Know how. Know now.

Health Care Decisions
for the

Small Business Owner
University of Nebraska-Lincoln Extension Educator...
Full

Implementation
Know how. Know now.

How will the ACA affect your business?

 Large Employers
 50 or more
 Small Employers
 Less than ...
Know how. Know now.

Employer Size Determination
 Ownership exemptions
 Seasonal < 120 days FT
 Foreign-based
 Contrac...
Know how. Know now.

Employer Size Determination
 Full-time > 30 hrs/wk; 130 hrs/month
 Part-time < 30 hrs/wk; 130 hrs/m...
Know how. Know now.

University of Nebraska–Lincoln
Know how. Know now.

Small Employers < 50 FTE
 No Employer Responsibility/No Penalties
 Premium Tax Credit
 Requirement...
Know how. Know now.

Health Care Tax Credit
$15/hr x 2080 hr/yr = $31,200/emp
Total Wages =
10 x $31,200 = $312,000/yr
Tot...
Know how. Know now.

Health Care Tax Credit
http://www.irs.gov/uac/Small-Business-Health-Care-TaxCredit-for-Small-Employer...
Know how. Know now.

Tax Credit – Additional Caveats
 Aggregation Rule Applies
 Credit applies to employee-only premium
...
Know how. Know now.

Health Care Tax Credit
 Health Law Guide
for Business

 Small Business
Majority

University of Nebr...
Know how. Know now.
Large Employer
Penalty?
Any FT employees in an
exchange plan receiving
premium subsidies?
Do you have ...
Know how. Know now.

Large Employer Penalties


Penalties assessed if healthcare insurance
 Not offered to at least 95% ...
Know how. Know now.

Scenario 1
Employer with 100 employees offers insurance coverage that
does not meet affordability or ...
Know how. Know now.

Scenario 2
Employer with 100 employees does not offer insurance
coverage or offers coverage to less t...
Know how. Know now.

Business Considerations






Healthcare costs – premiums & contributions
ACA compliance
 Minimi...
Know how. Know now.

Business Strategy



Adjust employer contribution
Consider a less expensive plan(s)




Bare bone...
Know how. Know now.

Small < 25 FTE Strategies
 No coverage
 Coverage with current or “grandfathered”




plan
SHOP c...
Know how. Know now.

Small < 50 FTE Strategies
 No coverage
 Coverage with current or “grandfathered”







plan
...
Know how. Know now.

Where to start: eship.unl.edu/healthcare

University of Nebraska–Lincoln
Know how. Know now.

Questions? Email:

ACAbizNE@unl.edu

University of Nebraska–Lincoln
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Affordable Care Act Presentation for Small Businesses

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The Affordable Care Act affects businesses differently, depending on their employment size. This brief presentation highlights some of the key concepts that helps a business owner navigate through the regulations that will affect their business operations. For more information visit: http://eship.unl.edu/healthcare.

