The Affordable Care Act (ACA for short) has left businesses and individuals confused about what the health care reform law contains and how it affects them. Even the accountants are confused!
My challenge in this article is to give you the kindergarten primer, and maybe share one little tidbit you did not know already. So here goes:
1 – Insurance companies have new requirements. For example, they cannot refuse coverage due to pre-existing conditions, preventive services must be covered with no out-of-pocket costs, young adults can stay on parents’ policies until age 26, and lifetime dollar limits on health benefits are not permitted.
2 – The law mandates health insurance coverage for ALL individuals. If you’re one of the 45 million or so Americans without health insurance, you will need to get coverage for 2014 or pay a penalty of $95 or 1% of your income, whichever is greater. Low-income individuals may qualify for subsidies and/or tax credits to help pay the cost of insurance.
It is my humble opinion that $95 per person is not really enough, at least for 2014, to convince people to buy insurance. So I’m suggesting that if you don’t have insurance now, it could make sense because of SO much confusion in the health care marketplace, to just watch everyone else make fools of themselves.
Tremendous media attention is focused on the health insurance exchanges or “Marketplace” that opened for business on October 1. The media has left many people thinking everyone has to deal with the exchanges. The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don’t need to do anything.
Many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each state’s Marketplace will have a calculator to assist individuals in determining the amount, if any, of their federal tax credit.
3 – For businesses with 50 or more full-time employees, the requirement to provide “affordable, minimum essential coverage” to employees has been delayed for one year and is not required until 2015. Originally, employers had been required to file information returns that reported details about the health insurance they provided, with penalties to apply if the insurance did not meet standards. Companies complained that they needed more time to meet the reporting obligations, and in response the IRS made the reporting requirement optional for 2014. Without the reporting, the IRS could not determine penalties, so the penalties also were postponed for a year.
Bottom line: The IRS is encouraging companies to comply in 2014 even though there are no penalties for failure to do so.
4 – Businesses with fewer than 50 employees are encouraged to provide insurance for their employees, but there are no penalties for failing to do so. A special marketplace will be available for businesses with 50 or fewer employees, allowing them to buy health insurance through the Small Business Health Options Program (SHOP), but the implementation of SHOP has now been delayed a full year, meaning you’ll just need to keep talking with your current insurance broker.
5 – Businesses with fewer than 25 employees that pay at least 50% of the health insurance premiums for their employees may be eligible for a tax credit for as much as 35% of the cost of the premiums. To qualify, the business must employ fewer than 25 full-time people with average wages of less than $50,000. For 2014, the maximum credit increases to 50% of the premiums the company pays, though to qualify for the credit, the insurance must be purchased through SHOP (or a broker authorized to offer SHOP insurance that is in compliance with the Affordable Care act.
6 – Businesses who DO NOT have a group insurance plan set up for their business can no longer use a SECTION 125 employee plan for deducting qualified medical insurance premiums and expenses on a pre-tax bases. This doesn’t affect dental, vision or dependent care expenses allowed in a 125 plan.
Anyway, confusion continues.
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Copyright 2014 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in keeping his clients OnTrack with bookkeeping, tax, and payroll services for a fixed monthly fee. Learn more about Steve’s exclusive SIX Step system developed for small businesses at www.appletreebusiness.com/map.