Insurance-Reform Ruling Sets Stage for Business, Individual Penalties

Originally published
Originally published: 7/1/2012

Republicans pushing for repeal before major provisions start in 2014.

The Supreme Court ruling up-holding healthcare reform has resurrected debate over the controversial law. Republicans are re-energized in their opposition. Going into the 2012 election cycle, they see the ruling as an opportunity to rally the troops the same way they did in 2010, when they increased their numbers in both the House and Senate.

Meanwhile, Democrats have been forced into the awkward position of touting the ruling as vindication while defending against the charge outlined in the majority opinion that the penalties assessed against individuals who do not obtain healthcare coverage are a tax.

So if you thought the Supreme Court’s ruling would be the final say on the issue, you’d be wrong. Even though the law has been ruled constitutional, and as its implementation continues, the side- line battles over the bill still wage.

The big issue of the 2012 elections is going to center on repealing the health-care reform law before the major provisions, such as the individual mandate or the Medicare expansion, take effect in 2014.

But assuming things stay as they are now, it’s important to understand how the health care reform law will affect contractors over the next few years.

Tax credits for small businesses: If you have up to 25 employees, pay aver- age annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35% to offset the cost of your insurance. Starting in 2014, the small business tax credit goes up to 50%.

Example provided by the Internal Revenue Service:

Company with 10 employees

Employees: 10

Wages: $250,000 total, or $25,000 per worker

Employee Healthcare Costs: $70,000

2010 Tax Credit: $24,500 (35% credit)

2014 Tax Credit: $35,000 (50% credit)

Penalties for larger companies that don’t provide insurance: First, the law does not require businesses with fewer than 50 employees to provide healthcare coverage to employees.

According to an interpretation by the National Federation of Independent Businesses:

Starting in 2014, 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. 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.

If a business does not provide insurance and if at least one employee receives federal insurance subsidies, 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).

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.

To qualify for subsidies, an employee must meet two criteria. First, his house- hold income must be less than 400% of the federal poverty level (100% for a family of four in 2012 is $23,050; 400% is $92,200). Second, the employee’s por- tion of the insurance premium must exceed 9.5% of household income.

If an employer with 50 or more employees offers a plan that covers less than 60% of the costs of typically covered services (these include widely recommended preventive screenings such as mammograms and annual physicals) or where the individual’s share is more than 9.5% of their income, the penalty is $3,000 for each employee who receives a tax credit up to $2,000 times the number of employees over 30 employees — as shown in the example above.

The individual mandate provision, which takes effect on Jan. 1, 2014. That provision requires individuals to get healthcare insurance coverage from their employer or a federal program (like Medicare, Medicaid, or TRICARE), or one of the new state health care exchanges or pay a penalty based on in- come. In 2014 the penalty tax is $95 per adult and $47.50 per child (up to $285 per family) or 1% of the household in- come, whichever is greater. The penalty increases in 2015 to $325 per adult and $162.50 per child (or 2% of household income) in 2015. In 2016 and beyond, the penalty is $695 per adult and $347 per child or 2.5% of household income whichever is greater.

In 2014 the states will have set up the healthcare exchanges necessary to pro- vide coverage to individuals and through which small businesses will be able to obtain coverage if they wish. After 2016, states may expand the pools to include larger employers.

Despite being upheld by the Supreme Court, the Patient Protection and Affordable Care Act will remain a political issue going forward. Republicans have vowed to make repealing the law a primary goal if they can take the Senate and White House in the November elections.

The possibility of repeal depends on the election of Gov. Romney and the Republicans holding control of the House and gaining control of the Senate. Even then, there is no guarantee that it will be repealed. The Republicans will face a filibuster in the Senate, and — at the moment — the election experts suggest it would take quite an effort for the Republicans to secure 60 votes in the Senate.

When you peel away the re- turning members and the “safe” seats, there are probably 12 Senate seats really in play. In other words, the baseline is probably 44-44 going into the election.

While the Republicans are talking about repeal bills, there is no chance that it will happen in this Congress with a Democratic President and Democratic-controlled Senate.

So for the moment, let’s see what the election yields.

Charles McCrudden is Vice President/Government Relations for the Air Conditioning Contractors of America, He can be reached at


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Insurance-Reform Ruling Sets Stage for Business, Individual Penalties

Assuming things stay as they are now, it’s important to understand how the health care reform law will affect contractors over the next few years.