Troubleshooting the Affordable Care Act

Bradley Burnett explores what individuals and businesses need to know about the Affordable Care Act (ACA) and how the actions of employees and employers affect each other. Failure to comply with the ACA can result in penalties for employers who do not offer coverage and individuals who decline coverage. Penalties for failure to offer coverage or for violating ACA rules can be severe.

Here are the highlights of the material Brad Burnett covers in his presentation. 

Individuals 

Two questions an individual will want to consider about the ACA: 1) If I don't buy health insurance am I going to pay a penalty? And 2) If I can't afford insurance can I get the government to pay for some of it? 

If a business has 50 or more full-time employees (or equivalents), it must offer affordable health insurance to all its employees, pay for at least 60 percent of the premiums, and offer minimum essential coverage. If the employer does this, an employee cannot go to the "marketplace" and get the premium tax credit, 

The ACA forces individuals who can afford insurance to buy it or else face a penalty. An employee who can't afford it can go to the "marketplace," originally called "exchanges." The marketplace is a government website where an individual can buy private insurance. If an individual applies within the open enrollment period a discount on the premium may be approved. Then a monthly discount will be granted and a tax credit will be available on the Federal income tax return. The tax return credit is compared with the discount and either an additional credit will be applied or additional tax will be paid.. If the employer offers adequate coverage, the employee will not be able to buy insurance in the marketplace. 

Businesses 

Large employers must offer health insurance coverage to their employees. A large employer is one that employs 50 or more full-time employees (including part-time equivalents). A full-time employee is one who works at least 30 hours per week. For purposes of determining now many full time employees an employer has, part-time equivalents are included. So, for example, if there are 3 employees working 10 hours per week each, they are combined to equal 1 full-time employee. 

Beware of the temptation to bring on independent contractors or leased employees to try to keep full time equivalent employees under 50. If IRS deems them to be employees rather than independent contractors, the consequences can be severe. Also be aware that employees in related companies may be aggregated for purposes of determining full time employees. 

If an employer does not offer affordable coverage or does not pay at least 60 percent of the premium, or does not offer minimum essential coverage, an employee may decline coverage and go to the marketplace to apply for the premium tax credit. That can lead to a severe penalty for the employer. 

Large employers (50 or more employees) are penalized $2,000 per employee per year. But there is no penalty unless one or more employees goes to the marketplace for coverage.(and they can only use the marketplace if the employer does not offer affordable minimum essential coverage and pay for at least 60 percent of the premium) The penalty does not apply to the first 30 full-time employees. The penalty could become $3,000 per year per employee who actually gets the premium tax credit. 

In addition to offering health insurance coverage, businesses have certain reporting requirements for each individual offered coverage. Penalties for failing to file these reports can be $1000 for each report not filed. This can be painfully expensive. 

Some employers offer reimbursement for medical expenses or health insurance premiums paid by employees and are thus deemed to be insurance companies for reporting purposes, and must file additional reports with the same penalties for non-reporting. 

After June 30 2016 for some and December 31 2015 for certain S Corporations, reimbursement for health insurance premiums is no longer allowed. The penalty for doing so is $100 per day per participant. So an employer who provides premium reimbursement for 10 employees after the above dates may face a penalty of $365,000 per year. There are certain exceptions to this rule, and the violation may be avoided by treating the reimbursement as compensation and paying back payroll taxes if discovered and corrected within 30 days.