Navigating health reform
Dealerships Can’t Avoid the Impact of Health Care Reform
|Update 7/8/2013: In July 2013, the Obama administration announced the employer mandate provision of the ACA would be delayed one year and not take effect until January 1, 2015.|
Well, that “check engine” light is now flashing with a bright red “2014.” Implementation of some of the major provisions of the Affordable Care Act (ACA) will begin at the start of next year, but preparation for compliance should start immediately. Whether you have a single dealership point or are a mega-dealer group, it is important to understand the key provisions in the new law from a compliance, tax, and financial perspective.
Beginning in 2014, dealerships with 50 or more full-time employees plus full-time equivalent (FTE) employees are considered “large employers” and as such are subject to penalties if they fail to comply with the ACA. A full-time employee is defined as someone who works an average of 30 hours per week or 130 hours per month. To calculate full-time equivalents under the law, dealerships should take the total part-time employee hours worked in a month divided by 120.
Dealerships that are considered large employers are required to offer minimum value affordable coverage or pay a penalty if they have full-time employees who qualify for premium tax credits and other cost-sharing assistance. If employer coverage is affordable, employees will not be eligible for subsidies and employers will not be at risk for a penalty.
Also in 2014, health insurance exchanges will allow millions of individuals and small employers to access and compare insurance plans. These exchanges are also central to determining whether individuals are eligible for Medicaid or premium tax credits to assist in purchasing health insurance coverage.
No coverage penalty (pay or play)
Dealerships who are large employers are subject to a penalty of $2,000 per full-time employee (excluding the first 30 full-time employees) if:
- full-time employees are not offered the opportunity to enroll in an eligible employer sponsored plan that provides a minimum essential level of coverage; AND
- at least one full-time employee enrolls in a health plan via a state or federally-established health insurance exchange and receives government subsidies to pay the premiums.
Unaffordable coverage penalty
This penalty applies if an employer offers full-time employees (and their dependent children under the age of 26) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable or does not provide minimum value. A plan is unaffordable if the full-time employee’s premium payments for self-only insurance coverage are more than 9.5 percent of their household income (although employers are not subject to the penalty under a safe harbor if the coverage is affordable when compared to the employee’s W-2 wages).
If at least one full-time dealership employee enrolls in the exchange and receives a government subsidy, the dealership is subject to the penalty of $3,000 for each full-time employee. The government subsidies are available for individuals whose household income is between 100 percent and 400 percent of the federal poverty level — currently $92,200 for a family of four. Full-time employees whose household income is below 138 percent of the poverty level will be covered by Medicaid, unless the state opts out of this provision of the ACA.
Dealerships who are considered large employers
You should consider whether to continue providing health care benefits or pay federal penalties. However, although it may appear that you come out ahead financially by simply paying the penalties and not providing coverage, remember that you are entitled to a tax deduction for health care premiums — and not for the federal penalties you pay. In addition, good employees are hard to find, and you should therefore think about how you can offer a benefits package that attracts high-quality employees.
You may also consider if it is cost-advantageous to bump some employees down to part-time status to side-step requirements to avoid the federal penalties which are based on full-time employees. But if you use this strategy, don’t forget that there may be other costs in employee morale, productivity, and customer service.
Tax and compliance issues
Summary benefits and coverage
As plan sponsors, dealerships will need to provide a summary of benefits and coverage (SBC) document to health plan participants beginning on the first day of the first open enrollment period, starting on or after September 23, 2012. The SBC must be given to participants and beneficiaries who enroll or re-enroll in group health coverage during open enrollment.
The SBC should include uniform standard definitions of medical and health coverage terms; a description of coverage (including the cost-sharing requirements such as deductibles, co-insurance, and co-payments); and information about any exceptions, reductions, or limitations under the coverage. Examples of benefits and coverage for common scenarios are also required.
Employers must report the cost of employer-sponsored health coverage on plan participants’ annual W-2 forms for calendar year 2012. This is required only to inform employees about the cost of health coverage — it does not affect taxation. The amount reported includes both the dealership’s and the employee’s contributions. Small employers — those required to file fewer than 250 W-2 forms for the calendar year prior to the reporting year — are not subject to the requirement for 2012.
It is important for dealers to understand the various impacts of health care reform on their specific dealership. Dealers should take time to consider the financial, tax, and regulatory impacts of the ACA on their businesses and their employees.