The Affordable Care Act, today
Where we stand after the Supreme Court’s ruling
The U.S. Supreme Court in King v. Burwell, has ruled the tax subsidies for health insurance provided by the federal government to citizens in the 34 states that have not established health insurance marketplaces or exchanges are legal. That means some six million people, including the nearly 3.5 million in small-business plans and small-business owners, self-employed professionals, and early retirees who depend on subsidized healthcare costs, will continue to receive them.
Unfortunately, despite those subsidies and other tax incentives, healthcare costs continue to skyrocket. And, according to a report from the Urban Institute, a Washington DC–based think tank, small businesses and medical practices are among those most vulnerable to steep healthcare cost increases.
The state of the Act
Admittedly, the Affordable Care Act (ACA) provides chiropractors and their practices with insurance options, increased buying power via the government-sponsored marketplace—and an overwhelming amount of confusion and paperwork. What can you do to keep healthcare costs manageable while complying with the ACA’s updated and ever-changing rules?
First, it should be understood that the ACA’s taxes and tax credits are based on the number of full-time equivalent employees (FTEs) and their average annual wages, not solely on the number of full-time employees. In simple terms, FTEs equal the total number of full-time employees plus the combined number of part-time employee hours divided by 30.
Seasonal employees, contractors, practice principals, and business owners don’t count toward the total.
Other than the escalating costs, be aware of the ACA’s downside: The seemingly negative impact of the “employer mandate” that stemmed from employers reportedly cutting hours. While many of the earlier claims and reports were overdramatized, the impact of the ACA is all-too-real for many larger practices and businesses.
Of those who are required to comply, only truly large businesses that don’t currently offer benefits and employ many low-wage, full-time workers face truly hard decisions. Those businesses offering higher wages typically already provide benefits, while smaller operations (with between 50 and 100 FTEs) will benefit greatly from not owing the fee on the first 30 employees. So, a business or practice with 100 FTEs and 60 full-time workers may only owe the fee for 30 employees, assuming they currently insure no full-time employees.
It’s safe to say the smaller the practice or business, the better the tax breaks. After all, the ACA provides small practices and businesses with affordable insurance options, cost assistance, and increased buying power via the Small Business Health Options Program (SHOP). Employers with fewer than 50 FTEs can use the SHOP to get better deals on employee insurance, but aren’t mandated to do so.
Consider a few of the ACA’s other applicable rules:
Small practices can see up to a 50-percent reduction in their share of the cost of employee Employers with fewer than 25 FTEs, paying average annual wages below
$50,000, qualify for tax credits to help pay employee healthcare Employers with 10 or fewer FTEs, paying annual average wages of
$25,000 or less, qualify for the maximum credit of 50 The amount employers do pay is tax deductible and can be carried forward or backward.
Form 8941, Credit for Small Employer Health Insurance Premiums, must be filed to claim the tax credit—all the way back to 2010, as the credit is
Thanks to the ACA, employers can offer more and better-quality In fact, because small practices and businesses are able to shop for group health plans on their state’s health insurance marketplace via the SHOP, a practice now has the same buying power as larger businesses. Along with tax credits and increased buying power, many practices may now be able to provide benefits to their employees.
The self-employed doctor with no employees can get health coverage through the health insurance marketplace for individuals, but not through SHOP. And everyone can use paper applications in lieu of the
Retroactive to January 1, 2014, and through at least 2015, shareholders in an S corporation who own 2 percent or more of the company stock and are also company employees are known as “2-percent shareholders.” Such individuals can be reimbursed for their individual health insurance Even better, the S corporation will not be subject to the excise tax penalty if it correctly includes the health insurance premiums on the 2- percent shareholders’ W-2s. The 2- percent shareholder must report the income as wages, but will be allowed to take a self-employed health insurance deduction.
Effective for 2015, every chiropractor providing self-insured health coverage to employees must file an annual return reporting certain information for each employee This rule was optional for 2014.
Last year, many small employers were shocked to learn that employee payment plans, under which they reimbursed employees for the cost of obtaining individual health insurance, violated the ACA rules; they risked a
$100-per-day-per-affected-employee excise tax if they continued using the The IRS recently provided guidance that clears up some of the earlier confusion.
Don’t forget about the additional cost for some small practices and businesses—a $63 pre-existing conditions That’s right, for some employers purchasing insurance, there is an annual $63 fee. The ACA small-business fee decreases each year until 2017, when pre-existing conditions are phased out.
The Medicare tax hike
The Medicare Part A tax is paid by employers and employees alike. Often overlooked, however, is the fact that a practice with profits over $250,000 faces a 0.9-percent increase (from 2.9 to 3.8 percent), on the current Medicare Part A tax.
As this tax is split between the employer and employee, they will both see a 0.45-percent increase. Small businesses making under $250,000 are exempt from the tax. Employees making less than $200,000 as an individual or $250,000 as a family are also exempt.
Optional strategies
Instead of shifting to individual plans, some practices have opted for a high- deductible group plan and set up a health reimbursement arrangement (HRA) to help offset employees’ medical expenses. An employer can dictate the expenses they will reimburse, thus limiting his or her out-of-pocket exposure.
The advantage of an HRA over a Health Savings Account (HSA) is that the plan can be structured so that if an employee does not use the money in an HRA, the money will still belong to the employer. An HSA is another option, but it gives employers less control over how the money in an account is spent; the funds are made available to employees whether or not they incur any medical expenses.
2015, 2016, and beyond
On the horizon is an excise tax on high-cost plans (also known as the “Cadillac tax”) that kicks in for employers starting in 2018. Employers may have to pay up if their group health plans exceed a certain dollar limit. The limit for 2018 is $10,200 for individual coverage and $27,500 for family coverage.
For self-insured plans that exceed these limits, the employer will pay a 40 percent nondeductible excise tax on every dollar above the limit. This penalty can be significant, even for a plan that exceeds the limits by only a few hundred dollars per year, making now the time to think about changing an existing plan.
The subsidies
Before the ACA took full effect in late 2013, small employers were much less likely to offer health insurance plans to workers than their larger brethren. In 2013, nearly 95 percent of companies with 100 to 999 workers offered health coverage to employees, compared with just 32 percent with fewer than 25 workers.
Self-employed chiropractors and workers in small businesses have, at least since late 2013, been able to buy subsidized individual health insurance plans on government-run exchanges. This has reduced the uninsured rate among nonelderly workers at businesses with fewer than 50 employees from 23.5 percent in June 2013 to 13.2 percent currently. The uninsured rate among self-employed workers fell from more than 30 percent in mid-2013 to less than 20 percent.
The subsidies, available to anyone who earns between 100 and 400 percent of the poverty level, have helped reduce the cost of insurance—at least until recently. Escalating insurance costs are already being felt by chiropractors and practices that do not qualify for subsidies.
While supporters of the ACA tout its success in providing insurance to millions of Americans, recent rate filings from large insurers reveal the law may have been built on a shaky foundation. In recent weeks, large insurers selling coverage under the ACA have proposed sharp rate increases for 2016—some exceeding 40 percent—because they haven’t been able to sign up enough young and healthy customers.
Skyrocketing healthcare costs are not, however, the only reason your practice should seek professional assistance. Keeping abreast of the many benefits and potential pitfalls of the ACA is extremely important.