Our viewpoint at Corporate Synergies is that the Affordable Care Act (ACA) is here to stay, and there’s much work to be done. If you’re charged with ACA implementation at your organization, you can’t afford to stop thinking about the law and planning for compliance just because of the delay in the employer mandate. Instead, we are advising clients to begin planning for implementation in 2014.
One piece of the law that is not delayed is the individual mandate, which requires almost all individuals to have health insurance or pay a penalty. To satisfy the individual mandate, employees might find the idea of going on an exchange through the state or federal government an appealing option. However, most people who are offered employer-sponsored health insurance will be disappointed to know that, while they will be able to enroll on a plan offered through the exchange, they will likely not be eligible for a Premium Tax Credit. This is a subsidy designed to make coverage affordable for lower-paid or uninsured individuals.
What exactly is a Premium Tax Credit?
Certain qualifying employees are eligible for a tax credit to help them afford health coverage purchased through public healthcare marketplaces. If an employee qualifies, he or she may choose how much advance credit payments to apply to their health insurance premiums each month, up to a maximum amount. If the amount of advance credit payments the employee gets for the year is less than the tax credit they’re due on their annual federal income tax return, then he or she will get the difference as a refundable credit when filing a federal income tax return. If the advance payments for the year are more than the amount of the credit, then the individual must repay the excess advance payments with the federal income tax return.
Premium Tax Credits are only available to help pay for coverage for employees who:
- Earn between 100% and 400% of the federal poverty level and enroll in coverage through an exchange, and
- Are not eligible for coverage through a government-sponsored program like Medicaid or CHIP, and
- Are not eligible for coverage that meets the employer mandate. Coverage meets the employer mandate if it passes a three-part test: (1) Minimum essential coverage that (2) meets minimum value and is (3) affordable.
Using 2013 figures, individuals would have to be paid between $11,490 and $45,960 (this is part one of the three-part test above) and not be eligible for a government-sponsored plan or an affordable plan offered by an employer to get the Premium Tax Credit.
It is important to note that the cost of the spouse and/or dependent coverage offered to employees by their employers will have no bearing on the individual’s eligibility for the Premium Tax Credit. Instead, the employer must only make sure that one single plan offering meets the employer mandate.
What are employers responsible for?
Employers should ensure that at least one benefit plan offered to full-time employees meets the three-part test described above. If you are offering coverage that meets the employer mandate, then none of your full-time employees will be eligible for a Premium Tax Credit, and there will be no employer mandate penalty assessed to you. This tax credit is what triggers penalties.
Understanding the details of the Premium Tax Credit should be as important to an employer as any piece of the ACA. Education is the key to avoiding unnecessary liability for any ACA violation.
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