What Nonprofits Don't Know About Healthcare Reform Can Hurt Them
Take-away. The federal Patient Protection and Affordable Care Act (“ACA”) enacted by Congress in 2010 will affect nonprofit organizations as much as for-profit companies. All nonprofits should determine if they are “large employers” and are subject to the penalties imposed by the ACA if their health plans fail to provide a minimum level of coverage to their full-time employees or if benefits offered are not “affordable.” On July 2, the Obama Administration announced it was delaying until January 1, 2015 the effective date of the employer mandate, which includes fines for employers who do not provide qualified and affordable health care and new reporting requirements. Nevertheless, there are still good reasons for nonprofits to focus on their health care plans now. The postponement will give employers the ability to roll out modified or new health care plans without risking expensive penalties. And, employees should be reminded that their obligations to obtain health care coverage, either at work or via a state health benefit exchange, commences on January 1, 2014. Employees who obtain health care coverage from an exchange may be eligible for premium tax credits. Nonprofits, like other companies, also will have to review new guidance for the transition that the Obama Administration says will be issued this summer.
Are you a "large employer"? The first calculation a nonprofit must make is whether it is a “large employer” subject to the ACA’s penalties, known as Employer Shared Responsibility payments. Under the current guidance, if in 2013 your organization had at least 50 full-time employees, in 2014 it is a “large employer.” (Keep in mind that the calculation may be bumped to 2014 because the effective date of the shared responsibility payments has moved to January 1, 2015.) But even organizations that employ fewer than 50 may be considered a “large employer.” The reason is that the ACA requires an employer to count full-time equivalents, not just full-time employees, to determine if it qualifies as a “large employer.” Thus, if an organization has 40 full-time employees (who average at least 30 hours per week) plus 20 half-time employees employed 15 hours per week on average, this is equivalent to 50 full-time employees. If the number of employees is right around 50, an organization will have to do the math each year to see if it will be considered a “large employer” for the following year. There is a challenge for employers whose work force dipped below 50 in any given year. Under the existing rule, the employer can pick a look-back period of any 6-month consecutive period to determine if it meets the 50 full-time employee threshold for the following year. There are special rules for dealing with salaried employees who do not keep track of their time and seasonal workers.
Do you have affiliates? There’s more. If two or more companies have a common owner or are otherwise affiliated, all such companies are combined for the purpose of deciding if they employ at least 50 full-time employees or their equivalents. The rule renders each affiliated company a “large employer” even if, on its own, it employs fewer than 50 full-time employees.
Is your health care plan affordable? Starting in 2015, a large employer will be hit with an Employer Shared Responsibility payment, if it fails to offer health insurance coverage to 95% of its full-time employees or, if the offered coverage is not “affordable” or does not provide “minimum value.” Coverage is not “affordable” if it would cost the employee more than 9.5% of the employee’s annual household income. Coverage does not provide “minimum value” if, according to a calculator that will be made available by the IRS and Department of Health and Human Services, the plan fails to cover at least 60% of the total allowed cost of benefits that are expected to be incurred by the plan.
Penalties. If the employer fails to meet either test, it has to pay the piper. If the employer fails to meet the coverage requirements, and at least one full-time employee gets a premium tax credit via an American Health Benefit Exchange, which each state is required to have starting on January 1, the employer owes a payment equal to the number of its full-time employees employed for the month, minus 30, times 1/12 of $2,000. If the plan offered is not “affordable” or does not provide “minimum value,” the employer will be tagged with a monthly payment equal to the number of full-time employees who receive a premium tax credit for the month times 1/12 of $3,000. The payment is capped so that the penalty for coverage that is not affordable or does not provide minimum value will not exceed the penalty for providing no coverage.
And in D.C… For D.C. small-business employers, there is an added wrinkle. Under a statute passed in June, health insurers that offer individual or small group health benefit plans will be required to do so for employers who have plans in 2013 exclusively from the District’s health benefit exchange starting in 2015. Small group health benefit plans offered in 2014 to any small businesses not insured in 2013 will have to be offered via the exchange.
Summary. Nonprofits should review their situations with their legal advisors and determine if their group health plans offer a minimum level of coverage and are “affordable” and otherwise comply with the ACA. They should also consult with their legal counsel as to new guidance that likely will be issued this summer to see if the rules of the road have changed. In this way, nonprofits will be prepared for the dramatic changes that the ACA will establish in the workplace commencing in 2015.
If you have questions, contact Theodore P. Stein, Esquire, at firstname.lastname@example.org or (301) 804-3617.