back to blog

Affordable Care Act: What Now?

The larger your business, the more the Affordable Care Act (ACA) may be weighing on your mind. However, regardless of how large your staff may be, ACA holds implications for your business. With so many provisions and so many (seemingly fluid) deadlines, it’s difficult to decide where to start making sense of it all. Attorney Derek Flynn, shareholder and member of the Employment and Litigation Section of Munsch Hardt Kopf & Harr’s Austin office, gives us some pointers with help from Kirk Ashy, vice president, Employee Benefits, Shepard Walton King Insurance Group’s Austin office (a United Benefit Advisors member).

If you’re confused by the rules and deadline surrounding ACA, you’re not alone. The only certainty, it seems, is no one is quite certain what to do next. Compliance deadlines for large companies have been moved to 2015. And now House Republicans are essentially threatening a partial government shutdown unless the shift to ACA, as we know it today, ceases.

“While I doubt the current measure [in the House] will make it through the Senate as it is now, it could add some more wrinkles to the process and delay the implementation of the ACA even more,” explains Flynn. “The administration and implementation of the Act has been and will continue to go through a series of ebbs and flows.”

In the meantime, there are certain issues every business should address, based on employee count. Some may very well surprise you.

SHOP Around

Beginning October 1, 2013, small businesses and individuals will be able to access the Small Business Health Options Program (SHOP) at as a way to “shop around” for health insurance coverage that can begin as early as January.  For 2014, the SHOP Marketplace is open to employers with 50 or fewer full-time-equivalent employees (FTEs). SHOP will be a way for businesses to control coverage and employee premiums by comparing health plans online.

“It will be the same plans and same premiums that are available right now,” says Ashy. “The difference is the Federal government will help subsidize premiums for low income earners who don’t have access to coverage through their employers.”

If you’ve heard tax credits will be available to small businesses that elect to provide health insurance, you heard correctly. And those credits are no joke: up to 35 percent now, and up to 50 percent beginning in 2014. However, eligibility is a slippery slope. You must have fewer than 25 full-time equivalent employees, pay average annual wages below $50,000, and contribute 50 percent or more toward employee health insurance premiums. By 2014, only those small businesses participating in the SHOP exchanges will qualify.

Understand the NEW Adjusted Community Rating

Simplifying is great…usually. But for small employers with 2 to 50 employees, simplifications to the new adjusted community rating won’t necessarily be a welcomed change for companies with relatively young and healthy employees. The adjusted community rating is a formula used to determine the health risk categories within an organization in order to calculate that organization’s policy rates.

Historically, insurance companies gathered very detailed demographic information on each employee in order to calculate and, therefore, mitigate risk. Under ACA, insurance companies will only be allowed to collect three pieces of information on employees: age, zip code and tobacco use.

“This essentially compresses rates together,” explains Ashy. “The net impact is that younger, healthier groups will pay more, and groups with older demographics may pay less.”

How does this play out for small businesses? Ashy illustrates the point using his own clients as an example.

“One group will see a 40 percent decrease in rates, another will see an increase of 80 percent – that’s the spread I’m seeing,” says Ashy, who is advising clients to change over to the new system either immediately in January if it benefits them, or renewing on their current plan in December to “buy time” if the new rates are higher.

Know How Many Employees You REALLY Have

We’ve all heard that 50 is the magic number when it comes to employee count and the Affordable Care Act. Beginning in 2014, businesses with 50 or more FTEs that do not offer affordable health insurance providing a minimum level of coverage to substantially all of FTEs (and their dependents) may be subject to an employer-shared responsibility payment if at least one of their FTEs receives a premium tax credit to purchase coverage in the SHOP program.

The key here is what is considered ‘full time.’

“Full-time is defined as working 30 hours a week or more on average during a one-month period,” Flynn explains.  To make this determination, employers do not count seasonal workers who work for less than 120 days during the year.  But part-time, non-seasonal workers are counted up on an aggregate basis.

“So the employer could meet the 50+ employee threshold due to employing part-time employees,” Flynn points out. “However, the employer does not have to pay any penalties for failing to provide insurance for those part-time employees.”

Do independent contractors or rented employees count towards the 50?

“They do not,” says Flynn.  “However, the IRS routinely audits companies to ensure they are not misclassifying employees as independent contractors, so it is important to make sure all employees are appropriately classified not only for purposes of the ACA, but in case the IRS initiates an audit.”

Flynn mentions one additional issue when it comes to employee count. It’s called a “controlled group test.”  Basically, companies can’t divide up their businesses into separate entities and keep common ownership to avoid the 50 person employee limit.  “However,” he says, “You can treat each entity separately for purposes of the potential penalties.”

In the end, ACA harkens an era of complicated regulations. Even the most erudite of HR professionals will need expert guidance. “For a long time, health insurance wasn’t very complicated,” concludes Ashy. “But in the future, there will too much work and too many rules to manage alone.”

As we move closer to the deadlines, what ACA issues are weighing on your mind? Will you be ready in time? We’d love to hear from you.

Image credit: alphaspirit / 123RF Stock Photo