Health Care Reform Strategies for Small Employers

HEALTH CARE REFORM
STRATEGIES 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.

Why is Health Care Reform
Scaring Small Employers?
 Does health care reform apply to my business?
 What is it going to cost me?
 Do I have to provide health insurance to my
employees? Are there penalties?
 Will the changes ever stop?
 It’s just too confusing…
 Am I missing something….?
 Who can I turn to for help?

Be Prepared for
Health Care Reform
 Are you a large or small employer?
 Secret cash bonus for small employers.
 Develop a strategy that works for your business.
 Make your employees love you.
 HCR checkup for your business.
 Develop a compliance program.

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

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.

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 Essential
Health Benefits 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.

Are You a Large
or Small Employer?
How do you Determine Your FTEs?
 1) Evaluate employees’ monthly hours for each month:
 Number of full-time employees working 130 hours or more in a month
+
 Total part-time hours in a month / 120
 2) Add the monthly calculations.
 3) Divide total monthly calculations by 12.
 4) Round down to the nearest whole number.
The FTE is the average of each monthly calculation across the
preceding calendar year.

Are You a Large
or Small Employer?
Example 1
Full-Time Employees:
Employer has 45 full-time
employees.
Employer is a small employer:
• Employer has 45 FTEs.

Are You a Large
or Small Employer?
Example 2
Full-Time and Part-Time Employees:
Employer is a small employer:
• 25 Full-time employees
• 10 Full-time equivalents
for part-time employees
• (1,200 / 120 = 10)
• 35 Total FTEs
Employer has:
 25 full-time employees; and
 10 part-time employees, who
each work 120 hours per
month.

Are You a Large
or Small Employer?
Example 3
Full-Time and Part-Time Employees:
Employer is a large employer:
• 10 Full-time employees
• 50 Full-time equivalents
for part-time employees
• (6,000 / 120 = 50)
• 60 Total FTEs
Employer has:
 60 part-time employees, who
each work 100 hours per
month.

Are You a Large
or Small Employer?
Example 4
Seasonal Employees:
FTE Calculation:
• 25 FTEs for 8 months
• 125 FTEs for 4 months
• 58 FTE average across 12
months
Employer owns a cherry orchard.
The employer has:
 100 seasonal employees.
 The seasonal employees are
employed for 4 months and
work at least 130 hours/month.
Employer is a small employer despite having more than 50
FTEs on average. Workforce did not exceed 50 FTEs more
than 120 days. Employees working ≤ 120 days do not count.

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.

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.

Secret Cash Bonus
for Small Employers
Small Business Health Care Tax Credits

Secret Cash Bonus
for Small Employers
Potential Tax Credits 2010 - 2013
For-Profit
Up to 35% of employer
contribution to
employees’ health
insurance premium
Non-Profit
contribution to
employees’ health
insurance premium

Secret Cash Bonus
for Small Employers
Potential Tax Credits 2014 - 2016
For-Profit
contribution to
employees’ health
insurance premium
Non-Profit
contribution to
employees’ health
insurance premium

Secret Cash Bonus
for Small Employers
Requirements
< 25
Employees
Average
Employee
Wages
< $50,000
Employer must
contribute at least
50% of premium
cost

Secret Cash Bonus
for Small Employers
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.

Secret Cash Bonus
for Small Employers
Which Employees Count?
 Seasonal Workers
 Leased Employees
 Owner of Business
 Family Members of Business Owner

Secret Cash Bonus
for Small Employers
Members of a controlled or an affiliated service group may
be treated as a single employer for tax credit purposes.
Which Employees Count?

Secret Cash Bonus
for Small Employers
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.

Secret Cash Bonus
for Small Employers
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

Secret Cash Bonus
for Small Employers
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.

Secret Cash Bonus
for Small Employers
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.

Secret Cash Bonus
for Small Employers
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.

Secret Cash Bonus
for Small Employers
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.

Secret Cash Bonus
for Small Employers
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

Secret Cash Bonus
for Small Employers
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
Secret Cash Bonus
for Small Employers

Secret Cash Bonus
for Small Employers
In 2014, a for-profit employer
will pay a total of $157,500 in
wages for 15,400 hours of labor
from her employees. The
employer plans to offer health
insurance to her employees
through a health insurance
product from the SHOP. The
employer only plans to offer
single coverage, which will have
a total premium of $5,500. The
employer plans to pay 50% of the
single coverage premium.
• All employees are regular,
full-time employees.
• Employer has 7 FTEs.
(15,400 hours / 2,080)
• Avg. Annual Wages are
$22,500. ($157,500 / 7 FTEs)
• Total Employer Contribution
is $18,669. ($2,667 x 7)
• Employer tax credit is
$9,334.50 (50% of
contribution)
• No need to adjust down.
Fewer than 10 FTEs, average
wages less than $25,000.

Secret Cash Bonus
for Small Employers
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.

What Strategy Works
for Your Business?
Provide
Health
Insurance
Send
Employees
to Exchange

Make Your
Employees Love You
 Involve employees in decision-making process?
 Communicate with your employees:
 If providing coverage?
 Providing coverage despite not being required to do so.
 Culture of business; potential advantage over competitors.
 If not providing coverage?
 Cost to business; other forms of assistance.
 Be prepared to assist employees with federal exchange.

Make Your
Employees Love You
Health Insurance Marketplace Notice
 An employer is required to provide notice of the availability of
the Exchange, informing employees that:
 1) the existence of the Marketplace;
 2) that employees may be eligible for a subsidy under the
Marketplace if the employer’s share of the aggregate cost of
benefits is less than 60%; and
 3) that if the employee purchases a policy through the
Marketplace, he or she will lose the contribution to any health
benefits offered by the employer.
 Notice must be provided to each employee at the time of hiring.
 For existing employees, the notice must be given no later than
October 1, 2013.

Health Care Reform
Checkup for Your Business
 Is your business compliant with all the current health care
regulations?
 Many regulations went into effect in 2012 and 2013. Have you
made the necessary adjustments?

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.
Fraser Trebilcock
Health Care Reform
www.mihealthcarelaws.com

Health Care Reform Strategies for Small Employers

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