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Jul 11, 2012

What’s next for your business under the Affordable Care Act?

By: Paul Ebeltoft

Now that it has passed Constitutional muster, some folks are waiting for the November elections to determine whether Affordable Care Act penalties will survive in Congress. However, the smart money is asking what the law means for its business, planning to be prepared whichever way the political winds blow. HR Professionals will provide the information management needs to make these plans. Be sure you are among the ones who are able to do so.

Be wary. There is a lot of misinformation online and over the airwaves. What follows is a very simple review of employer responsibilities under a very complex law. Because it is complicated, use this article to get your feet on the ground, not to make any important decisions.

Affordable Care Act employer responsibilities - 101

First, the Affordable Care Act does not require any business to provide health benefits to their employees. What it does do is penalize larger employers who do not make some type of coverage available, starting in 2014.

Second, if your business has 25 or fewer employees and an average wage up to $50,000, your business may be eligible for a health insurance tax credit. Consult your lawyer or tax adviser to learn about the credit and to get help calculating your business’s average wage.

Third, if your business has the full-time equivalent of 50 employees or more, offers health coverage to its workers that pays at least 60% of covered health care expenses for the typical population and does not require any employee to pay more than 9.5% of family income for the employer offered coverage, there is no penalty at all. This is because the law finds that theses employers have provided affordable coverage.

Employer penalties - 101

Any employer with the full-time equivalent of 50 or more employees that does not meet all of the criteria in the preceding paragraph faces the potential of penalties. These penalties apply each year that the employer does not meet the criteria.

An employer subject to a penalty for not offering any coverage to its workers is not penalized until at least one employee receives a premium tax credit or a cost-sharing subsidy from the mandated insurance exchange. When that occurs, the employer’s penalty is $2000 for each employee, but the law excludes the first 30 employees in calculating the penalty. The penalty increases each year by a percentage of growth in health insurance premiums.

An employer subject to a penalty for offering coverage that fails to pay 60% of the typical population’s health care expenses or for offering coverage that costs any employee more than 9.5% of family income faces a penalty of $3000 annually for each full-time employee who chooses coverage from an insurance exchange and receives a premium tax credit. However, this penalty is capped at the amount of $2,000 per full-time employee minus the first 30 employees. Again, the penalty increases each year by a percentage of growth in health insurance premiums.

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I make a serious effort to be accurate in my writings. These articles are not exhaustive treatises, though, so do not consider them complete or authoritative. Providing this information to you does not create an attorney-client relationship with my firm or me. Do not act upon the contents of this or of any article on our homepage or consider it a replacement for professional advice.

Reprinted with permission from an article submitted for publication in the July, 2012 Southwest Area Human Resource Association newsletter.