Dear Rita: I am the executive director of a nonprofit with 15 employees. We have never been able to afford to provide health insurance benefits for our staff. I'm confused about our obligations under the Affordable Healthcare Act. I heard that employers have to pay a "penalty" if they do not provide healthcare to their employees, but frankly I don't think we can afford it. Signed, Sick with Worry
Dear Sick with Worry: The Patient Protection and Affordable Care Act (ACA, Obamacare, or the "Act") has several provisions designed to help small businesses afford healthcare coverage for their employees. The Act does not mandate or require all companies to provide insurance, but certain companies with 50 or more employees will face penalties if they do not provide insurance.
The Act creates sweeping changes in health care law, too many to cover in one article. There are two key provisions which may help your organization:
1. Small Employer Health Credit. If you choose to start offering health insurance, your organization may be eligible for a payroll tax credit. Nonprofits with fewer than 25 employees that provide health insurance and pay average annual wages of less than $50,000 may be eligible for a tax credit of up to 25% for qualified health costs from 2013 through 2014. In 2014, that tax credit goes up to 35% (for-profit businesses are eligible for tax credits at a higher rate). The amount of the credit is phased depending on the size of the employer and the average annual wage. For example, the full credit is available to employers with 10 or fewer employees who earn, on average, less than $25,000 per year. As the size of the employer and the average annual wage increase, the credit phases out.
The employer must contribute at least 50% of the healthcare premium cost to be eligible for the credit. Through 2013, the credit is available to any employer who meets the criteria outlined above. For tax years 2014 and later, the credit is available only to employers who purchase coverage through a state exchange (see below).
2. Health Insurance Exchanges. One of the problems faced by many small nonprofits is that they are told they are too small to purchase health benefit plans for their employees at a competitive cost. American Health Benefit Exchanges are designed to pool individuals and employers together to leverage the purchasing power of a larger group. If you employ fewer than 100 employees, you can join an exchange when they are set up at the beginning of 2014. Exchanges are designed to be set up at the state level. Some states will establish their own state-based exchange. Individuals and employers in states that opt out of creating an exchange will be able to join a federal exchange. There is also a hybrid State-Federal Partnership exchange model. The chart below shows which states have opted for which option, as of March 21, 2013 (North Dakota is undecided):
From 2014 through 2016, only small employers (defined as employers with 100 or fewer employees) will be able to purchase healthcare benefit plans through exchanges. It is a state's option to lower the eligibility for participation in the exchanges to 50 or fewer employees. In 2017, states can permit the exchanges to open up to larger employers.
The tax credit and the exchanges were created to encourage smaller employers to provide health benefit plans to their employees.
The Act also provides for penalties to larger employers who do not provide health benefit plans to their employees. In general, employers with an average of 50 or more full-time employees will be subject to a monthly penalty if they fail to offer the "minimum essential coverage" to full-time employees. Full-time employees are defined as those who work 30 or more hours per week in any month. The Act also provides for aggregation of the hours worked by part-time employees. Organizations with close to 50 employees, or with over 50 employees and many part-time employees, should make sure they understand whether they qualify. The Kaiser Foundation has a good illustration of the penalties here.
By no means is this a comprehensive analysis of the many affects the Act will have on employers of all sizes. I encourage you to go to www.healthcare.gov for more information. I also suggest contacting a healthcare benefits broker that specializes in working with nonprofits.
In short, since you have 15 employees (or fewer than 50):
- You may be offer to afford health coverage for your employees with the new Small Employer Health Credit, if the average salary at your organization is below $50,000. Talk to your auditor or your state health department.
- If you are in a state that offers an exchange, you may be able to afford to pay for health insurance for employees through the exchange.
- There is no penalty for employers of your size for not providing health insurance.
And, "Sick with Worry," try not to worry so much. You don't have to understand everything about the Affordable Care Act to be able to make the right decisions for your organization. Talk to your insurance broker about your options, and be sure to work with a broker that is familiar with nonprofits of your size.
Siobhan Kelley is a labor and risk management attorney for the Nonprofits Insurance Alliance Group (NIA Group), which includes the Nonprofits' Insurance Alliance of California (NIAC) and the Alliance for Nonprofit Insurance (ANI). If either is your insurance carrier, you can obtain advice from Siobhan and the other Ask Rita attorneys at no charge.