Maximizing Health Care Dollars for Small Employers

MAXIMIZING HEALTH CARE
DOLLARS FOR SMALL
EMPLOYERS
Michael P. James, JD, MBA, CSSGB
Phone: (517) 377-0823
(313) 237-7300
Email: mjames@fraserlawfirm.com
www.linkedin.com/in/MichaelJamesLaw
© 2013 Fraser Trebilcock
Davis & Dunlap, P.C.

The Patient Protection &
Affordable Care Act (ACA)
 Became law in March 2010.
 Supreme Court upholds constitutionality of ACA
June 2012.
 ACA creates:
 Small Business Health Care Affordability Tax Credits;
 Individual Health Insurance Mandate; and
 Employer Responsibility Requirements.

Current Small Business
Health Care Tax Credits
Potential Tax Credits 2013
For-Profit
Up to 35% of employer
contribution to
employees’ health
insurance premium
Non-Profit
Up to 25% of employer
contribution to
employees’ health
insurance premium

Requirements
< 25
Employees
Average
Employee
Wages
< $50,000
Employer must
contribute at least
50% of premium
cost

Requirements
Maximum credit available to employers with 10 or
fewer FTEs and average annual wages of $25,000 or
less.
 For each FTE above 10 FTEs, the credit is reduced by 1/15.
 For each $1,000 above $25,000 in average wages, the credit
is reduced by 1/25.

Which Employees Count?
 Seasonal Workers
 Leased Employees
 Owner of Business
 Family Members of Business Owner

Members of a controlled or an affiliated service group are
treated as a single employer for tax credit purposes.
Which Employees Count?

Calculating the Number of Employees
Calculating FTEs for Tax Credit Purposes - Three Methods:
1) Actual Hours Worked + Paid Leave
 Limit of 2,080 hours per employee, per year
2) Days-Worked Equivalency + Paid Leave
 8 hours for each day
3) Weeks-Worked Equivalency + Paid Leave
 40 hours for each week
Add up the total hours of service the employer pays wages to
employees and divide by 2,080. Round down.

Example: Number of Employees
In 2013, Employer pays
five employees wages for
2,080 hours each, three
employees for 1,040
hours each and one
employee wages for
2,300 hours. If the
employer uses the
“Actual Hours Worked
Method,” how many
FTEs does the employer
have?
5 Employees: 10,400 (5 x 2,080)
3 Employees: 3,120 (3 x 1,040)
1 Employee: 2,080 (max 2,080
for each employee)
Total Hours: 15,600
Total FTEs: 7.5 (15,600 / 2,080)
Employees for Tax Purposes: 7

Calculating Average Employee Wages
1) Add up the total wages paid by employer during the tax year.
2) Divide total wages by the number of FTEs for the year.
3) Round down the result to the nearest $1,000.
The employer’s average wages are $24,000 ($245,786 / 10 =
$24,578.60, rounded down to the nearest $1,000).
Example: In 2013, an employer pays a total
of $245,786 in wages and has 10 FTEs.

Calculating Employer Contributions
1) Employer must pay at least 50% of coverage.
Employer pays at least 50% of the premiums
for each employee enrolled in health
insurance coverage offered by the employer.
Uniformity Requirement:
 The employer is not required to pay the same percentage of the
premium for each employee.
 Required to be at least 50% of the premium for single
coverage; does not have to pay 50% of premium for more
expensive coverage options.

Uniformity Requirement Example:
Employer has 9 employees:
 6 enrolled in single coverage.
 3 enrolled in family coverage.
Premium Single: $ 8,000
Premium Family: $14,000
Employer pays $4,000 per
employee:
• 50% of the premium for
single coverage for each
employee enrolled in
single or family coverage.
• Employer has satisfied
uniformity requirement.

2) Payments must be made under a qualified arrangement.
Only premiums paid to a health insurance issuer.
 Major medical plan, dental, vision, etc.
 Each plan must meet requirements.
Payments that do not count:
 Portion paid by employees;
 Premium payments under a salary reduction
arrangement;
 Employer contributions to HRAs, FSAs, and HSAs.

3) Cap on the amount of employer’s premium payments that
toward tax credit.
Employer’s premium payments may not be
more than the average premium for the
small group market in the state where the
employer offers coverage.
2012 Michigan: Average Premiums for
Small Group Markets
 Single: $ 5,334
 Family: $ 12,936

Cap on Premium Payments Example:
# of
Employees
Type of
Coverage
Total
Premiums
MI Avg.
Premium
Employer
Pays 50%
50% of MI
Avg.
4 Single $6,000 $5,334 $3,000 $2,667
5 Family $14,000 $12,936 $7,000 $6,468
The premium payments for each employee exceed 50% of the
average premium for the small group market in Michigan.
The value of premiums that can be used to compute the credit
is: $43,008 [($2,667 x 4) + ($6,468 x 5)].

Summary
1) Determine the employees who count toward the credit.
2) Calculate the hours of service for these employees.
3) Calculate the number of the employer’s FTEs
4) Calculate the average annual wages paid per FTE.
5) Calculate the relevant employer contributions.
Initial Amount of Credit (Contribution x Percentage)
- Reduction for FTE in excess of 10
- Reduction for avg. wages in excess of $25,000
Total Small Business Health Care Tax Credit

How to Claim the Credit
 Tax-exempt employer:
 Form 990-T with attached Form 8941 showing calculation of credit.
 Other employers:
 Claim the credit on income tax return, use attached From 8941 showing
calculation of credit.
 Credit may be able to be used to offset Alternative Minimum
Tax liability.
 The tax credit can be reflected in determining estimated tax
payments for the year.
 The credit affects an employer’s allowable deduction for health
insurance premiums; deduction is reduced by amount of credit.
 Credit does not affect employer’s employment tax payments.

