Several non-profit organizations have recently asked how the Affordable Care Act (ACA) impacts them. The ACA treats non-profit organizations no differently than any other employer in the United States, and, therefore, its provisions are applicable. Pretty simple, right? In order to determine how it applies to your organization, it is important to understand how many full-time equivalents you have on staff. For example, the ACA requires employers with more than 50 full time equivalents (FTEs) (100 for 2015) to offer minimum health insurance coverage to their staff or be subject to penalties. This is often referred to as the “pay or play” provision and is effective beginning in 2015. The ACA defines an FTE as an individual who is employed on average for at least 30 hours of service per week (see IRS FAQ on FTE determination at http://www.irs.gov/pub/irs-drop/n-12-58.pdf).
While organizations with less than 50 FTEs (100 for 2015) are not subject to the pay or play penalties for not offering health coverage, the ACA provides those employers with access to a Small Business Health Options Program (SHOP), which is a health insurance marketplace available in each state. In general, small organizations tend to pay more than large organizations for health insurance. Thus, the purpose of the SHOP is to allow employers to pool their risk and purchasing power in order to obtain lower premiums. While SHOPs are currently available only to employers with 50 or fewer employees, they will open up to employers with 100 or fewer FTEs in 2016.
In addition to having access to a SHOP, organizations with less than 25 full-time equivalents may also be eligible for a Small Employer Health Credit to assist in defraying the cost of health insurance for staff. In order to qualify for the credit, your organization must have fewer than 25 FTEs, pay at least 50% of health insurance premiums (purchased through a SHOP) for those employees and have an average annual employee salary of less than $50,000. The credit is refundable, so even though your organization is tax-exempt, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability
Other important requirements under the ACA are that employer-offered health insurance needs to be affordable and meet minimal coverage standards. A plan is considered affordable if the employee’s share of premiums for the lowest cost employee-only coverage that meets the minimum coverage standard is less than 9.5% of his/her family’s income. In other words, an employee’s share of the premiums for a plan that covers only him or her (the employee), not the entire family, is less than 9.5% of the family’s income, the plan is considered affordable. Employees may pay more than 9.5% of their income on premiums for spouse or family coverage from your employer. Further, the ACA indicates that a health plan meets the minimum coverage test value standards if it is designed to pay at least 60% of the total cost of medical services.
Health Insurance Notifications
The ACA also requires virtually all employers to provide the appropriate health insurance notifications to their employees. The necessary notifications vary based on the size of the organization and whether or not employer-sponsored insurance is offered. Further, starting in 2016, employers will be required to file informational returns on behalf of employees regarding the health insurance coverage offered during the year. Form 1095-B provides details of the coverage for each employee, including the name of the provider, months covered and whether the coverage meets the minimum coverage provisions of the law. The 1095-C will only be required to be filed by employers with 50 or more employees and is used to determine if the employer is offering the correct health insurance coverage and cost sharing to its employees. If the employer is offering the appropriate coverage, no penalties will be incurred.
With ACA provisions becoming effective, and given the complexities of the law and its varying levels of applicability based on the size of an organization, it is important that organizations work with their benefits providers and/or brokers to ensure they are compliant. The government website, www.healthcare.gov, is also a very useful resource and outlines how the law impacts both employees and employers.
Chris Ernest, CPA oversees audit and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Chris provides services to a wide range of non-profit organizations, including independent schools, country clubs, museums and trade associations. In addition, he specializes in audits of employee benefit plans.