Discussion:Client decided not to participate with Affordable Health Care Act

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Discussion Forum Index --> Advanced Tax Questions --> Client decided not to participate with Affordable Health Care Act


Discussion Forum Index --> Tax Questions --> Client decided not to participate with Affordable Health Care Act


This discussion was started in the tax forum, and for the time being, is still in the tax forum. As a courtesy to those trying to get tax-related responses (and in accordance with site practice), and even though it may not be completely possible given the topic, please try to keep political comments/asides/allusions to a minimum here. Thanks.


Smog (talk|edits) said:

2 July 2012
The client does not want to particpate with the Affordable Health Care Act. They have 60 locations. Each location has an average of 3 managers and 27 part time employees. The managers are already covered by health insurance. The part timers are not covered. The part time average from 35 hours to 10 hours. The estimated costs for the penalty would be 2,500,000 and insurance would be 6,250,000. In a good year the profit is 1,000,000. Cannot raise prices because most competitors only have 1 location and will be less than 50 employees. Need to find a solution or 1800+ employees will be laid off and 60 buildings will be vacant.

Current ideas: 1. Divide company into 60 entities with managers owning 25% to get around control issues. (What a tax nightmare!) 2. Create 60 employee leasing companies. (What a tax nightmare and some states require audits!!) 3. Do both to double insulate.

Any ideas or any problems with the Affordable Health Care Act that I missed?

Thanks for your help.

Snowbird (talk|edits) said:

2 July 2012
Look into what McDonalds is doing. Some of the large franchises should have the same problem. I seem to remember that McDonalds was granted an exception ... whatever that means.

TTMM (talk|edits) said:

2 July 2012
Find out how to get a waiver. I'm sure HHS has the info on a website.

(This is just a part of the original post - see the discussion linked above for the post in its entirety.)

Smog (talk|edits) said:

2 July 2012
Thanks to Snowbird and TTMM. I would love to find out how McDonalds, Walmart, etc are handling this. Most waivers were for Mini-Med plans or union plans. All waivers expire 12/31/13.

Does anybody know where I can read/research the law other than at the .gov website. I don't want to read the 2800 pages.

Trillium (talk|edits) said:

3 July 2012
Smog, is your client concerned about new Sec. 4980H of the IRC (Sec. 1513 of the PPACA-senate amendment)? Because if so, I wonder if they're calculating that penalty correctly. The provision is summarized in the JCT Technical Explanation as:

"An applicable large employer that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60 percent, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee."

The penalty is for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month multiplied by one-twelfth of $2,000.

Since you say that the client already provides health insurance to its managers, is it that they're concerned that the coverage they offer isn't really very good, so it won't meet the "minimum essential coverage"? Or that the employer isn't paying enough of the total cost? Depending on how many of their part-timers work an average of at least 30 hrs/week - and thus would be classified as full-time - I suppose they might be concerned about that group. However, since you say that currently part-timers average 10-35 hrs it doesn't sound like too many of those get over 30 hrs enough of the time to average that over the course of a month.

Maybe it would help to have a few more facts on the situation, to get you going in the right direction....

Hammock (talk|edits) said:

3 July 2012
Note a few things:

1. employees with household income less than 138% of FPL (fed poverty level) get on Medicaid, and are not covered by the employer. For a singe person, this will be about $19k. For a family of four, in the mid $40k's.
2. Full time is 30 hrs for purposes of ACA, not 35.
3. Many fast food and retail employees will fall under the medicaid coverage, thus are no a liability to the employer.

No projection should be done for an employer without going through a detailed census and analysis. Penciling out will be a disservice.

Smog (talk|edits) said:

3 July 2012
Thanks for the comments. I will research each. Just got off of a conference call with franchisor. Question that they did not have an answer for was, "Is the penalty deductible for tax purposes". Maybe Trillium has answered it-"excise tax". Other commets - Until state exchanges tell us what the minimum plan will cost, all calculations are wild guesses. Some associations have calculators on their sites. Trillium, the penalty and insurance were both estimates. My numbers are probably too high. I need to research when the $2000 and $3000 penalty apply. Also, lot of confusion of when to use full time employees vs full time equivalent employees. For example, under the temporary worker rule, the rule is not in effect if you have 200 or more full time (equivalent?) employees.

