Beginning in 2014, the Patient Protection and Affordable Care Act (PPACA) will impose large financial penalties on certain employers who do not provide health insurance coverage and, in some cases, on employers who do provide coverage.
Learn the essential facts about these penalties in this NFIB Research CribSheet.
Download the CribSheet
| Businesses with 50 or more full-time employees or FTEs face penalties. |
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Which Business Face Potential Penalties?
Businesses with 50 or more full-time employees or full-time equivalents (FTEs) face potential employer mandate penalties. In this context, a full-time employee is one who works 120 hours per month or more – roughly 30 hours per week. In counting toward 50, each 120 hours per month of part-time labor comprises one FTE.
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So do owners with 50 or more FTs or FTEs in multiple businesses.
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If an owner has several different businesses, they may or may not be treated as a consolidated group under the Tax Code. If they are treated as consolidated, then the full-timers and FTEs in the multiple businesses will be added together and treated as one business in determining whether the employee count is 50 or more.
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| Penalties are calculated one way if you don’t provide coverage. |
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How Much Are The Penalties?
If a business does not provide insurance and if at least one employee receives federal insurance subsidies in the exchange, the business will pay $2,000 per employee (minus the first 30). Example: a business with 50 employees, two of whom are subsidized, would pay $40,000 = $2,000 x (50 – 30). To qualify for subsidies, an employee must meet two
criteria, described below.
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| They’re calculated another way if you do provide coverage. |
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If a business does provide insurance, and if at least one employee receives insurance subsidies, the business will pay $3,000 per subsidized employee OR $2,000 per employee (minus the first 30) whichever is less. So a providing business with two subsidized employees would be fined $6,000. With 14 or more subsidized employees (above the tipping point for the formula), the penalty for a 50-employee firm would be $40,000.
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| Employees must meet two criteria to get subsidies. |
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What Determines Whether An Employee Qualifies For Subsidies?
To qualify for subsidies, an employee must meet two criteria. First, his or her household income must be less than 400% of the federal poverty level ($89,400 for a family of four in 2011). Second, the employee’s portion of the insurance premium must exceed 9.5% of household income.
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| The mandate discourages business growth and job creation. |
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How Will The Employer Mandate Affect The Economy?
The mandate makes it extremely expensive to cross the 50-employee threshold. For example, a midsized restaurant that goes from 49 to 50 employees will face a $40,000 per year penalty. A business can avoid the penalties by firing employees, by not hiring new ones, by replacing full-timers with part-timers, or by outsourcing. Estimating the costs of hiring and expanding will be complex and confusing.
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| The mandate creates new red tape. |
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Businesses will spend real resources determining how many employees they have with respect to the employer mandate. They will face time-consuming, arbitrary administrative burdens associated with employees seeking insurance subsidies in the new insurance exchanges.
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| The mandate threatens employees’ privacy. |
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Businesses subject to the employer mandate will receive periodic government reports on subsidized employees that inadvertently reveal personal financial data on employees’ spouses and families. This raises discomforting privacy concerns and exposure to liability for employers.
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| Penalties can be triggered by factors irrelevant to the business and unknown to the owner. |
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For some firms, the employer mandate will result in large fines when circumstances change in their employees’ households. For example, an employee’s spouse losing a job or an employee’s spouse’s elderly relative moving into their house could trigger thousands of dollars in annual employer penalties. Employers will not be entitled to know the details of what triggered their penalties – unless they challenge the employee’s honesty before a government agency. The IRS is trying to fix this sticky situation.
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| The mandate will raise consumer prices. |
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The employer mandate will increase costs, and businesses will pass them along to consumers. |