Before jumping on the new healthcare bandwagon, here are a few things business owners should be aware of.
So, you are have less than 50 employees , but you choose to offer your employees coverage. You need to know about the Cadillac Tax, which will take effect in 2018. The tax applies as a 40% excise or penalty if a plan has a premium (or value) of more than $10,200 for employee only coverage and more than $27,500 for family coverage. (The 40% is applied to the premium amount over those dollar figures to determine the tax penalty.) Theoretically, the tax was designed to hold down the value of insurance evenly, so that no matter what income level, everyone should enjoy the same level of tax break for their health insurance.
Usually, if the carrier raises its premium, then the employer increases the deductible in order to keep costs down. However, it will be difficult if not impossible to stay within the $10,200 or $27,500 depending on who is receiving coverage. The new law will cap the deductibles for employers under 100 employee to $2,000 single and $4,000 family, which means you cannot raise deductibles over those amounts even as premiums increase. Estimated increases just due to reform are estimated at 38%. And experts say that it is only a matter of time before premiums will exceed those limits even based on medical trend.
Currently, the best thing for owners to do is the have their insurance brokers calculate when the Cadillac Tax will apply given their current health-care plans. The tax will go into effect in 2018, but many people may still not be above the range until a few years later. Of course, the minimum bronze coverage level will maintain itself longer than a platinum coverage. Once the time limit is determined, business owners can rearrange health-care plans (perhaps switch to carriers with lower premiums) to continue to avoid the tax. Again, this is not a permanent fix—more than 60 percent of plans are estimated to be subject to the Cadillac Tax by 2020. But it can allow employers to avoid the tax for some amount of time.
The government can and will be enforcing this mandate.
- Most small businesses will not have to face the $2,000 penalty per uninsured employee or the related affordability penalty because they are not required to provide insurance.
- However, larger employers over 50 employees face that $2,000 penalty as well as a $3,000 penalty per affected employee if the cost of the employee’s coverage exceeds 9.5% of the household income. Employers are at risk for penalties because they don’t necessarily know what an employee’s household income is.
Government enforcement against employers over 50 is easy—they will connect Social Security Numbers to policies and W-2 and W-3 filings to determine if it is affordable. The recommendation is to model coverage to compensation, and err on the side of caution by providing a lower level, affordable health-care plan.
Small Employer Tax Credit
Business owners who have less than 25 full-time employees and cover at least 50% of employee health insurance may be eligible for a tax credit. Employees also must have an average wage below $50,000 and cannot have ownership in the business, self-employment, or be a dependent.
Visit the IRS site to get more information. http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit:-Questions-and-Answers
Most important, as a small business, it is your prerogative to provide whatever makes the most business sense without penalty. The federal government has reasons why small businesses are not required to cover their employees—the need to maintain stability of the small business sector. After all, the idea is not to run small businesses to the ground. Small business viability is crucial economically, while the universal access to healthcare is merely socially important.
NARI partner Hub International Insurance Associates developed tools for comprehending the new mandate and will be updating with necessary revisions and changes. Visit www.hubhealthreform.com to get more information.