Question:
What are the implications of the Affordable Care Act (ACA) for
nonprofit organizations? Are there any exceptions for
employer-based insurance coverage for nonprofit organizations that
struggle to provide for this financially?
Answer:
The employer health coverage mandate is designed to require
"applicable large employers" including nonprofit
organizations meeting this definition, either to provide employees
with affordable, minimum value health coverage or to pay certain
penalties for their failure to do so. Specifically, penalties are
triggered if:
- (1) An employer fails to offer all of its "full-time employees" and their dependent children the opportunity to enroll in an employer-sponsored health plan; or (2) the employer-sponsored health plan offered to "full-time employees" is "unaffordable" or fails to provide "minimum value;" AND
- Any employee impacted by such a failure enrolls in health coverage and qualifies for a subsidy through an exchange.1
In the event that an employer becomes subject to the no coverage
penalty, the employer is generally required to pay a monthly
penalty of $166.67, $2,000 annually, (adjusted for inflation)
multiplied by its total number of full-time employees (excluding
the first 30). For purposes of this rule, "full-time
employees" include those individuals working 30 or more hours
per week. The IRS has issued complex proposed regulations for the
purpose of identifying these individuals.
Even if an employer offers health coverage to its full-time
employees (and their children), it can be subject to penalties if
that coverage is deemed "unaffordable" or does not
provide "minimum value." Specifically, the employer is
required to pay a monthly penalty of $250, $3,000 annually,
(adjusted for inflation) multiplied by the number of full-time
employees who purchase health insurance through an exchange and
receive a government subsidy (if income eligible). Generally,
coverage is defined as "affordable" if the required
employee contribution towards self-only coverage is not more than
9.5% of the employee's household income. Note that this
affordability calculation does not take into account the cost of
covering an employee's spouse or dependents. A plan fails to
provide minimum value if the plan's share of the total allowed
costs of benefits provided under the plan is less than 60% of those
costs.
There are no exceptions to the employer mandate for nonprofit
organizations, regardless of their financial status. However, many
nonprofit organizations will be able to take advantage of the
exemption from the employer mandate for small businesses. As noted
above, the employer mandate only applies to "applicable large
employers." An "applicable large employer" is
defined as "an employer that employed an average of at least
50 full-time employees (including full-time equivalent employees)
on business days during the preceding calendar year." The
total number of employees for this purpose is equal to the total
full-time employees for each month in the preceding calendar year;
plus total number of full-time equivalent employees (calculated by
totaling the hours worked by part-time employees and dividing that
total by 120) for each month in the preceding calendar year;
divided by 12. If the result of this calculation is less than 50,
the employer is not subject to the employer mandate. One important
caution—the IRS's controlled group rules apply when
counting employees for this purpose. Therefore, if you nonprofit
organization is related to other organizations, it is important to
engage in a controlled group analysis before concluding that it is
not subject to the employer mandate because it is not an
"applicable large employer."
Footnote
1 Individuals/families with income above the Medicaid eligibility limit, but less than 400% of the federal poverty level may qualify for a subsidy. For 2013, this amount is $45,960 for an individual and $94,200 for a family of four.
This article was originally published on GuideStar on March 14, 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.