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Major provisions of the new “health care reform” law requiring some employers to provide health insurance coverage or pay alternative penalties will go into effect in 2014.
The most important thing to determine right away is whether or not your business will come under these new mandates.
First, which businesses will not be required to provide health insurance benefits or pay a penalty?
- Businesses falling under the “small business threshold: If your business has fewer than 50 full-time-equivalent employees (see definition formula below), the requirements to provide employee health insurance or pay a “free rider” penalty do not apply to your business, because it falls under the “small business” threshold. In addition, seasonal workers working less than 120 days do not count toward the monthly calculation to determine if a business exceeds the 50 full-time-equivalent small business threshold.
To determine how many full-time-equivalent employees you have:
___ Number of actual full-time employees (average 30 or more hrs per wk)
+ ___ All hours worked by part-time employees that month ÷ 120
= ___ Number of full-time-equivalent employees
- Businesses with 30 or fewer actual full-time employees: If your business employs more than 50 full-time-equivalents, but has 30 or less actual full-time employees (averaging 30 or more hours per week in a given month), then you will not be required to pay a free rider penalty on full-time employees for whom you do not provide a health care plan because the first 30 full-time employees are exempt from the penalties in all cases.
Many smaller restaurant businesses will not be subject to health insurance requirements and/or paying alternative penalties
It appears that many single facility restaurant operations will be able to operate below the 50 full-time-equivalent small business threshold, and thus will be exempt from the requirements to provide health insurance or pay the penalties for their full-time employees. It is also likely that many restaurant businesses with even two or three retail outlets will be able to operate with 30 or fewer full-time employees (average 30 hrs per week) and, therefore, would not be required to pay any penalties.
Importance of full-time and part-time definitions
Health insurance requirements and alternative penalties only apply to actual full-time employees after 90 days of employment. It is important to keep in mind that a “full-time” employee is defined as one who worked an average of 30 hours per week in a given month. Also, hours worked by part-time employees are only used in the formula to determine whether a business falls under the exempting small business threshold.
Determination of penalty payments
Penalty payments are determined and paid on a monthly basis by employers which do not meet the small business threshold and do not provide the required health insurance for full-time employees. Monthly payments are based on 1/12th of the annual $2,000 “free rider” penalty (about $166.67 per month) for each actual full-time employee after the first 30, which are exempt. Seasonal full-timers are treated the same as permanent employees for purposes of determining monthly penalties.
Small business tax credit available beginning 2010
For employers with no more than 25 full-time equivalent employees, the law contains a tax credit to encourage the initiation of health care plans for their full time employees. This tax credit would be available for two consecutive years and would be equal to 50 % of the premiums paid by the employer, or 50 % of the average premium in the small group market multiplied by the number of employees covered by the plan. A sliding scale reduces the tax credit when average employee earnings are above $25,000. Employers with average employee earnings of $50,000 or more do not qualify for the credit.
Provisions affecting insurance companies and plan requirements
Various provisions defining “minimum essential coverage” apply to health insurance plans offered after the date of enactment, including prohibition of out-of-pocket limits which are greater than the limits for health savings accounts, and small group market (under 100 employees) deductible limits of $2,000 for individuals and $4,000 for families. These limits increase based on percentage increases in average per capita premiums. Starting in the Fall of 2010 it prohibits lifetime maximums, cancellation of coverage, waiting periods longer than 90 days. It further requires coverage of children and adult children up to age 26 and restricts annual limits for existing health plans. Starting in 2014 it also prohibits pre-existing condition exclusions. These requirements could increase the cost of some health plans.
Individual responsibility requirement begins in 2014
This law also requires individuals to provide health insurance for themselves and their dependents or pay a penalty ($95/yr in 2014, $325/yr in 2015, $695/yr 2016 and after). This provision is being challenged in the courts on the basis of “constitutionality”.
Various taxes and fees levied
Some taxes and fees to pay for this reform include: excise tax on insurance companies and administrators for plan premiums above the established thresholds starting in 2018; expansion of 3.8% Medicare contribution tax to include unearned income beginning in 2013; increased Medicare hospital insurance tax from 1.45% to 2.35% for high-income taxpayers (over $250,000 adjusted gross for joint filers) beginning in 2013; annual fee on pharmaceutical manufacturers and importers; annual excise tax on medical device manufactures; limits compensation to insurance company executives. Also, flexible spending account (FSA) contribution limits are reduced from $5,000 to $2,500, thereby reducing the amount an employee can set aside in pre-tax dollars to pay for health care expenses.
The health insurance “exchange”
The “exchange” is a marketplace (available online) where employers in the small group market and individuals not covered through their employers can shop for health insurance plans.
A multi-year regulatory process
A multi-year regulatory process will define the details of implementation and ultimately will determine how all players are affected by these changes. The National Restaurant Association (NRA) will be monitoring and lobbying on behalf of the industry throughout the regulatory process.
For more detailed information on new health care reform law provisions, including its application to businesses, click here. |
