- The tax credits are available to those who earn 100-400 percent of the federal poverty level.
- But if a state chooses the Medicaid expansion, then Medicaid covers to 133 percent of the poverty level.
- So, in that state, those who fall between 100-133 percent of the poverty level would get Medicaid instead of the tax subsidy.
Why does the Medicaid expansion matter to companies? As an employer, you will be penalized if you do not offer your full-time employees employer-sponsored coverage that is considered “affordable.” But the penalties are only for the employees who receive the tax subsidies, not for those who are covered by Medicaid, Taylor explains. “If any of your employees leave your plan and get Medicaid coverage, there’s no penalty.”
On full-time employees
Employers must provide all full-time employees an “affordable” plan and provide 60 percent of the plan cost, fulfilling what the Internal Revenue Service calls “minimum value.” The slippery part is what is considered full time.
The definition of a “full-time employee” has been expanded to one who works more than 130 hours per month. But those hours can be calculated over 3 months or up to 12 months, as the employer chooses. This creates an interesting variable for companies that hire large pools of seasonal or temporary workers.
When asked if this formula might entice employers to create predominantly part-time workforces, Taylor commented, “I think in some industries like ours, where it’s too expensive to offer workers coverage, that’s one of the strategies that is likely to be employed.”
But Taylor also says that companies realize the value of attractive benefit plans as recruitment and retention tools. “That’s why evaluating your circumstances and understanding what’s in the best interest of your facility and your workforce recruitment and retention, and then educating your workforce on your strategy is critically important.”
On affordable plans
Paying the penalty
Because of course it’s not a simple formula. The penalty phase is calculated either on the full-time employees themselves or on the entire workforce minus 30, whichever is less.
Let’s say an employer has 200 full-time employees, and the company’s health plan is deemed unaffordable by 20 of the full-timers. Those 20 employees then seek out the state’s health exchange, and the state agrees to provide tax credits.
The resulting fine for the company will be the lesser of the two equations:
$3,000 x 20 = $60,000 -or-
$2,000 x [all 200 employees minus 30] = $340,000
The affordability test is that a full-time employee should not have to pay more than 9.5 percent of his or her W-2 income for an individual premium.
- If the employer doesn’t offer an “affordable” plan, the full-time employee can opt out and receive a tax credit instead. This action will prompt a penalty for the employer.
- For each employee that opts for the tax credit, the employer can be penalized $2,000-$3,000 per full-time employee.
Employers only need to offer one plan that meets the requirements to avoid penalties, Taylor says.
What’s still in flux:
Plenty of finesse details aren’t quite ironed out yet. Lots of discussions are still ongoing concerning how to handle waiting periods, and dependents. Now that a yearly contribution cap has been established for Flexible Spending Accounts, some argue that the “use-it-or-lose-it” model should be changed. And, some parts of the regulations seem to beg for discriminatory business practices, although the rules specify that discrimination among employees on different plans is strictly forbidden.
The two biggest question marks are how much impact the state health exchanges will have and how many businesses may choose to drop coverage altogether and pay the fines. About 24 million individuals are expected to buy coverage through some version of an exchange, the majority of whom will probably get tax credits, Taylor says. “But it’s estimated that 162 million will continue to receive their coverage from their employer, down from 185 million today.”