Category Personnel/Employment
Title Small Employer Options for the Affordable Care Act's Individual Mandate
Author/s Philip Scott, Esq.
Preview Small Employer Options for the Affordable Care Act's Individual Mandate
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Small Employer Options for the Affordable Care Act's Individual Mandate

By Philip Scott, Esq

Much discussion and analysis have centered on larger employers (defined as having 50 full-time equivalent employees or more) and their duty to employees under the Affordable Care Act's "play or pay" mandate to provide health care coverage to employees. Yet relatively little has been published for small employers. Small employers don't have the requirement to offer health care coverage or pay penalties. However, whether an employee works for a large or a small employer, beginning next year each employee will have to carry health care insurance or pay his or her own individual fines, and this requirement will make an impact on small employers.

The individual mandate requires nearly every person to have qualifying health care coverage for at least 9 of the 12 months each year. If individuals fall short of that, excluding a new farrow exceptions, they will have to pay a fine when they file their taxes. The fines start at a modest $95 or 1 percent of household income, whichever is higher, as the maximum for 2014, but over the next several years it will climb. By 2016, the fine will be $695 per individual or 2.5 percent of household income, and thereafter it will continue to climb with annual cost-of-living increases. For minors the fines will be half the amounts given.1

For small schools, health care insurance may not be an option, even if the government had demanded it. So that leaves employees in a bit of a bind. For schools that feel this is a moral duty to at least help provide some assistance to employees, below is a discussion on the options.

Individual or Spousal Coverage

Many teachers already have health care coverage from their spouse's place of employment, but that does not cover everyone. In fact, the employer may find that those who historically have relied on their spouses' insurance will have to find their own coverage elsewhere. The employer mandate for larger employers does not take into consideration the cost of health care insurance for dependents and spouse; it only requires an "affordable" cost for the employee's coverage. Thus some may find that the cost to insure their spouse and dependents goes beyond what they are capable of affording as prices rise. Chances are an employer will have at least several employees who do not or will not have any source of employee-based health care coverage.

Those who fall into the uninsured category have the option of purchasing individual plans. That will continue as the state and federal health care exchanges (or as the administration is renaming them, "Health Insurance Marketplace" plans) are scheduled to be available in October of 2013. However, one key note everyone should consider is that once the open enrollment period ends for the health care exchanges, then individuals cannot enroll in a plan until the next year's open-enrollment period. This is significantly different than being able to enter the public market at will and purchase or change a plan when needed. The exchanges will look more like an employer-provided plan in this regard. As part of that October launch, employers will be required to give notices to employees about the exchanges and their opportunities to join in them. It is yet unclear how affordable these plans will be, but considering what the average pay for Christian school teachers is and the usual higher cost for individuals to find their own coverage, many still may find themselves priced out of health care insurance. That being said, many, if not most, of a small school's employees will qualify for at least some federal aid in paying for their own individual plans they purchase from the health care exchanges. 

Small Business Health Options Program

The Small Business Health Options Program (SHOP) will be another component of the health care exchanges, but it will only be open to small businesses. The benefits of SHOP plans have been touted as being more user-friendly for companies to see what options are available, possibly lower cost for employer-based plans and a chance for the employer and the employee to pay for coverage with pretax dollars. As with the individual health care exchanges, there is little more than speculation at the time of this writing as to the cost of SHOP plans. SHOP and the individual exchanges are scheduled to open at the same time. Chances are there will not be significant change one way or the other from the cost of employer-based plans already available. Differences in SHOP programs will also vary from state to state, and the benefits of one state SHOP may not be present in another state. All this points to a wait-and-see approach.  

Small Business Health Care Tax Credit

For-profits and nonprofits can take advantage of the Small Business Health Care Tax Credit. In fact, many churches have taken advantage of this credit over the past several years since it has come into law. Essentially, employers have to meet three requirements to qualify for the credit. First, employers must have fewer than 25 full-time equivalent (FTE) employees during the tax year in which they are claiming the credit.2 [Put "2" in superscript for note 2.] Second, the average annual wages for all employees cannot equal or exceed $50,000. Starting in 2013, this wage limit will be adjusted annually to keep with inflation. Third, employers must pay at least half of the employee-only health care insurance premiums. Dependent and spouse coverage costs do not enter into this equation. The resulting refundable tax credit is up to 25 percent of the cost a nonprofit employer paid for employee health care insurance. Starting next year, that amount will be raised to 35 percent for nonprofits. If you believe your school might qualify, visit www.irs.gov and search the site using the exact title of this section.

FSA/HRA

A flexible spending account (FSA) is an employer-created account that allows employees to set aside dollars from their pay to use for their health insurance and medical costs. The benefit of such a plan to the employer is the relatively cheap cost to set these up for employees. The benefit to employees is that any qualifying expenses can be paid with pretax dollars, thus lowering their overall tax burden. FSAs can be used as a reimbursement program, or many programs offer debit cards that allow employees to directly pay for qualifying cost at the time payment is due. The biggest downside is that balances do not carry over from year to year. If the balance is not used by the end of the year, it's lost.

