5 Looming Obamacare Obligations Every Entrepreneur Needs to Know About The Affordable Care Act requires complex calculations to avoid substantial penalties.
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With only a few weeks left in the year, smart small business owners and entrepreneurs are thinking about growing new revenue, containing costs and tax planning.
They also need to think about the next round of mandatory compliance regulations that kick in effective January 1, 2016 under the Affordable Care Act (ACA) also known as Obamacare.
According to insurance expert Eric Enser, who has more than 15 years experience dealing with healthcare insurance and tax implications, there are at least five ACA provisions that could surprise the typical business owner.
1. Look back to know current obligations.
The ACA requires large employers, as defined by having more than 50 full-time employees (including full-time equivalents) but fewer than 100, to offer all full-time employees healthcare coverage in 2015. But to calculate this year's obligation, employers have to go back and count their employees from 2014.
"It's a little known fact that employers need to calculate their full-time employees and FTEs from last year to know whether or not they hit the number of employees that triggers compliance with the ACA deadline that took effect on January 1st, 2015. They also have to track this year's employee numbers to determine next year's liability," said Enser. "It's an ongoing process."
2. A new definition of full-time employees.
Under the law it's not just employees that work 40 or more hours per week that require healthcare coverage. The ACA applies to any employee who worked more than 30 hours a week on average---which classifies them as a full-time employee. Obamacare mandates that business owners offer healthcare for that FTE class as well.
"While there were several existing regulations that had defined full-time workers as employees who worked more than 40 hours per week, that changed within the context of healthcare reform," said Enser. "The re-classification of the 30-hour work week as the definition of a full-time employee is new under the ACA. And as more staffers fall into that category, more employers will have to offer coverage."
3. Coverage must be offered to a minimum percentage of full-time employees.
Once it's determined that you're a large employer and have identified all full-time employees you are required to cover, you must offer health insurance to a minimum percentage of that full-time employee base to avoid a $2,000 penalty for each full-timer.
"Healthcare reform requires employers to offer minimum essential coverage to at least 70 percent of their full-time workers in 2015. Believe it or not, that's actually a bit of transition relief this year because employers will be required to offer healthcare to 95 percent of full-time employees or face the $2,000 penalty per worker beginning in 2016," said Enser.
4. Employers must offer affordable coverage options.
Once the aforementioned series of healthcare hurdles has been cleared, it's the responsibility of employers to also ensure that the coverage provides Minimum Actuarial Value (MAV) and is not too expensive for their employees to afford, otherwise that triggers a different penalty altogether - MAV means that at least 60 percent of total cost of the benefit is covered by the medical plan.
"It's not enough to offer employees healthcare coverage. It has to be affordable and provide a minimum value to workers. If it doesn't, and the employee obtains coverage at a state healthcare exchange or somewhere else where they can earn a tax credit, the employer faces a $3,000 penalty in that instance. While the penalty is only applicable to those employees that secure unsubsidized coverage outside the company, it's still a very real cost and concern to business owners," Enser said.
5. Rigorous tax reporting and tracking requirements.
Beyond the healthcare coverage requirements, one of the most complicated provisions of the ACA is the tracking and reporting provisions that are necessary for IRS compliance as well.
"They call it the 1095-C form, the employee statement, and it's a huge document. Employers must track, calculate and report a variety of data points such as the offer of coverage and the lowest cost option to each employee, as well as one of the nine other safe harbor options for every month of the year for every full-time employee. That's a lot of paperwork for most small businesses to manage," said Enser
Compounding these issues is the fact that most small business owners have to play compliance catch-up because of the legal uncertainty surrounding healthcare reform, as recently as this summer, when the future of Obamacare was being decided by the U.S. Supreme Court.
"Many business owners were waiting to see what the High Court would decide about the legality of premium tax credits in the majority of states. When the law was upheld in June, those same professionals had to scramble to do all they could to learn the law and comply with it," said Enser. "That uncertainty has resulted in a general sense of overwhelm for most small business owners, especially given the fact that the final versions of the ACA and IRS forms and instructions necessary to comply with the employer mandates were not even available until September."
For employers that don't want to navigate the ACA waters alone, they might consider hiring a CPA who specializes in this area of work or outsource the entire ACA and IRS reporting process to a professional employer organization (PEO) that caters to small-and-medium-sized business needs with the scale and experience to handle all the provisions of healthcare reform.
"The fact is, compliance mandates multiple years worth of payroll and benefits data, requiring complex calculations with ongoing tracking capabilities. That's often beyond the abilities of a typical business owner," said Enser.