Obamacare and the road ahead

By |  July 17, 2017

Attempts to repeal and replace Obamacare have thus far failed.

Because everyone must have basic health insurance that meets the government’s standards and larger aggregate producers are required to provide their workers with that coverage, that means, fortunately or unfortunately, the Affordable Care Act (ACA) remains the law of the land for the foreseeable future.

The ACA continues to offer aggregate producers a number of options. Coping with the basic requirement that every individual have health insurance is the individual mandate.

The individual mandate is for everyone

Today, Obamacare’s individual mandate requires previously uninsured independent contractors and business owners to purchase insurance or face annual penalties. The penalty for individuals who fail to obtain health insurance is equal to the larger of 2.5 percent of household income or $695 per adult ($347 per child under 18), up to a $2,085 maximum.

Self-employed quarry operators and sand, gravel and crushed stone business owners can, of course, deduct the cost of health insurance for themselves, their spouses and dependents. Thus, if an S corporation pays accident and health insurance premiums (under a plan established by the S corporation) on behalf of a more than 2 percent shareholder who is also its employee and who must include the value of the premiums in his gross income, the shareholder is permitted to deduct the cost of the premiums paid on his behalf.

And, thanks to last year’s bipartisan legislation, small aggregate producers can avoid fines for contributing to their employees’ health insurance in the individual market.

The employer mandate

Much of Obamacare’s negative impact stemmed from the so-called employer mandate that requires businesses with more than 50 full-time equivalent employees (FTE) to provide health coverage to full-time workers. That penalty equals $2,260 divided by 12 for each month an employer fails to provide coverage, multiplied by the number of eligible employees (minus the first 30 employees).

However, under both the employer mandate and many of the ACA’s other provisions, the number of full-time employees doesn’t always equal an FTE. In simple terms, an FTE equals the total number of full-time employees plus the combined number of part-time employee hours divided by 30. Seasonal employees, contractors and business owners generally don’t count toward the total.

To avoid penalties, an aggregate producer or business must employ 50 or more full-time employees; offer coverage to its workers; pay at least 60 percent of the covered health care expenses; and ensure employer-provided health care costs do not exceed 9.5 percent of a family’s income.

The additional payroll tax

Under the ACA, a surtax on earnings above $200,000 (or $250,000 for joint-filing taxpayers) went into effect beginning in 2013. At that earnings threshold, the portion of the Federal Insurance Contributions Act health insurance tax paid by employees increases by 0.9 percentage points – to a total of 2.35 percent. The surtax does not apply to the portion of the health insurance tax paid by employers, remaining at 1.45 percent of earnings, regardless of how much the worker earns.

An additional Medicare tax also went into effect in 2013 that applies to the wages, compensation and self-employment income received each taxable year above a threshold amount. The 0.9 percent Medicare Part A tax is paid by both employees and employers.

Often overlooked, however, is the fact that an aggregate producer with profits in excess of $250,000 faces a 0.9 percent increase (from 2.9 to 3.8 percent), on the current Medicare Part A tax.

Because this tax is split between the employer and employee, they both have seen a 0.45 percent increase in the Medicare portion of payroll taxes. Fortunately, small businesses earning under $250,000 are exempt from the tax. Employees making less than the $200,000 threshold as an individual, or $250,000 as a family, are also exempt.

The exchanges

The ACA continues to offer small aggregate producers affordable insurance options, cost assistance and increased buying power via the Small Business Health Options Program (SHOP). Small businesses employing fewer than 50 workers can use SHOP to get better deals on employee insurance, but they aren’t required to do so.

The SHOP marketplace is specifically for small employers who want to provide health and dental insurance to their employees affordably, flexibly and conveniently. While it is not necessary to wait for an open enrollment period to use the SHOP marketplace, an aggregate producer must have 50 or fewer FTEs, with at least one FTE being a person other than owners, partners or family members.

The SHOP marketplace introduced new features that make it easier to choose, manage and get support for when buying SHOP plans. Starting with 2017 plan-year coverage, an aggregate producer using the SHOP marketplace can:

◾ Offer employees more choices. In some states, the business can now select any insurance company offering SHOP marketplace plans in its area and allow employees to choose any available plan from that company, in any category (Bronze, Silver, Gold or Platinum).

