Health Care Reform, Part 2

By Planet Laundry staff | Jul 08, 2010

(This is the second of a two-part article on how health care reform will affect your coin laundry business. Click here for Part 1.)

Last time, we covered the basics of the Patient Protection and Affordable Care Act. Now, we’ll delve deeper into some of the specific aspects of the new law:

Small Business Exchange. The Act creates state-based exchanges (known as Small Business Health Options Program, or “SHOP,” Exchanges) through which small businesses can pool together to spread their financial risk and buy health care insurance coverage for employees (and possibly save money by doing so.) SHOP Exchanges will generally be available to employers with up to 100 full-time employees until 2017, at which time states may allow larger businesses to participate.

Small Employer Health Insurance Tax Credit. The Act offers small employers that purchase health insurance coverage for employees a sliding-scale income-tax credit to help them pay for the plan. For purposes of the credit, a “small employer” is defined as one with no more than 25 full-time (or full-time equivalent) employees and average annual wages of no more than $50,000 per employee. The credit has two phases:

• For tax years 2010 through 2013, the law allows a tax credit of up to 35 percent of the employer’s contribution toward employees’ coverage. In general, the employer must contribute at least 50 percent of the total premium cost. Employers with 10 or fewer employees with average annual wages of less than $25,000 will be entitled to the full credit. The credit phases out for employers with more employees and/or higher average wages.

• Starting in tax year 2014, eligible small businesses that purchase coverage through a state-based SHOP Exchange may qualify for a credit of up to 50 percent of their contribution toward the coverage. The employer must contribute at least 50 percent of the total premium cost. The credit will be available to a qualifying employer for up to two tax years after 2013. Again, the full credit is available to employers with no more than 10 employees who earn an average annual wage of less than $25,000 (adjusted for inflation), with a phase-out as employee counts and/or average wages increase.

A small employer tax credit is available to qualifying small tax-exempt employers, but at a reduced credit percentage. The credit is taken against payroll taxes.

Free Choice Vouchers. Employers that offer coverage to their employees will be required to provide “Free Choice Vouchers” to certain employees whose income is not more than 400 percent of the federal poverty level. To qualify for a voucher, the employee’s required contribution to the employer-provided coverage would have to exceed 8 percent of household income (but not exceed 9.8 percent of income) and the employee must elect to enroll in a plan through the American Health Benefit Exchange.

The voucher amount will generally be the amount the employer would have paid to cover the employee under the employer’s plan. If the value of the voucher exceeds the cost of the Exchange plan chosen by the employee, the employee keeps the excess.

Other Employer Coverage Information. The Act contains several other important provisions affecting employer-provided coverage. Among them:

• Most employers providing minimum essential coverage will be required to file information about the coverage with the IRS. The filings will identify individual employees, number of months covered, the coverage type and the premium amount paid by each employee. Employers will also have to file information about employee coverage with the U.S. Department of Health and Human Services. Failure-to-file penalties apply.

• Employers that provide health insurance coverage will have to disclose the benefit’s cost on each employee’s annual Form W-2, Wage and Tax Statement. The provision does not alter the tax-free treatment of employer-provided health coverage.

• Employers generally will have to provide employees, upon hire (or, for existing employees, by March 1, 2013), a notice that describes the availability of and the services provided by the American Health Benefit Exchange and the eligibility requirements for buying insurance through the Exchange, as well as the consequences if an eligible employee chooses to do so. Other employee notices may be required.

• Eligible small businesses will be able to establish “simple cafeteria plans” that allow them to offer tax-free health and other benefits to their employees. An employer is eligible to sponsor a simple cafeteria plan if, during either of the preceding two years, the business employed 100 or fewer employees on average (based on business days). Minimum contribution and eligibility/participation requirements apply.

• The Act creates a temporary reinsurance program for employers that provide health insurance coverage to retirees age 55 and older who are not eligible for Medicare.

• Each SHOP Exchange will be required to offer at least two multi-state plans to employers so that employers having employees in different states can obtain such coverage.

• The new law provides grants for up to five years (starting in 2011) to small employers that establish wellness programs. It also allows employers to offer employees awards (premium discounts, waivers of deductibles or co-pays) of up to 30 percent of the cost of coverage for participation in a wellness program and meeting certain health-related standards.

(Keep in mind that the Act contains many complex rules and exceptions. Professional guidance is recommended before applying anything you read here to your individual or business situation.)