 50 FTEs or less. In 2014, employer chooses one insurance product for all employees. In 2015, employer picks the metal level, employees choose theinsurance product. In 2016, SHOP expands to businesses with up to 100 FTEs. In 2017+, States have option to expand SHOP eligibility to largegroups.
  21. 21. SHOP: Subsidy / Tax CreditSmall Business Health Care Tax Credits Temporarily continues: 2014 through 2016. If employer purchases insurance through SHOP: For-Profit  up to 50% of contribution to insurance premiums. Non-Profit  up to 35% of contribution to insurance premiums. Existing requirements remain in effect: Up to 25 FTEs; and Average Employee Wages < $50,000; and Employer must contribute at least 50% of premium costs. Fewer than 10 FTEs and average wages less than $25,000 can claimfull credit. Same sliding scale for up to 25 FTEs and $50,000. Employer contribution continues to be capped.
  22. 22. Tax Credit SummarySummary1) Determine the employees who count toward the credit.2) Calculate the hours of service for these employees.3) Calculate the number of the employer’s FTEs4) Calculate the average annual wages paid per FTE.5) Calculate the relevant employer contributions.Initial Amount of Credit (Contribution x Percentage)- Reduction for FTE in excess of 10- Reduction for avg. wages in excess of $25,000Total Small Business Health Care Tax Credit
  23. 23. ACA Employer ResponsibilityUnder 50 FTEs There is no insurancerequirement. Employers do not have tooffer insurance. However, if health insuranceoffered, must meet EHBsand metals.Over 50 FTEs Employers must offerinsurance. Insurance must cover atleast 60% of actuarialvalue. Must be offered to 95% offull-time employees.
  24. 24. ACA Employer ResponsibilityPay or Play Mandate Applies to employers with 50+ FTEs. Insurance must cover at least 60% of actuarial value. Employer must offer affordable coverage. Single employee premium contribution not to exceed 9.5% ofemployee’s household income. Employer will be subject to penalties if any of its full-timeemployees receives a tax credit on the individual marketplace.
  25. 25. ACA Employer ResponsibilityPay or Play FTEs FTEs are calculated under the Pay or PlayMandate as follows: Full-time employees averaging at least 130 hours/mo.+ Total monthly part-time hours / 120.
  26. 26. ACA Employer ResponsibilityPay or Play Penalties: Two Options Large employer does not provide coverage: Penalty = $2,000 x (#full-time employees - 30) Large employer offers unaffordable or lowvalue coverage: Penalty = the lesser of: No coverage penalty; or $3,000 x (full-time employees receiving tax credits.
  27. 27. ACA Employer ResponsibilityPay or Play ExampleEmployer has 55 employees. Employer offersunaffordable health insurance to employees. Asa result, 10 full-time employees seek insurancein the individual marketplace and receive a taxcredit. What is the penalty?Penalty is the lesser of: (55 - 30) x $2,000 = $50,000 10 x $3,000 = $30,000 Penalty is $30,000
  28. 28. Essential Health BenefitsRequired Coverage1) Ambulatory Patient Services2) Emergency Services3) Hospitalization4) Maternity and Newborn Care5) Mental Health & Substance Use Disorder Services; BehavioralHealth Treatment6) Prescription Drugs7) Rehabilitative and Habilitative Services and Devices8) Laboratory Services9) Preventative Wellness Services and Chronic DiseaseManagement10) Pediatric Services, Including Oral and Vision Care
  29. 29. Health Exchange MetalsPlatinum88-92% AVGold78-82% AVSilver68-72% AVBronze58-62% AV ACA uses “Metal Levels” tostandardize insurance productsoffered on exchange to individualand small group markets. Based on actuarial values. The percentage of total averagecosts for covered benefits that aplan will cover. Catastrophic plans allowed foryoung adults; < 30. Large Group products do not need tohit metals, just minimum AV of 60%to avoid penalties.
  30. 30. Grandfathered Health PlansGrandfathered Health Plans Group health plan in existence prior to ACA. Protected from certain ACA mandates. Very difficult for a company to maintain agrandfathered health plan. Must provide notice to enrollees. Must keep records to substantiate status. Minimal changes allowed: Add new beneficiary; change terms to comply withlaw; adopt consumer protects not required by law;modest adjustments to benefits or cost sharing;raise premiums; add new members; and renew.
  31. 31. What do Businesses Do?ProvideHealthInsuranceSendEmployeesto Exchange
  32. 32. Fraser Trebilcock Davis & Dunlap, P.C.124 W. Allegan Street, Suite 1000Lansing, Michigan 48933www.fraserlawfirm.comPhone: (517) 482-5800Fax: (517) 482-0887Fraser Trebilcock Davis & Dunlap, P.C.One Woodward Avenue, Suite 1550Detroit, Michigan 48226www.fraserlawfirm.comPhone: (313) 237-7300Fax: (313) 961-1651Michael P. James, JD, MBA, CSSGBPhone: (517) 377-0823(313) 237-7300Email: mjames@fraserlawfirm.comwww.linkedin.com/in/MichaelJamesLaw© 2013 Fraser TrebilcockDavis & Dunlap, P.C.

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