Last week, the U.S. House of Representatives passed The Reconciliation Act of 2010 (H.R. 4872) – the “fixes” bill which makes some amendments to the original health care bill. On March 30, President Obama signed the bill into law, completing the year-long process of passing health care reform.
In an effort to inform and educate franchisees, the CFA Government Relations Department has provided below “Question and Answers” to help explain the details of the law to it’s association members (DDIFO is a mem,ber of the Coalition of Franchisee Associations)
Q. Am I mandated to provide health care to my employees?
A. Employers with 50 or more full-time equivalent (see below) employees are required to provide health coverage to their full-time employees who are defined as those who work at least 30 hours per week.
Coverage must be also provided for their full-time employees’ dependents, which includes spouses and children under the age of 26.
In all cases, however, employers do not pay penalties for their first 30 full-time employees.
Example: A franchisee has 60 part-time workers, working the equivalent of 30 full-time workers. The same franchisee also has 40 full-time employees. That franchisee has 70 full-time equivalent employees and therefore must provide health care for his or her 40 actual full-time employees. However, the first 30 full-time employees are waived, so the employer must pay for 10 full-time employees OR pay a $20,000 penalty for not providing coverage (see below).
Q. Am I considered one employer for all of my franchises?
A. An employer is defined by “common control” as laid out in Internal Revenue Code §414. While determining “common control” can be complicated, the National Restaurant Association uses the following threshold: “if two or more restaurants have the same five or fewer owners, collectively owning at least 80% of the shares or interest, those restaurants shall be considered a single employer.” This reasoning would apply to all businesses owned by the same person(s).
Q. What type of health care do I need to provide?
A. The law requires employers to provide “minimal essential coverage.” This is defined as a health benefits package which (1) covers essential health benefits, (2) limits cost-sharing, and (3) has an actuarial value of at least 60% (i.e. pays for at least 60% of the costs).
“Essential health benefits” will be further defined by the U.S. Secretary of Health and Human Services.
Q. What are “full-time equivalent” employees?
A. Employers with less than 50 full-time equivalent employees are exempt from all requirements. Part-time worker hours are considered when determining the number of full-time equivalents employed.
For example, 2 part-time workers working 15 hours per week equals 1 full-time worker SOLELY for the purpose of determining whether the employer meets the 50 full-time worker threshold for the small business exemption.
To calculate whether you fall above or below the threshold, use the following formula:
# of full-time employees (working 30 hours or more a week over a month)
+ Hours worked by all part-time employees/120 hours
# of full-time equivalents
Q. What are the penalties if I do not provide coverage?
A. The penalties are quite complicated and vary based on the number and type of employees:
Employers with 50 or more full-time equivalents who (1) do not offer minimum essential health care coverage to their full-time employees and dependents and (2) have at least one full-time employee who uses the premium tax credit to obtain coverage in the exchange will pay $2,000 per full-time employee per year (minus the first 30 full-time employees if not used for other penalties)
Employers with 50 or more full-time employees PLUS full-time equivalents who:
(1) Offer coverage BUT have at least 1 full-time employee who uses a premium tax credit to obtain coverage through the exchange must pay $3,000 for each employee receiving the tax credit.
(2) Offer coverage but a full-time employee’s contribution is between 8%- 9% of his or her household income: employer must provide a voucher equal to its monthly contribution for the employee to buy coverage on the exchange (not applicable if employee receives a tax credit) to avoid penalties.
Q. Am I eligible for the small business tax credit?
A. For the next four years, until the state exchanges are established, businesses with 10 or fewer full-time-equivalent employees earning less than $25,000 a year on average will be eligible for a tax credit of 35% of health insurance costs. Companies with between 11 and 25 workers and an average wage of up to $50,000 are eligible for partial credits.
Q. Do I have to provide coverage immediately upon hiring the employee?
A. No. An employer with 50 or more full-time equivalents is allowed to wait up to 90 days after hiring an employee before enrolling the full-time employee in the health plan. If the employer waits longer than 90 days, he or she will pay a penalty of $2,000 per employee (or 1/12th of $2,000 per month) for each month not covered.
Employers with more than 200 full-time employees must automatically enroll all new full-time employees. Employees may choose to opt out for another plan if they so choose.
Q. Do I need to notify my employees of this change in the law?
A. Yes. All employees hired on or after March 1, 2013 must be given written notice of the following:
(1) The existence, description and contact information of the Exchange
(2) The employee’s eligibility for credits if he/she purchases a plan through the Exchange and the employers does not provide a plan with an actuarial rate of at least 60%.
(3) The loss of the employer’s contribution (if offered) in which all or a portion may be excludable from income for federal income tax purposes if the employee chooses the Exchange.
Q. When does this requirement become effective?
A. All employer mandates become effective in 2014. A timeline of key implementation dates is as follows:
2010 — Small business tax credit available
2010 — Grandfathered plans comply with some insurance reforms
2013 — Notification requirements for all employers to their employees begins March 1
2014 — Employer requirements begin
2014 — Individual mandate begins
2014 — Health insurance exchanges begin
2017 — Large employer participation allowed in exchanges at discretion of each state