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Affordable Care Act (“ACA”) - Steps Small Business Should be Taking Now to Prepare

In July of 2013, the Obama administration delayed the implementation of the Affordable Care Act’s employer reporting requirements. The reports as proposed would have required employers to provide extensive and detailed information regarding employees and employer provided health insurance coverage. There is hope that the delay will provide regulators time to simplify the reporting requirements. In any event, the fact that the reports will not be required for 2014 means that the IRS will not have the information needed to carry out the ACA’s employer mandate. Small business owners should be using the remainder of 2013 and 2014 to prepare for January 1, 2015, the date that the employer mandate becomes fully effective.

A brief list of the steps business owners should be taking now to prepare follows:

1. Business owners should be using 2014 to determine or confirm if they will be an “applicable large employer” under the ACA. “Applicable large employers” (employers with 50 or more full time of “full time equivalent” employees) are subject to the “pay or play” mandate. Full time employees are those who work at least 30 hours on average each week. The number of “full time equivalent” employees is determined by aggregating the hours worked by all non-full time employees. In determining large employer status, certain related employers under common control are considered to be a single employer. While many employers currently track the hours of employees, others will have to institute tracking systems to determine how many hours employees are working. 

2. Businesses that are “applicable large employers” can use 2013-2014 to decide whether to “pay” or “play.” To “play,” a business must offer health coverage that is “minimum essential coverage,” is “affordable” and satisfies a “minimum value” requirement to substantially all (i.e. 95%) of full time employees and their children up to age 26.  It is not required that employers offer coverage to spouses. 

If the employer does not “play” then it will have to “pay” but only if one of its full time employees enrolls in a health insurance exchange and receives a subsidy. If the employer did not offer any coverage, then the employer will owe a penalty of $2,000 per year (adjusted for inflation) for each of the employer’s full time employees (excluding the first 30). If the employer did offer coverage but that coverage does not provide “minimum essential coverage,” is not “affordable” or does not provide “minimum value,” then it will owe a penalty of $3,000 times the number of full time employees who receive a subsidy on a health insurance exchange. The penalty is capped each month by the maximum potential “no coverage” penalty discussed above.

Employers that pay relatively high wages may not be at risk for the penalty even if they fail to offer “affordable coverage” that provides “minimum value” because health exchange subsidies are only available to individuals with household incomes at least 100% and up to 400% of the federal poverty line.  Likewise, because exchange subsidies are not available to individuals who are eligible for Medicaid, employers with low wage workers may also be at reduced risk for having to pay a penalty.

3. Employers who provide Health Reimbursement Accounts (“HRAs”) will need to decide whether to integrate the HRA with other coverage or drop it. Health Reimbursement Accounts are arrangements in which an employer reimburses an employee for all or a portion of the premium cost of an individual health insurance policy. Some employers have considered dropping their employee health coverage and instead subsidizing employee purchase of individual policies on a health insurance exchange. The IRS issued a notice in September, 2013
indicating that this arrangement would violate the ACA unless the reimbursements are made on an after tax basis and the arrangement meets other requirements.  The IRS notice indicates that HRAs that are integrated with an employer-provided health plan are permissible.

If you have specific questions, please contact Susan D. Baker at or 410-783-6366.

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