ACA Individual Health
Insurance Mandate
 The individual health insurance mandate requires nearly all
Americans to purchase and maintain health insurance.
 Qualified coverage evidenced through tax returns.

Health Insurance
Marketplaces / Exchanges
 Health Insurance Marketplaces / Exchanges.
 Open enrollment: October 2013
 Plans go into effect: January 2014
 Michigan will have a federally-facilitated health insurance
marketplace.

Small Business Health
Option Programs
Small Business Health Option Programs
(SHOP)
 Open to all small businesses in 2014.
 Must have 50 FTEs or less.
 In 2014, employer chooses one insurance product for all employees.
 In 2015, employer picks the metal level, employees choose the
insurance product.
 In 2016, SHOP expands to businesses with up to 100 FTEs.
 In 2017+, States have option to expand SHOP eligibility to large
groups.

SHOP: Subsidy / Tax Credit
Small Business Health Care Tax Credits
 Temporarily continues: 2014 through 2016.
 If employer purchases insurance through SHOP:
 For-Profit  up to 50% of contribution to insurance premiums.
 Non-Profit  up to 35% of contribution to insurance premiums.
 Existing requirements remain in effect:
 Up to 25 FTEs; and
 Average Employee Wages < $50,000; and
 Employer must contribute at least 50% of premium costs.
 Fewer than 10 FTEs and average wages less than $25,000 can claim
full credit.
 Same sliding scale for up to 25 FTEs and $50,000.
 Employer contribution continues to be capped.

Tax Credit Summary
Summary
1) Determine the employees who count toward the credit.
2) Calculate the hours of service for these employees.
3) Calculate the number of the employer’s FTEs
4) Calculate the average annual wages paid per FTE.
5) Calculate the relevant employer contributions.
Initial Amount of Credit (Contribution x Percentage)
- Reduction for FTE in excess of 10
- Reduction for avg. wages in excess of $25,000
Total Small Business Health Care Tax Credit

ACA Employer Responsibility
Under 50 FTEs
 There is no insurance
requirement.
 Employers do not have to
offer insurance.
 However, if health insurance
offered, must meet EHBs
and metals.
Over 50 FTEs
 Employers must offer
insurance.
 Insurance must cover at
least 60% of actuarial
value.
 Must be offered to 95% of
full-time employees.

Pay or Play Mandate
 Applies to employers with 50+ FTEs.
 Insurance must cover at least 60% of actuarial value.
 Employer must offer affordable coverage.
 Single employee premium contribution not to exceed 9.5% of
employee’s household income.
 Employer will be subject to penalties if any of its full-time
employees receives a tax credit on the individual marketplace.

Pay or Play FTEs
 FTEs are calculated under the Pay or Play
Mandate as follows:
 Full-time employees averaging at least 130 hours/mo.
+
 Total monthly part-time hours / 120.

Pay or Play Penalties: Two Options
 Large employer does not provide coverage:
 Penalty = $2,000 x (#full-time employees - 30)
 Large employer offers unaffordable or low
value coverage:
 Penalty = the lesser of:
 No coverage penalty; or
 $3,000 x (full-time employees receiving tax credits.

Pay or Play Example
Employer has 55 employees. Employer offers
unaffordable health insurance to employees. As
a result, 10 full-time employees seek insurance
in the individual marketplace and receive a tax
credit. What is the penalty?
Penalty is the lesser of:
 (55 - 30) x $2,000 = $50,000
 10 x $3,000 = $30,000
 Penalty is $30,000

Essential Health Benefits
Required Coverage
1) Ambulatory Patient Services
2) Emergency Services
3) Hospitalization
4) Maternity and Newborn Care
5) Mental Health & Substance Use Disorder Services; Behavioral
Health Treatment
6) Prescription Drugs
7) Rehabilitative and Habilitative Services and Devices
8) Laboratory Services
9) Preventative Wellness Services and Chronic Disease
Management
10) Pediatric Services, Including Oral and Vision Care

Health Exchange Metals
Platinum
88-92% AV
Gold
78-82% AV
Silver
68-72% AV
Bronze
58-62% AV
 ACA uses “Metal Levels” to
standardize insurance products
offered on exchange to individual
and small group markets.
 Based on actuarial values.
 The percentage of total average
costs for covered benefits that a
plan will cover.
 Catastrophic plans allowed for
young adults; < 30.
 Large Group products do not need to
hit metals, just minimum AV of 60%
to avoid penalties.

Grandfathered Health Plans
Grandfathered Health Plans
 Group health plan in existence prior to ACA.
 Protected from certain ACA mandates.
 Very difficult for a company to maintain a
grandfathered health plan.
 Must provide notice to enrollees.
 Must keep records to substantiate status.
 Minimal changes allowed:
 Add new beneficiary; change terms to comply with
law; adopt consumer protects not required by law;
modest adjustments to benefits or cost sharing;
raise premiums; add new members; and renew.

What do Businesses Do?
Provide
Health
Insurance
Send
Employees
to Exchange

Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan Street, Suite 1000
Lansing, Michigan 48933
www.fraserlawfirm.com
Phone: (517) 482-5800
Fax: (517) 482-0887
Fraser Trebilcock Davis & Dunlap, P.C.
One Woodward Avenue, Suite 1550
Detroit, Michigan 48226
www.fraserlawfirm.com
Phone: (313) 237-7300
Fax: (313) 961-1651
Michael P. James, JD, MBA, CSSGB
Phone: (517) 377-0823
(313) 237-7300
Email: mjames@fraserlawfirm.com
www.linkedin.com/in/MichaelJamesLaw
© 2013 Fraser Trebilcock
Davis & Dunlap, P.C.

Maximizing Health Care Dollars for Small Employers

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Maximizing Health Care Dollars for Small Employers