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  • Good morning. On behalf of the University of Nebraska Extension Affordable Care Team, I welcome you to today’s webinar for small businesses. Before we get started, I’d like to introduce the entire team that has worked on this project.
    Carroll Welte, Extension Educator from Burt County. Carroll will also be presenting today.
    Marilyn Schlake, Extension Educator, Department of Agricultural Economics
  • The ACA law affect small and large businesses differently. As we mention in the earlier slide, the shared responsibility provision, or more commonly referred to as the “pay or play” provision affects only the ACA defined large employer which are those businesses that employ 50 or more full-time or full-time equivalent employees.
    Under the ACA, small employers are defined as having less than 50 employees. These businesses do not have to provide health insurance coverage. However, there are incentives for businesses with less than 25 employees to purchase insurance for their employees, at least until 2016, which we will talk about later.
  • Ownership exemptions. When determining hours and wages, sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S-corporation and any owners of more than 5 percent of other businesses are disregarded, as are their family members (Source Health Law Guide for Business).
    Seasonal exception. Seasonal employees who work full-time for 120 days or less do not affect the full-time count. This ruling may change beyond 2014.
    Foreign-based employees.  Generally, employees working overseas will not have hours of service performed in the United States and are not to be included in the full-time calculations. 
    Contractors. If hiring a self-employed contractor, employers need to be very careful to make sure the meet the IRS determination of a contractor, if not they could be counted as an employee.
    Non-documented workers. As the same for the individual coverage mandate, individuals who are non-documented workers are not eligible for coverage.
  • For employers that have multiple entities (such as an owner having several restaurants or multiple businesses) the IRS aggregation rules governing control groups apply to the ACA large employer determination. This ruling states that all employees of businesses which are under common control are treated as employed by a single employer. If this applies to your business
  • Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.
    This amount is also subject to change. Payments processed on or after October 1, 2013 and on or before Sept. 30, 2014 may be subject to a 7.2% reduction due to sequestration, irrespective of when the original or amended tax return is or was received by the IRS.
  • For employers that have multiple entities (such as an owner having several restaurants or multiple businesses) the IRS aggregation rules governing control groups apply to the ACA employer determination. This ruling states that all employees of businesses which are under common control are treated as employed by a single employer.
  • One of the first questions a business owner asks, is What are the potential penalties that they could be facing under the ACA?. This graphs helps the business owner walk through the very basics of the penalties.
    Question 1) Are you a large employer? Like Carroll mentioned earlier, if the business has less than 50 FTE, they are not classified as a large employer and are not facing a penalty. If they do have 50 or more, they qualify as a large employer.
    Question 2) Have any of your Full-time employees enrolled in the Marketplace exchange and are they receiving premium credits or subsidies? If no full-time employees receive premium credits, then there is not penalty. However, if even one employee receives a premium credit, then the employer is exposed to a penalty.
    The extent of the penalty depends on the number of Full-time employees. Under the ACA, the first 30 full-time employees are given a pass for the employer and the penalty starts with the 31st employee.
    The next question is whether the company provides health insurance to its employees. This question will determine the scope of the penalty.
    If the company provides insurance, they will pay the lesser of two penalties:
