3 Ways Health Care Reform Impacts Your Small Businesses

Although small businesses (i.e. companies with fewer than 50 employees) are exempt from many of the uncompromising requirements of the Affordable Care Act (ACA) – most notably the Employer Shared Responsibility Payment – there are still several requirements and tax changes that small business owners should be aware of regarding the ACA.

Reimbursement of individual policies

Effective January 1, 2014, the IRS generally prohibits employers with two or more eligible employees from reimbursing premiums for individual policies on a pretax basis. This applies to ALL individual policies, even those policies that are ACA compliant.

Previously, employers could reimburse their employees for individual health plans on a pre-tax basis in lieu of providing a group health plan to their employees. Under the opinion of the IRS (IRS Notice 2013-54), such arrangements will be considered group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. The IRS clarifies that these arrangements fail to satisfy the ACA reforms and subjects employers to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee).

For small companies that wish to continue reimbursing employees for their individual health care plans despite the recent IRS opinion and excise tax, we recommend contacting us for the steps necessary to avoid IRS scrutiny in your particular situation.

ATTENTION S CORPS: Shareholders of an S Corporation whose health insurance premiums are paid by the S Corporation should contact their CPA prior to year-end to determine the correct reporting on their W-2.

Waiting Periods

Under the Affordable Care Act, a group health plan may not impose a waiting period that is greater than 90 days from the date upon which the employee becomes eligible for benefits coverage. This applies to both small and large businesses who offer group plans to their employees.

If a group health plan conditions eligibility on an employee completing an employment-based orientation period, this can be added to the 90 day waiting period, provided the orientation does not exceed one month. One month is determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date.

A former employee who is rehired can be subject to the plan’s waiting period again before coverage is resumed. Also, an employee who transitions into a job that is eligible for coverage, when they were previously ineligible (part-time to full-time status), is also subject to the 90 day waiting period.

Requirement to Distribute the Notice of Exchange & Subsidies

We also wanted to remind employers of the requirement to distribute the Notice of Exchange & Subsidies to all new employees on the date of hire, or within 14 days of hire. This is required for ALL employers, whether or not you provide group health insurance.

  • The Notice for employers that do not offer an employer-sponsored health plan, and will also not be offering one in 2015.
  • The Notice for employers who do offer an employer-sponsored health plan to some or all employees.

The Notice obligation applies only to employers subject to the federal Fair Labor Standards Act (FLSA), which includes almost all U.S. employers. The FLSA applies to:

  • Employees of any enterprise engaged in interstate commerce;
  • Employees of any enterprise engaged in the production of goods for interstate commerce; or
  • Employees of an enterprise with annual revenues exceeding $500,000

If your business meets any one of these three criteria, you are required to distribute the Notices.

You are also required to provide the Notice to all W-2 employees, regardless of their status or classification. Notices must also be given to employees who are not eligible for a company-sponsored health insurance plan, but do not need to be provided to 1099 independent contractors who may contract with your company, nor to former employees who are currently enrolled in COBRA coverage.

Affordable Care Act Consulting Services

James Moore, CPAs is now offering Affordable Care Act Consulting Services to help businesses develop an affordable care act strategy that minimizes tax burdens and penalties. With this service, we provide employers with a detailed analysis of their company in order to assess the impact of the employer shared responsibility (play or pay) rules and model various alternative scenarios for employer provided health benefits.

An effective ACA strategy for tomorrow starts with knowing where you stand today. The most important first step is getting the information you need to effectively develop and implement your strategy. Contact the professionals at James Moore, CPAs to initiate the consultation process for your company.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.