On Mar. 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act of 2010 (PPACA) with the intention of providing comprehensive health care coverage to nearly all individuals. The law is being rolled out in phases and arguably the most significant aspect for employers is set for implementation on Jan. 1, 2014.
“We have found ourselves at the intersection of streets paved with good intentions and unintended consequences,” says Richard Leasia, shareholder at Littler Mendelson, P.C.
Effective Jan. 1, 2014, employers with 50 or more full-time or full-time equivalent employees will have to choose between providing affordable health insurance coverage to qualifying employees or paying a penalty. There is no per se requirement that all employers provide health insurance coverage and employers will need to evaluate the pros and cons of providing health insurance coverage or paying various penalties.
“Each business owner’s analysis should include not only the financial implications of one option over the other, but also issues of employee morale, competitiveness within the marketplace, tax implications and benefits, and potential internal compliance and monitoring requirements,” says Bill Norwalk, tax partner-in-charge at Sensiba San Filippo LLP.
Every company, regardless of size, will need to continue to decide whether and to what extent they will provide health insurance coverage for employees. While the PPACA mandate directly affects only those employers meeting the minimum threshold number of employees, small businesses, some of which are not legally required to provide health insurance coverage, may wish to do so as an incentive for employees, as a means of staying competitive within the market, and/or in order to take advantage of certain tax credits.
At a recent event hosted by Sensiba San Filippo, Littler Mendelson, ABD Insurance and Financial Services, and the Small Business Majority, panelists from each firm discussed the implications of health care reform
on small and medium-sized businesses.
Smart Business spoke with Leasia and Norwalk after the event to gather feedback and to have them answer questions about the basics of health care reform laws and what the laws will mean to businesses from a financial, tax, and legal perspective.
What are the legal implications?
Although the PPACA indicates in general terms what will be required on Jan. 1, 2014, many questions concerning the specific application of the law remain unanswered. A few of the open questions include:
1. When does an employee qualify as full-time or full-time equivalent?
2. What standard will be used when assessing whether the employer-provided health insurance coverage is ‘affordable’?
3. How do contractors affect the analysis?
4. What about seasonal employees?
5. What effect will the PPACA have on current city-specific mandated health care (e.g., San Francisco’s Health Care Security Ordinance)?
Unfortunately, answers to these questions will be dependent on yet-to-come regulations, but business owners should address them with their advisers.
What are the tax and financial implications?
Many business owners remain focused on 2014, but they should not lose sight of some very specific requirements that will be rolled out this year. These include, for example, an implementation of a $2,500 cap on employee contributions to health flexible spending accounts for plans beginning on or after Jan. 1, 2013; W-2 informational reporting for the 2012 calendar year was due for many employers by Jan. 31, 2013; additional notice requirements to employees; and beginning Jul. 31, 2013, there will be the imposition of certain temporary taxes for insured and self-insured group health insurance plans. Additionally, businesses should ensure that they are harnessing the full potential of the various tax credits currently available, including those available to small businesses that offer health insurance coverage to their employees. Now is the time to start planning with your tax adviser.
Throughout the coming year it will be imperative for businesses to examine their particular situation, learn how the PPACA affects their specific workforce, and prepare a plan for implementing the requirements that will go into effect in 2013, 2014 and beyond.
Richard Leasia is a shareholder with Littler Mendelson, P.C. Reach him at (408) 998-4150 or email@example.com. Bill Norwalk is tax partner-in-charge at Sensiba San Filippo LLP. Reach him at (925) 271-8700 or firstname.lastname@example.org.
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