    The first is calculated by taking theNumber of FT employees, minus the 30) and multiply that number by $2,000 per employee. The monthly fine is then determined by dividing this total by 12.
    OR
    The second options is for the company to pay only for the individuals who use the exchange and receive a subsidy. To calculate, take the number of FT employees receiving the exchange credits and multiply by $3,000 and divide by 12 for the monthly rate.
    On the flipside, if the company chooses not to provide insurance they are fined the flat rate of
    Number of FT employees, minus the 30 times $2,000 divided by 12 for each month’s penalty that insurance is not provided.
    Just looking at this chart, it shows that there are strategies that an employer can use minimize their penalties.
  • Penalties can also occur if the large employer does not meet the minimum ACA requirements
    Penalties may be assessed if the employer does not offer coverage to at least 95% of their full-time employees and their dependents. Dependents are children up to age 26. You will notice that spouses are not included as a requirement. Employers do not have to offer coverage for spouses under the ACA law.
    The coverage also has to be affordable for the employees, meaning that it has to be within 9.5% of each employee’s total household income. Because this household income will be difficult to determine, the IRS has come up with 3 SAFE Harbor methods for companies to use to determine the maximum premiums. I’m not going to list these now, but encourage you to find out more about the SAFE Harbor methods on our website under the 50 or more category
    The third trigger is that the coverage has to be adequate and meet at least the 60% actuarial value which is the percentage of covered costs under the plan. So, a person with a plan that has an actuarial value of 60% would be responsible for a 40% cost-share.
    Finally, all of these penalties are kicked in when an employee goes to the exchange, purchases insurance coverage and receives a tax premium credit.
    Documentation will be critical for the large employer to adequately prove that their policies do fall within the ACA guidelines for each given month. If they do meet the guidelines, they will not be taxed for that month, even though an employee chooses to go to the exchange.
    In contrast, employer penalty payments are not tax-deductible.
    • For-profit employers should take note: paying $3,000 in premiums is a lower net cost than paying $3,000 in penalties.
  • This is an example of what a penalty may look like for an employer with 100 employees that does not meet the affordability or adequate requirement. Because the employees could not afford the coverage, they elected to go to the exchange and were eligible for a premium tax credit.
    In the first case, just one employee triggered the penalty towards the entire FT employee base for a total penalty of $11,667 per month. This is calculated by multiplying $2,000 by the 100 employees minus the 30) and dividing by 12.
    OR the company can look at paying for only the 15 employees who went to the exchange and received the premium tax credit. However this option has a higher rate of penalty at $3,000 per employee, but it is assessed only toward those 15 employees, not the whole company. In this case the monthly penalty is $3,750 per month.
  • In Scenario 2, the company decides not to offer health insurance coverage, or offers it to less than 95% of its full-time employees and their dependents. In this case, the penalty is triggered and is assessed to the total FT employee base, minus the 30 for an annual total of $140,000 or 11,667 until the coverage is changed.
    In either case, the cost of the penalties can be huge for a small company and must be measured against other costs, including offering insurance for their employees.
  • Even though the smaller companies are not required to purchase health coverage, like the large companies, it may in their best interest to offer insurance.
    Companies do need to evaluate how insurance costs, including premiums and other contributions, fit into the company financial budget and how does offering, or not offering fit with their workforce and business goals?
     
