With Edward Snowden on the run, George Zimmerman on trial for killing Trayvon Martin, Aaron Hernandez being arrested for murder and the tragic wild fires in Arizona dominating the news recently, a political battle that creeped its way into the sports world, went largely unnoticed by most people.
Major portions of the Patient Protection and Affordable Care Act (ACA) or ‘Obamacare’ as it is widely referred to, are set to go into effect in the next few months. The Obama administration went to great lengths to ensure the ACA was passed and after a long bipartisan battle, it was signed by President Obama on March 23, 2010. As the implementation of the ACA continues and key portions are scheduled to take effect in the coming months, the Obama administration is looking to inform families and small businesses of the benefits they may be eligible for. In essence the administration is involved in a public relations campaign to promote the ACA.
Last week, Health and Human Services Secretary Kathleen Sebelius said the NFL and “variety of sports affiliates” had been “very actively and enthusiastically engaged” with the administration over the idea of promoting the ACA. Not to be outdone, the Republican party jumped into action with two Republican Senators urging the sports leagues in a letter, not to cooperate with the administration in helping to promote the ACA. The NFL bowed to the pressure and has issued a statement declining any cooperation or support of the administration over the ACA.
An Outline for Business Owners
The ACA is a complicated piece of legislation and although this is primarily a sports related blog, here is an outline of how it will effect small to medium sized businesses as it takes effect over the next few months and years:
The Purpose of the ACA
The purpose of the ACA is to ensure Americans have access to quality, affordable health insurance. Beginning on January 1, 2014 the Small Business Health Options Program (SHOP) will take effect and depending on whether a business has 50 or fewer employees or greater than 50 employees, different provisions will apply. Until then, businesses with 25 or fewer employees may qualify for a tax credit if certain requirements are met. In addition, the ACA requires states to create an Exchange, a competitive marketplace for individuals and small businesses to purchase insurance.
Prior to January 1, 2014
Businesses with 25 or fewer employees:
Under the ACA, prior to 2014, businesses with fewer than 25 full-time or full-time equivalent employees with average pay below $50,000 annually, may qualify for a small business tax credit of up to 35% if the business contributes 50% or more toward employees’ self-only health insurance premiums.
For businesses with greater than 25 employees, no changes take effect until January 1, 2014.
Beginning on January 1, 2014
Businesses with 50 or fewer employees:
Beginning on January 1, 2014, the tax credit jumps to 50% for those small businesses choosing to participate in SHOP. In addition to the tax credit, an employer participating in SHOP will be able to take advantage of a number of other benefits including:
- Allowing the employer to choose the level of coverage it offers to employees and how much it contributes towards their coverage
- Limits on higher premiums with businesses with older employees and a business with an employee with higher health care costs will no longer increase the groups premium
- Plans will be run by private health insurance companies as they are now but they will be required to present their cost and coverage information in a standard format allowing for easy comparisons
Businesses with 50 or more employees:
Beginning in 2014, employers with 50 or more full-time or full-time equivalent employees that do not offer affordable health insurance that provides minimum value to their full-time employees may be required to pay an assessment if at least one of their full-time employees is certified to receive a premium tax credit in an individual health insurance Marketplace. There are two situations where large employers may face a penalty for workers who get subsidized coverage in an Exchange:
- Large employers who do not offer coverage and have at least one employee who receives subsidized coverage through an Exchange, are assessed an annual fee of $2,000 per full-time employee, but the first 30 employees are excluded
- Large employers who offer coverage that is either unaffordable or inadequate and have at least one employee receiving subsidized coverage in the state’s insurance Exchange must pay an annual fee of $3,000 per full-time employee with the first 30 employees excluded. The maximum fee that can be assessed is equivalent to a penalty of $2,000 per full-time employee.
- Coverage is considered unaffordable if the employee has to contribute more than 9.5% of their household income for their premium
- Coverage is considered inadequate if the plan does not cover at least 60% of the employees medical costs on average.
Businesses with fewer than 50 employees are exempt from any penalties.
Attribution – How do you determine the number of employees?
A full-time employee for purposes of the ACA is one who works 30 hours per week. However, employers cannot simply cut their employees hours to exclude themselves from the Act’s mandate; full-time equivalent employees are also considered in the calculation. According to the IRS, to determine the number of full-time equivalent employees, divide the aggregate number of hours of service of employees who are not full-time for the month by one hundred and twenty (120). I.R.C. §4980H. The result will be the number of full-time equivalent employees.
Recognizing that businesses can simply split up their workforce into different entities to avoid having to provide costly coverage, the ACA looks to the Internal Revenue Code’s (IRC) “control group” test to determine whether a group of corporations are under “common control” to calculate the number of employees for purposes of the regulations. A “controlled group” of corporations includes parent-subsidiary groups, brother-sister groups, and combined groups. I.R.C. §1563.
In a parent-subsidiary group, businesses are considered under “common control” if the parent corporation owns any of the following:
- At least 80% of the total outstanding voting power of all classes of stocks of a corporation;
- At least 80% of the total value of shares of all classes of stock of a corporation;
- At least 80% of the profits interest in a partnership;
- At least 80% of the capital interest in a partnership; or,
- Ownership of a sole proprietorship.
In a brother-sister group, businesses are considered under “common control” if the same 5 or fewer persons (individuals, estates, or trusts) own:
- More than 50% of the total combined voting power of all classes of stock of a corporation;
- More than 50% of the total value of shares of all classes of stock of a corporation;
- Aggregate of more than 50% of the profit interest in a partnership;
- Aggregate of more than 50% of the capital interest in a partnership; or,
- One of the 5 or fewer owns a sole proprietorship.
A combined group of businesses are considered under common control if the group consists of three or more corporations, one of which is a parent corporation and is a part of a brother-sister group as well. See Id.