◾ As was the case last year, employees can be offered a single health insurance plan, or they’re allowed to choose any available plan within a single coverage category selected by the business.

◾ Every business can now see a breakdown of premium costs by employee and dependent, if applicable, instead of seeing only its total monthly premium.

◾ Finding an agent or broker is easier. Employers now have more SHOP-registered agents and brokers to choose from in their area.

The small business tax credit

The plans offered on the state exchanges are classified in four primary tiers: Bronze, Silver, Gold and Platinum, with higher premiums but better coverage as the levels ascend.

The ACA offers a tax credit for so-called “lower wage” small businesses that buy insurance coverage through SHOP. Small businesses that provide health care coverage can see up to a 50 percent reduction in their share of the cost.

Employers with fewer than 25 FTEs with salaries averaging $50,000 or less per year, paying at least 50 percent of their full-time employees’ premium costs on coverage obtained through the SHOP marketplace, qualify for tax credits to help pay employee health care premiums. Employers with 10 or fewer FTEs, paying annual average wages of $25,000 or less, qualify for the maximum credit of 50 percent. The amount employers pay is tax deductible and can be carried forward or backward.

On the downside, many aggregate producers have snubbed the exchanges because of the small size of the tax credits and the administrative challenges in securing them. In fact, very few states have set up the promised small business health insurance exchanges, and the few existing exchanges offer arrangements that weren’t available before the law.

Obamacare’s future

According to the National Federation of Independent Business, health insurance costs remain the number one concern of small business owners in its “Problem and Priorities” survey – the same place they’ve occupied in that survey the past 30 years. Adding to this concern is the so-called “Cadillac tax” looming in the years ahead.

Beginning in 2020, employers will be taxed on the so-called “high-dollar” plans that currently cover more than half of all employer-provided plans. When the cost of qualified employer-sponsored health insurance coverage exceeds certain dollar amounts, the ACA will impose a 40 percent excise tax on premiums exceeding $10,200 for individual policies and $27,500 for family plans.

DIY option

Despite the failure of ACA repeal-and-replace legislation and the promised increased benefits for tax-favored, flexible spending accounts, plans such as health savings accounts (HSAs) remain a great way for the self-employed and small business owners to cover their health care costs.

Used to pay for medical expenses such as deductibles and copays, as well as other expenses, HSA plans are tax-advantaged medical savings accounts available to individuals who are enrolled in a high-deductible health plan (HDHP). HSAs, combined with an HDHP, allow an individual to pay for certain medical expenses using untaxed dollars. Unlike funds paid into other flexible spending accounts, funds in an HSA are not lost when the plan year is over.

In 2017, anyone (and an employer) can contribute up to $3,400 to an HSA for individuals and $6,750 for families. Account holders age 55 and older can contribute an extra $1,000.

Unfortunately, in 2017, only health plans with a deductible of at least $1,300 for single individuals, or at least $2,600 for family coverage, qualify.

With lawmakers continuing to talk of further attempts to repeal or replace Obamacare, keeping abreast of the many benefits and potential pitfalls of the ACA is more important today than ever. It is, however, the skyrocketing cost of health care that makes professional guidance a necessity for every aggregate producer.

Repealing and replacing Obamacare

The U.S. House of Representatives took steps this spring to repeal and replace significant pieces of the Affordable Care Act, passing a bill that would do just that.

According to CNN, the Republican-led bill would eliminate Obamacare taxes on the wealthy, insurers and others, as well as get rid of the individual mandate imposed by Obamacare. Also, the new plan would provide Americans with refundable tax credits based mainly on age to purchase health insurance instead of the Obamacare subsidies that are tied to income and premiums, CNN reports.

Still, the likelihood of the bill’s Senate passage is low based on multiple reports. In fact, members of the Senate have made it clear they will be drawing up their own alternative version of a health care bill. A number of reports also indicate repeal-and-replace legislation may not be enacted until after the 2018 midterm elections. – Pit & Quarry staff

Mark E. Battersby is a freelance writer who has specialized in taxes and finance for the past 25 years.

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