New obligations are arising from the Affordable Care Act (ACA), and your business needs to be aware of the penalties and excise taxes in order to avoid them. The ACA was established to encourage employers to provide affordable health coverage to their employees and employees’ families, without cost sharing or exclusions due to preexisting conditions.
Applicable large employers are required to pay or play; in other words, they either pay penalty fees or play by the ACA rules to provide affordable, minimum coverage to employees. Failure to comply may lead to a $100 fine per individual to whom the failure relates.
This $100 per person fee occurs due to violating one or more of the following:
- Health plans offering dependent coverage must cover adult children up to 26
- No health plan may impose a lifetime or annual limit on the dollar value of essential health benefits
- Coverage recessions, or decline, may only occur in the case of intentional fraud
- Pre-existing conditions do not allow for exclusion
- Preventative health coverage must be offered with no cost sharing, or fee to the employee
- Patient coverage extends to the designation of a primary care physician, a pediatrician, an obstetrician, a gynecologist, and improved emergency services
- Internal claims and appeals process must be improved
- Documentation providing a summary of benefits and coverage is required
- No waiting periods may exceed 90 days
- Nondiscrimination for fully insured health plans
- The limits of cost sharing may not exceed $6,600 on self and $13,200 for a dependent in one year
- Approved clinical trials must be covered
- Nondiscrimination based on health status
- Nondiscrimination against health care providers
- Comprehensive health insurance must include essential health benefit coverage
- Businesses with health plans sponsored by a single employer must pay an excise tax.
This does not apply to health plans sponsored by government employees or health insurance issuers, but it does apply to churches providing health plans. The employer must file form 8928 and pay the tax by the employer’s federal income tax return. Again, the penalty for noncompliance with the ACA’s requirements will result in a $100 fine per individual, per violation.
- If the IRS discovers this in an audit, the minimum excise tax is $2,500
- If the violations are significant, this charge is increased to $15,000
For single employers, the minimum excise tax for an unintentional violation is less than 10% of what the employer paid in excise tax the previous year for group plan coverage, or $500,000. If the violation is corrected with reasonable diligence within the following 30 days, the tax is forgiven.
Smaller employers with 50 or fewer employees are forgiven if the violation was solely because of health insurance coverage offered by the insurer. Failure to provide a summary of benefits and coverage incurs a penalty of $1,000 a day, and can also trigger the excise tax of $100 per day, per individual.
Health plans and insurers must provide 60 days notice for any material modifications to plan terms. A failure to do so may trigger a $1,000 penalty and the $100 per day, per individual excise tax.
Coverage must be offered to “substantially all” employees, which is equal to 70% of an employer’s full time employees and dependents.
You can reach ERM Insurance at (949) 222-0444 with any questions or concerns you may have about Health Care Reform Compliance fees, or other questions pertaining to insuring your small business, and a broker would be happy to advise you.