Indiana Employer Obligations under Obamacare

We’re less than 6 months away from the end of the current tax year and the start of the 2015 tax year. That’s when a slew of new and postponed employer obligations for healthcare kicks in under the Affordable Care Act.

That has serious implications for employers following, or trying to follow, new tax rules under the Affordable Care Act.

If you employ people, here’s what you need to know

For 2015, the ACA mandates employers with 100 or more “full-time equivalent” employees offer health insurance to a minimum of 70% of employees working more than 30 hours a week.

“Full time equivalent” employees are calculated by adding the number of employees who work 30+ hours per week and the total number of hours worked per month by part time employees divided by 120.

So if you have 200 employees working in excess of 30 hours per week and you have 20 employees working part time at 20 hours each week, you take 200 + (400/120), which is 200 + 3.33 = 203.

If you employ between 50-99 people, you don’t need to provide health insurance if you meet ALL of these conditions and requirements:

  • You cannot reduce the size of your workforce or overall hours of employees worked to avoid paying for health coverage. (You may still reduce your workforce or their hours for a legitimate business reason);
  • You cannot eliminate or reduce health coverage as of February 9, 2014;
  • You must certify these statements to the IRS.

If you employ fewer than 50 people, you’re not required yet to supply coverage for your employees, however SHOP plans are available through healthcare.gov.

“What happens if I just don’t cover my employees?”

If you fail to provide healthcare coverage and just one of your employees obtains coverage and a tax subsidy through a state or federal exchange (there is no state exchange currently in Indiana), you will likely be subject to a penalty from the IRS. For 2015 that penalty is your total number of full time employees, minus 80, multiplied by $2,000. So if you have 200 employees, subtract 80 to get 120, then multiply that by $2,000 to get a penalty of $240,000.

Come 2016, the requirements change (barring more changes to the law), and employers with 50 or more full-time equivalent employees must cover 95% of their workforce working more than 30 hours per week. The penalties also change. Instead of subtracting 80 from the number of full time employees, you only subtract 30. So our earlier penalty example of $240,000 balloons to $340,000.

Reducing your workforce to avoid health coverage is risky, too

If you’re hovering around these employee thresholds, like at 55 employees or 110 employees or thereabouts, you also face potential lawsuits if you reduce your workforce or hours just to avoid providing health insurance. Reducing hours or employees exposes you to individual and class action lawsuits for violation of Section 510 of ERISA, or the Employee Retirement Incoming Security Act of 1974.

Section 510 deals with rights entitled to workers and prevents employers from terminating people trying to obtain those rights.

One assumes that if you currently have 49 employees and just never hire a 50th, you wouldn’t have to provide health insurance. Though some enterprising attorney somewhere may be able to build a case after enough time and evidence from employees to show you’re violating Section 510.

It remains to be seen what penalties arise from employers who have to lay off employees in order to afford coverage for everyone else. These situations will most certainly happen and presumably some will find their way into state and federal courts, but until that happens, we can’t be sure how rulings may get handed down.

Non-compliant coverage can also mean more penalties

Your employees may also sue if their insurance doesn’t comply with the ACA’s benefits mandate. Some of this is still up in the air as cases like the Supreme Court’s Hobby Lobby decision lingers, but assume that if your plans don’t jive with the requirements, like not covering kids up to age 26, or placing lifetime limits on insurance coverage, you may be at risk of lawsuits.

Not meeting the requirements is a judgement most certainly in the favor of the employees and employers will likely have to pay their attorney and court costs, too.

For more help, contact an insurance agent

If you need help navigating these issues, contact an insurance agent or broker today. Your CPA or attorney may be able to advise you on some elements of the law, but health insurance agents and brokers are the most qualified to understand the nuances of the Affordable Care Act, court decisions as they wind their way through the courts, and what your business or enterprise has to cover to avoid penalties.

The National Association of Health Underwriters has a searchable database of agents you can use to find agents near you and specializing in the ACA. Search now.

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