A health reimbursement arrangement (HRA) is another type of employer-created account, but this is funded by the employer for the benefit of the employees. This is wholly owned by the employer, and it largely follows the design wishes of what the employer wants to offer to its employees. Unlike an FSA, this account is strictly a reimbursement program. The benefit to the employer is in knowing the set cost for health care benefits to one's employees, and any unused balance for the year remains in the employer's account. The employee benefits by having usually nontaxable reimbursements for medical expenses. Most small schools may not be able offer such a program because of the cost involved in funding such a program. For schools that find an interest in HRAs and FSAs, both can be offered at the same time to help cover the cost of employee medical expenses.

Christian Ministry Cost-Sharing Programs

The Affordable Care Act (ACA) specifically exempts persons from the individual mandate if they are a part of a health care sharing ministry (HCSM). However, not all HCSMs will qualify an individual for the exemption. Among the requirements is a particular important grandfather clause that only allows HCSMs that have been in existence since 1999, essentially limiting the pool of qualifying HCSMs to the big three: Medi-Share, Samaritan Ministries, and Christian Healthcare Ministries.

It is important to note that these are not health care insurance companies, nor do they offer guaranteed coverage. Each plan works off a biblical understanding of carrying one another's burdens (Galatians 6:2 and generally the book of Acts). Consequently, members pay a monthly amount to be in the sharing program, with those monthly fees either directly going out to other members in need or going to the organization's office, where they will be distributed to the members in need. These groups do have shortfalls from time to time in a given month in which the needs exceed the incoming payments, but those seem to be rare. In those months, an across-the-board cut of payments will be felt by all in need for that month. Each program also has its own particulars and oddities that individuals need to pay very close attention to. Some plans don't cover maternity or do so only with an additional level of coverage. Others exclude or limit coverage for those who have or have had cancer, diabetes, heart problems, or other preexisting conditions. Some, if not all, exclude payments for long-term prescription drugs. The trade-off is in the cost. These plans can start as low as $21 for individuals and $109 for a family per month. Traditional health care insurance premiums cannot come close to these recurring costs.

While these programs are not as robust as most traditional insurance plans, they cost a fraction of what traditional insurance charges. They seem to fill a middle role and offer another option for those who either cannot afford traditional health care insurance or choose not to participate in the traditional system. These can be significant and beneficial options for covering health care expenses if one is careful to understand the limits and risks of joining an HCSM. Most, if not all, HCSMs also offer employer-based plans.

Options

For schools looking to provide health benefits, the easiest answer is traditional health care insurance. For most small schools, that easy answer is also the most expensive and unattainable answer. A relatively inexpensive option that greatly benefits employees is the FSA. The cost for paying a company to administer an FSA program can be minimal, but the benefit is substantial for a school's employees; this can often be a first step for small employers. A bigger step is to offer an HRA or a small stipend to help offset some medical costs. A system some small companies have opted for is to combine an FSA and an HRA with an HCSM, with the hope of allowing the tax benefits of an FSA and an HRA to cover some of the gaps in an HCSM policy. The cost here can vary greatly depending on what level of contribution the employer provides, which can range from nearly none (simply administering the FSA and company-based HCSM programs) to helping to cover some or all of the associated cost (HRA along with covering part of the HCSM monthly fees).

The cost of offering health care insurance has always been a struggle for small schools. For those dedicated to trying to help employees in some form or fashion, there are some options that can cost significantly less than traditional health care insurance plans. For some that will mean the difference between some level of health care coverage and no coverage at all.  

[Editor's Note: ACSI does not endorse or suggest that any school or individual join an HCSM; we do, however, want you to know what options are available. Schools and individuals should always seek competent, professional advice before making such decisions.]  

Notes

1. There are caps on what the maximum fines would be, but some of those caps are not currently known since they will change year to year as other yearly costs, as measured by the federal government, change. Visit www.healthcare.gov for more information.

2. Not to add confusion to the mix, but what is considered full-time equivalent (FTE) for this tax credit and what is considered FTE for the Affordable Care Act are different definitions. For this tax credit, complete the following equation: Full-Time Employees + Full-Time Equivalents of Part-Time Employees (total annual hours of part-time employees ÷ 2,080) = Total Number of Full-Time Equivalents. What this means is that an employer can have more than 25 employees working as long as they are not all full time and still qualify for the tax credit.  

LLU 24.1

Notice: This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It has been provided to member schools with the understanding that ACSI is not engaged in rendering legal, accounting, tax, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Laws vary by jurisdiction, and the specific application of laws to particular facts requires the advice of an attorney.  

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