One concern for the CPA profession was that the franchisor told franchisees to contact their CPA for advice, now. Obviously, I am not ready. Most of our local CPAs are not prepared. Clients need to have answers before 12/31/12 in order to prepare. Thanks for the help. Over the next couple of years, I fear that this will be the number 1 topic on Tax Almanac.

Trillium (talk|edits) said:

3 July 2012
Smog, say about 20 of the client's part-timers average over 30 hours in a month. Add those to the 6x30=180 full-time managers, and you have about 200 full-time employees in any given month. The penalty is capped at $2000 divided by 12, times (200-30), which I think comes out to about $28.3k per month. And that penalty applies only in the months where one of those full-time employees goes to an exchange and gets those premium credits because they either were not provided with insurance, or the insurance didn't meet minimum stds. (The $3k penalty - $3000 divided by 12 for any given month - is per employee that goes to the exchange, whereas the $2k is a sort of cap for the total penalty.)

$28.3k x 12 = $340k/yr; less if only a few get premium credits via an exchange, zero if nobody does.


Sec. 4980H is pretty clear, at least as described in the JCT tech expl, about FT vs PT - part-timers get included to determine if the company is a "large employer" but after that it's only full-timers (averaging over 30 hrs/week for a given month) that matter.

With regard to whether or not that $28k penalty would be a deductible business expense, see page 10 of the JCT tech expl:

The excise taxes imposed under this provision for employees receiving premium tax credits are not deductible under section 162 as a business expense.

You just mentioned the temporary worker rule - are these employees you've been referring to seasonal employees? Can you tell what code section is being referred to by the term "temporary worker rule"?

And lastly: Sec. 4980H doesn't take effect until 2014, and your client appears to be concerned about being ready by the end of 2012 ... so I am wondering if it is perhaps some other part of the ACA that is their primary concern?

Snowbird (talk|edits) said:

3 July 2012
I agree with moving comments ... since I am often one of the worse offenders.

Trillium, how would the 30+ hours employees not be involved in the exchange? Spouse or dependent of someone that provides coverage under thier program? Medicaid?

Smog, Trillium's number is even a wow! Is this a business with any kind of debt servicing(repaying loans), capital investment or any other kinds of negative cash flow that is not included in "profit" calcuations?

Trillium (talk|edits) said:

3 July 2012
Snowbird, I don't think I understand your question. Are you asking about the mechanics of the penalty thing? My guess is that the client won't have any employees averaging more than 30 hours/week by the time 1/1/14, rolls around, unless they're managers, who are already getting insurance. That leaves zero people to get the premium credits and create a penalty.

But say they do, say they still let ~20 people go over 30 hrs/wk. That's 20 people that might go to the exchange. if they all do, then 20x3000=60,000/yr penalty; doesn't come anywhere close to the $340k cap calculated above. They could hit that cap, though, if the insurance they're giving to the managers is pretty bad (doesn't meet "minimum essential coverage" rules), and some of those managers also end up with the premium credits/exchange involvement.

Snowbird (talk|edits) said:

3 July 2012
Trillium, thank you for the explanation. Sounds like the solution is for less than 30hrs/wk to avoid the penalty, assuming the managers' insurance meets the requirments.

Smog (talk|edits) said:

6 July 2012
Updated numbers - I ran June hours. There are 668 employees averaged over 30 hrs per week (this includes part-time and full time). 98 participate with medical insurance. The average insurance policy is $5,700. 3 options, assume worst case in each - 1.) Insurance coverage for all (668x5700)=3,807,600. 2.) Current insurance coverage with penalty on the remainder (98x5700)+(570x3000)=2,268,600. 3.) No coverage - (668x2000)=1,336,000. The client thinks that he can move 200 employees below 30 hrs. Let me know if I understand how the penalties work. Option 2 amount could be much lower if the employee has insurance elsewhere, and they do not need the exchange coverage.

Trillium (talk|edits) said:

6 July 2012
Questions:
  1. Is June representative of the rest of the year? (a. One of your comments above made me wonder if any of these are seasonal employees, and b. You are annualizing June to do the total year cost calcs, implying June is representative.)
  2. Is $5,700 the employer's cost in total, or net of employee pre-tax contribution?

Partial responses:

In calculating the penalty, you subtract 30 FT employees from the actual. So "no coverage" (calc 3) should be 638x2000.

I believe the cap on the total of the individual $3,000 penalties works the same way, but check the Tech Expl or Sec. 4980H for the actual formula. Plus I note that you have not capped your penalty portion of the calc in #2 at all.

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