New Year Rings in More Changes for Small Business and Health Care Law
Now that you’ve celebrated the birth of 2014 (or more recently the Year of the Horse for Chinese New Year) and packed away those holiday lawn decorations, it’s time to catch up on some several new small business rules impacted by the already controversial health care laws.
Expansion of the Small Business Tax Credit
For the last three years, small businesses with fewer than 25 full time employees who were offered health care coverage were offered a tax credit of up to 25 percent of the plan’s total cost. As of January 1, 2014, the credit expands to provide as much as 50 percent of health expenses. There is a catch. In most instances the credit is available to those employers who purchase their plans through the new government-run small business exchange. Additionally, those businesses who intend to use the same coverage they had last year won’t be receiving the tax credit. Only businesses with 10 or fewer employees will receive the full credit. For companies with 11 to 25 employees, the credit is reduced.
New head count
Not only are employers required to self-determine their business size, i.e. ‘large’, or ‘small’ for the requirements of the mandate, but they will also need to start counting part-time and seasonal employees a new way. Total monthly part-time and seasonal house will need to be added together and divided by 120 to achieve a FTE conversion rate.
New calculations for insurance premiums
Historically, insurance carriers used a company’s industry, claims data and employee’s gender to help determine rates. Now these components will be disallowed along with pre-existing conditions of workers and their family members. Insurers will need to resort to a business’s geographic location and employee tobacco usage as their keys to underwriting new business.
Health insurance tax
A tax levied on the health insurance carriers will be ‘based on each insurer’s share of what is known as the fully-insured market’. Loosely translated, the fully-insured market is the plans most often purchased by small businesses. Say what you will, but small business is viewing this as a ‘small business health insurance tax’ because carriers will be burying the tax into increased rates. It is reported that the tax will result in $8 billion in 2014 and rise to over $100 billion over the next ten years, pushing insurance rates up nearly 2.5 percent.
Notice of Coverage Options
Employers must distribute a Notice of Coverage options document to all new employees within 14 days of the employee’s start date. The document is a written notice describing an employer’s health insurance offerings and/or exchange availability. It should include:
Informing the employee about the existence of an exchange, description of services on the exchange and exchange contact information; and
Notification if the employer’s plan is below the minimum value threshold.
The last of the insurance reforms kick in.
Insurers can no longer impose coverage restrictions based on pre-existing conditions. Small business community rating standards also begin for individual and small business based coverage, which are now based on geography, age and smoker status. There is also a new limit on out-of-pocket maximums for deductibles and cost-sharing.
What isn’t included in this year’s changes?
For groups of 50 plus employees, employers were set to offer ‘sufficient’ health care coverage to their employees. But 2014 also brings with it a caveat that firms would not penalized if they didn’t comply with this requirement in 2014.
Large Group Automatic Enrollment
Covering groups with over 200 employees, 2014 should have brought the requirement to automatically enroll employees into healthcare coverage even if they didn’t elect it themselves. Those new employees that are required to wait over 90 days for their coverage to begin will also have to wait a little longer before the employer will be required to move up the effective date.
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Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
Copyright 2014 Professional Association of Small Business Accountants