    A lot may depend on what competitors offer for benefits and what the community on average offers for similar jobs. The company may need to provide insurance to stay competitive for attracting and retaining their employee workforce.
    For example, 2012 study conducted by the Kaiser Family Foundation, showed that 45% of the very small employers with 3-9 workers did provide some types of health insurance and this percentage increased as the firms grew with 68% of firms with 10-25 workers, and 85% with 25-49 works and 91 % of firms with 50-199 workers. Many owners see this benefit as an essential recruitment and retention tool.
    Over time, the goals and reasons for offering insurance may shift due to the entire health insurance industry shifting. What is offered to day, may not be the best option in 2 or 3 years down the road.
  • Given the business considerations, what are some of the business strategies might a business use? Of course, each of these strategies need to be carefully evaluated against the company’s overall goals.
    First, the company may choose to reduce their contribution levels toward the employee’s premium costs. For smaller companies, the affordability requirement is not a problem, but for the larger companies they should look at the 9.5% affordability issue for all their employees and see how many could potentially go to the exchange and trigger a penalty.
    Second, they may consider offering a less expensive plan. If a company offers a gold plan that covers 80% of cost, they may decide to offer a silver or bronze plan instead.
    Third, they may choose to offer a bare bones or skinny plan. This is a plan that covers only the mandatory essential preventative and wellness services through a self-insured plan with cost-sharing between employer and employees.  This option is only available for large employers.  To provide additional coverage, a mini-medical or gap plan is added to provide some level of non-preventive care such as hospitalization, outpatient care, therapy, etc.  Essentially, these plans meet the employer mandate ($2,000 penalty) but fail to meet the affordability penalty ($3,000 per person penalty). 
    As a company moves to reduce their costs, and essentially put the costs back onto their employees, the result may be decrease morale and employee loyalty. Be prepared for negative repercussions from employees who view the switch to a lower benefit plan as a reduction in pay, benefits and employer support. Talk with employees to plan and communicate about the health care laws and company objectives.
  • These next three slides look at some different options an employer may consider, given their employment size. I’m just going to briefly touch on each of these as the website goes into more detail.
    For the small companies with less than 25 FTE there are a few strategies they should consider
    1, offer no coverage, there is no requirement under the ACA
    Stay with current your plan, if it hasn’t been cancelled by the insurance company. All the new plans must meet the ACA essential benefits requirement. Grandfathered policies are those that were in existence prior to March 23, 2010 do not have to meet the ACA requirements. However, many of these policies are being cancelled and there are other stringent requirements as to their adaptability to future changes.
    Purchase coverage through SHOP, Small Business Health Options Program, which is the state or federal exchange for businesses. For 2014, the federal SHOP program looks like it will have only one option for the employer to choose from, rather than the full cafeteria of policies that were originally planned.
    There is a new option now available under the ACA. Non-profit health insurance cooperatives, called Consumer Operated and Oriented Plans (CO-OPS) were authorized under Section 1322 of the ACA law. They are an alterative to the individual and small business exchanges operated by state and federal governments. The CO-OPs are formed as nonprofits and controlled by and operated on behalf of their members. There are 24 CO-OPs authorized across the United States. For Nebraska, we have the Cooperunity group authorized for Nebraska and Iowa that is located in Des Moines, Iowa.
    In a defined contribution health plan the employer provides tax-free contributions to employees to be used toward their health care.  Options include:
    Health Reimbursement Arrangement (HRA). A tax-exempt trust or custodial account set up with a qualified HRA trustee to pay for qualified medical expenses. Contributions are made by the employer only. HRAs must be integrated with an eligible employer-sponsored health plan; otherwise it does not qualify under ACA as a stand-alone option.  HRAs are often paired with high-deductible health plans (HDHPs)
    Health Savings Accounts (HSA).  HSAs are savings accounts established by individuals and their employers.  HSAs are used to pay for qualified health care costs.  The account is owned by the employee and the employee is responsible for maintaining a balance and determining how to spend the monies. 
    Flexible Spending Account (FSA).   FSAs are employer sponsored accounts that can be used to reimburse participants for qualified medical expenses.  Both the employer and employee may make contributions .  FSA contributions are pre-tax monies.  FSAs has had a “use or lose it” rule, but just last month that was change so employees can carryover up to $500 each year.   Under the ACA, tax-free contributions will be limited to $2,500 per employee, per year. 
  • As we move up on the employee scale, there are a few more strategies that employers may consider.
    Private exchanges are new under the ACA– A private exchange is an alternative to the government exchanges. Through the private exchange, the employer provides a defined contribution that is set aside for the employee&apos;s health care coverage. The employee then adds their salary-deferred contributions and selects the coverage options that best fits their needs. The exchange serves as the HR administrators for the employer by managing the accounts and enrollment process. The employer is still eligible for tax deductions and the employee contributions are pre-tax monies.
    Self-funded plans – An employers may choose to provide health benefits through a self-insured plan where the employer assumes the risk for employee health care costs beyond the employee&apos;s plan contributions. With a self-funded plan, the employer carries the risk of health care claims directly and manages claim payments as cash flow. To help reduce risk, employers may purchase stop loss insurance to protect from unexpected high claims for individual employees and for the employer.
    And to stay under the 50 FTE, “play or pay” mandate employers may choose to limit their staffing. As the employer nears that magic 50 mark, they really need to make sure they have good monitoring protocols in place because temporary, part-time or even contractors, if not properly managed can move the company over 50 FTE.
  • To find out more about the ACA and strategies for your business, we encourage you to visit the eship.unl.edu/healthcare website and search out information according to your business size. There are many links out to government, non-profit and professional websites. There are forms, videos and general resource materials.
  • Also, here is a website to the ACA team should you have questions later on as you consider your business options. If we don’t know the answer, we’ll find it for you.
  • Affordable Care Act Presentation for Small Businesses

