Last June, the Patient Protection and Affordable Care Act (PPACA) survived its final major legal challenge when the U.S. Supreme Court left it largely intact. Some of the law’s provisions have already gone into effect. Others that could affect not-for-profit employers will become law in 2014.
If you haven’t reviewed your organization’s current employee health plan in light of the new law, you should do so as soon as possible. Here’s a summary of some of the actions not-for-profit employers are expected to take — and how PPACA can help.
The 50+ rule
The primary employer provision of the health care law applies only to larger not-for-profits. Beginning next year, organizations with 50 or more full-time equivalent employees (FTEs) must offer health insurance or face a penalty. The IRS defines a full-time employee as anyone who works at least 30 hours per week (or an average of at least 30 hours per week).
But to calculate your FTEs, you must also total the monthly hours of all part-time employees, divide that figure by 120 and add the result to the number of full-time employees. (Note that seasonal employees are handled differently.) Employers who fail to provide coverage may face penalties of $2,000 per year per full-time employee in excess of 30 full-time employees.
The plan also must be affordable, which generally means that the employee share of the insurance premium doesn’t exceed 9.5% of the lowest-paid staff member’s household income. (Not-for-profit employers may assume that an employee’s W-2 income represents household income for purposes of determining affordability, but other tests are available.) And plans need to provide adequate coverage — at least 60% of allowed medical costs.
Employers whose coverage is unaffordable or inadequate can be assessed a penalty of $3,000 per year per employee who received a premium credit.
Not all employers need to change their health plans if they don’t meet the new law’s provisions. If your plan was in place on March 23, 2010, it may enjoy grandfathered status and thus be exempt from certain provisions of the act.
Although such plans are allowed to make minor coverage changes, they must continue to offer the same level of coverage or they’ll lose their grandfathered status. They can’t, for example:
• Increase co-insurance rates,
• Significantly reduce employer contributions,
• Significantly reduce benefits, or
• Change annual benefit limits.
Even if you maintain such standards, you aren’t exempt from all of the law’s provisions. For example, you must extend dependent coverage to employees’ children under age 26.
Help for smaller organizations
Although smaller not-for-profits aren’t required to offer health care benefits to their staff members, PPACA encourages them to do so. To offset a portion of such costs, the act extends a credit to not-for-profit organizations with 25 or fewer FTEs who earn wages averaging under $50,000 per year. Not-for-profit with 10 or fewer FTEs with average wages under $25,000 that offer health benefits can deduct 25% of qualified costs from 2010 through 2013. They can deduct 35% of costs for 2014 from their withholding tax liability.
Organizations that exceed either threshold are entitled to a partial credit on a sliding scale. But the credit is phased out when an organization reaches 25 FTEs or average annual wages of $50,000.
The new law also provides for states to set up health insurance exchanges or purchasing pools to help reduce premiums for those seeking affordable coverage. Residents of states that have declined to establish an insurance exchange can take part in federal exchanges. Employers with up to 100 employees will be eligible to participate on Jan. 1, 2014, when they become operational. Those with more than 100 employees are expected to be eligible in 2017.
Don’t risk it
The new health care law is complex, and these are only some of the major provisions that may affect not-for-profit employers. To ensure you’re following the letter of the law and aren’t risking penalties, talk to your tax advisor.
For more information, please contact Jane Pfeifer at [email protected]