Understanding Affordable Care Act: Healthcare Trilogy, Part 3

2014 Healthcare Action Plan

All employers (large or small) should be aware of how the Affordable Care Act (ACA) affects their business. All employers are required to provide new employees with a Notice of Availability of Insurance at the time of hire. For additional information on this notice, please revisit Part 2 of the SmallBiz Builder Health Care Trilogy.

In addition, all employers should track hours of service by workers (unless obviously a Small Employer with less than 50 workers) to determine whether the employer mandate applies to their business and if so, does it take effect in 2015 or 2016. For more information, please revisit Part 2 of the SmallBiz Builder Healthcare Trilogy.

Below are some specific action steps that can be taken now to ensure compliance with the ACA.

Large Employers (100 or more employees for 2015 or 50 or more employees for 2016)  

  • Identify full-time and full-time equivalent employees and their dependents.
  • Consider the potential “No offer” penalty of $2,000 per full-time employee over 30 full-time employees, if one or more employees obtain insurance from the state exchange and qualify for a premium assistance credit. (See related article on page 3 of this issue).
  • Consider the “Inadequate offer” penalty (due to lack of Affordability and/or Minimum value) of $3,000 per employee that obtains insurance from the exchange with a premium assistance credit. The total penalty cannot be larger than the “No offer” penalty. (See related article on page 3 of this issue).
  • Consult with your insurance agent to consider “quick fixes” to your current health plan that may be more cost effective than paying the penalty.
  • Consider converting full-time workers to part-time employment. (See related article on dumping employees on page 3 of this issue).
  • Evaluate other current health benefit plans (Cafeteria, HRA, etc.) offered to the employees and verify they comply with the requirements of ACA.
  • Communicate to employees any changes you are making to your employee benefit plans as a result of the ACA and be ready for questions.
  • Prepare for reporting the required information to the IRS.
  • Consider whether replacing your current health insurance plan with a group plan (including SHOP) is beneficial to the business and its employees.
  • Consider whether dropping health insurance as an employee benefit and increasing employee salaries is more beneficial to the business and employees. This allows them to obtain health insurance coverage (including any premium assistance credit) through the exchange.
  • Evaluate any other health benefit plans (Cafeteria, HRA, etc.) offered to employees and verify their status under the ACA.
  • Consider whether the Small Business Health Care Credit is available for the business (fewer than 25 employees with an average salary under $50,000).

Small Employers (Less than 100 employees for 2015 or less than 50 employees for 2016)  

Before the passage of the ACA in March 2010, individuals were not required to have health insurance. As of January 1, 2014, individuals and self-employed taxpayers now have a healthcare requirement. The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another as a dependent for federal tax purposes is responsible for making the payment if the dependent does not have coverage and does qualify for an exemption.


  • Obtain minimum essential coverage beginning in 2014 for themselves and their dependents, qualify for one or more exemptions from coverage, or be subject to penalty when you file your 2014 individual tax return.
  • Purchase health insurance from the federal or state exchange which may result in a premium assistance credit.
  • Consider applying for a penalty exemption with HHS before the end of the year.

In April 2014, the White House released the following Fact Sheet claiming the ACA is working by giving millions of Americans healthcare security and slowing the growth of health care costs. The press release included the following facts:

  • 3 million young adults gained coverage thanks to the ACA by being able to stay on their parents plan.
  • 3 million more people were enrolled in Medicaid and CHIP as of February, compared to before the Marketplaces opened.
  • Health care costs are growing at the slowest level on record: Lower-than-expected premiums under the ACA will help save $104 billion over the next ten years. Medicare /Medicaid costs in 2020 are now projected to be $180 billion lower than 2010 estimates. In 2016, the average premium for the second-lowest cost silver Marketplace plan will be 15% lower than expected.
  • Up to 129 million Americans with pre-existing conditions – including up to 17 million children – no longer have to worry about being denied health coverage or charged higher premiums because of their health status.
  • In 2013, 37 million people with Medicare received at least one preventative service at no out of pocket cost.
  • Since the health care law was enacted, almost 8 million seniors have saved nearly $10 billion on prescription drugs as the health care law closes Medicare’s “donut hole.”

105 million Americans no longer have to worry about having their health benefits cut off after they reach lifetime limit.

Large Employer Taxes for Health Insurance Plans  

“No Offer” Penalty 

For 2015, large employers with 100 or more employees are subject to a shared responsibility penalty for failure to offer health insurance to at least 70% of their full-time employees, and any employee obtains coverage on a state exchange and receives a premium tax credit or cost-sharing reduction. Beginning in 2016, the requirement extends to large employers with 50 or more employees that fail to offer coverage to 95% of their full-time employees. This penalty is calculated monthly at $167 (1/12 of $2,000) for each month of failure, multiplied by the number of full-time employees greater than 30.

“Inadequate Offer” Penalty 

Large employers (as defined under “No Offer” Penalty above) that fail to offer affordable and/or minimum value coverage are also subject to a penalty calculated monthly at $250 (1/12 of $3,000) for each month of failure for each employee that obtains health insurance on a state exchanges and receives a premium tax credit or cost-sharing reduction. This penalty cannot be greater than the “No Offer” Penalty.

“Dumping” Penalty 

Many employers had thought they could shift health costs to the government by “dumping” their employees to the exchange with a tax free contribution of cash to their employees to help cover the costs of insurance. The Obama Administration does not allow for such arrangements and stated the following:

Large employers with 50 or more employees, who terminate their health insurance plans, are subject to a (penalty) tax of $100 per day for each employee to whom such failure relates. The tax ranges from a minimum of $2,500 up to $500,000, but not to exceed 10% of the amount paid by the employer during the preceding year for group health insurance plans.

  • The tax will continue until the noncompliance is corrected.
  • No tax will be due if the failure is corrected within 30 days of the first person otherwise liable for the tax knew, or exercising reasonable diligence would have known, that the failure existed.
  • The penalty does not apply to church plans.
  • The “No Offer” and “Inadequate Offer” penalties also apply.

For more information, contact Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your bookkeeping, accounting, tax (personal & business) and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kenmore, Mill Creek and surrounding areas.

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