    1. 1. Know how. Know now. Health Care Decisions for the Small Business Owner University of Nebraska-Lincoln Extension Educators Marilyn Schlake & Carroll Welte Presentation date: 11/4/13
    2. 2. Full Implementation
    3. 3. Know how. Know now. How will the ACA affect your business?  Large Employers  50 or more  Small Employers  Less than 50  Less than 25  Non-employer University of Nebraska–Lincoln
    4. 4. Know how. Know now. Employer Size Determination  Ownership exemptions  Seasonal < 120 days FT  Foreign-based  Contractors  Non-documented workers University of Nebraska–Lincoln
    5. 5. Know how. Know now. Employer Size Determination  Full-time > 30 hrs/wk; 130 hrs/month  Part-time < 30 hrs/wk; 130 hrs/month  Seasonal > 120 days, full-time  H2-A workers > 120 days, full-time  “Common” Company Employees University of Nebraska–Lincoln
    6. 6. Know how. Know now. University of Nebraska–Lincoln
    7. 7. Know how. Know now. Small Employers < 50 FTE  No Employer Responsibility/No Penalties  Premium Tax Credit  Requirements for 2014  Less than 25 FTE  Average annual salary less than $50,000  Employer pays at least 50% of premium  Coverage purchased through SHOP  Credit Amounts  For profit – up to 50% of premiums paid  Non profit – up to 35% of premiums paid University of Nebraska–Lincoln
    8. 8. Know how. Know now. Health Care Tax Credit $15/hr x 2080 hr/yr = $31,200/emp Total Wages = 10 x $31,200 = $312,000/yr Total premiums = $4,000 x 10 = $40,000 Estimated Annual Tax Credit = $15,200, 38% If $10/hr = $208,000 wages; TC = $20,000; 50% If $25/hr = $520,000 wages; TC = $0 University of Nebraska–Lincoln
    9. 9. Know how. Know now. Health Care Tax Credit http://www.irs.gov/uac/Small-Business-Health-Care-TaxCredit-for-Small-Employers      Can carry back or forward to other tax years. Credit can be claimed retroactive to 2010, rate is 35% Remainder premium payments – business expense To claim, Form 8941 Credit included under General Business Credit on tax return University of Nebraska–Lincoln
    10. 10. Know how. Know now. Tax Credit – Additional Caveats  Aggregation Rule Applies  Credit applies to employee-only premium    payments equivalents Does not apply toward defined contribution payments Does not apply toward self-insured plans Reduced by state small group market limit – Nebraska $5,325 single / 12,511 family (2012) University of Nebraska–Lincoln
    11. 11. Know how. Know now. Health Care Tax Credit  Health Law Guide for Business  Small Business Majority University of Nebraska–Lincoln
    12. 12. Know how. Know now. Large Employer Penalty? Any FT employees in an exchange plan receiving premium subsidies? Do you have more than 30 FT employees? Are you are large employer? No Penalty Do you provide health insurance? Pay monthly penalty Pay monthly penalty, lesser of (Number of FT-30) x $2,000÷12 (Number of FT-30) x $2,000÷12 OR (Number of FT receiving exchange coverage credits) x $3,000 ÷ 12 University of Nebraska–Lincoln Adapted from Congressional Research Service, 7-5700
    13. 13. Know how. Know now. Large Employer Penalties  Penalties assessed if healthcare insurance  Not offered to at least 95% of the full-time employees and their dependents  Not affordable (within 9.5% of each employee’s salary/wages)  Not adequate (60% of actuarial value)  Employee purchases insurance through exchange AND receives a tax premium credit University of Nebraska–Lincoln
    14. 14. Know how. Know now. Scenario 1 Employer with 100 employees offers insurance coverage that does not meet affordability or adequate requirements. Fifteen employees purchase coverage through exchange and receive health care tax credits. The employer penalty would be the lessor of: $2,000 x (100-30) / 12 = $11,667/mo. $140,000/yr OR $3,000 x (15 employees) / 12 = $3,750/mo. or $45,000/yr University of Nebraska–Lincoln
    15. 15. Know how. Know now. Scenario 2 Employer with 100 employees does not offer insurance coverage or offers coverage to less than 95% of full-time employees and their dependents. The employer penalty would be: $2,000 x (100-30) / 12 = $11,667/mo. $140,000/yr University of Nebraska–Lincoln
    16. 16. Know how. Know now. Business Considerations     Healthcare costs – premiums & contributions ACA compliance  Minimize risk of penalties if large employer Workforce  Quality  Retention  Salary and wages  Hours Short and long-term goals  Sustain  Growth and/or expansion University of Nebraska–Lincoln
    17. 17. Know how. Know now. Business Strategy   Adjust employer contribution Consider a less expensive plan(s)   Bare bones or the skinny plan Increase employee contribution  Morale?  Loyalty? University of Nebraska–Lincoln
    18. 18. Know how. Know now. Small < 25 FTE Strategies  No coverage  Coverage with current or “grandfathered”    plan SHOP coverage Co-operative Memberships Defined contributions University of Nebraska–Lincoln
    19. 19. Know how. Know now. Small < 50 FTE Strategies  No coverage  Coverage with current or “grandfathered”       plan SHOP coverage Co-operative Memberships Defined contributions Private exchanges Self-funded plans Staff changes University of Nebraska–Lincoln
    20. 20. Know how. Know now. Where to start: eship.unl.edu/healthcare University of Nebraska–Lincoln
    21. 21. Know how. Know now. Questions? Email: ACAbizNE@unl.edu University of Nebraska–Lincoln

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