SOI: Tangled up

The U.S. Supreme Court has ruled that the tax subsidies for health insurance provided by the federal government to citizens in the 34 states that have not established the health insurance marketplaces or exchanges were legal. That means some 6 million people, including the nearly 3.5 million people on small business plans and small business owners, self-employed professionals and early retirees who depend on subsidized health care costs, will continue to receive them.

Unfortunately, despite those subsidies and other tax incentives, healthcare costs continue to skyrocket. And, according to a report from the Urban Institute, a Washington, D.C.-based think tank, small businesses are among those most vulnerable to the steep healthcare cost increases. In 2013, just 32 percent of businesses with fewer than 25 workers offered health coverage to employees.
 

The ACA today.

Admittedly, the Affordable Care Act (ACA) provides professional landscape contractors and their businesses with insurance options and increased buying power via the government-sponsored marketplace – as well as an overwhelming amount of confusion and paperwork. What can lawn care and landscaping business owners do to keep healthcare costs manageable while complying the ACA’s updated and ever-changing rules?

First, it should be understood that the ACA’s taxes and tax credits are based on the number of full-time equivalent employees (FTE) and their average annual wages, not solely on the number of full-time employees. In simple terms, 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 don’t count toward the total.

 

The downside.

Other than the sharply escalating costs, every landscape contractor should be aware of the ACA’s downside. Although the negative side effects of the ACA are very real for some landscape businesses, many of the earlier radical claims were over-dramatized.

Of those who are required to comply, only truly large businesses that don’t currently offer benefits and employ many low wage full-time workers face truly hard decisions. Those businesses offering higher wages typically already provide benefits, while smaller businesses (with between 100 and 50 FTE) will benefit greatly from not paying a fee on the first 30 employees. So, a business with 100 FTE and 60 full-time workers will only owe the fee for 30 employees, assuming, of course, that they currently insure no full-time employees.
 

The upside.

It’s safe to say the smaller the businesses, the better the tax breaks. The ACA provides small businesses with affordable insurance options, cost assistance and increased buying power via the Small Business Health Options Program (SHOP). Small businesses with fewer than 50 FTE employees can use SHOP to get better deals on employee insurance, but aren’t mandated to do so.

Consider a few of the ACA’s other and applicable rules:

• Small lawn care and landscaping businesses can see up to a 50 percent reduction in their share of the cost of employee premiums. Employers with fewer than 25 FTEs, paying average annual wages below $50,000, qualify for tax credits to help pay employee healthcare premiums. Employers with 10 or fewer full-time employees, paying annual average wages of $25,000 or less, qualify for the maximum credit of 50 percent. The amount employers do pay is tax deductible and can be carried forward or backward.
• Form 8941, Credit for Small Employer Health Insurance Premiums, must be filed to claim the tax credit – all the way back to 2010, since the credit is retroactive.
• Thanks to the ACA, employers can offer more and better quality benefits. In fact, because small businesses are able to shop for group health plans on their state’s health insurance marketplace via SHOP, a landscape contractor now has the same buying power as larger businesses. Along with tax credits and increased buying power, many landscaping businesses may now be able to provide benefits to their employees.
• The self-employed with no employees can get health coverage through the health insurance marketplace for individuals, but not through SHOP. And, everyone can use paper applications in lieu of the Internet.
• Effective for 2015, every contractor and business providing self-insured health coverage to employees must file an annual return reporting certain information for each employee covered. This rule was optional for 2014.
• Last year, many small employers were shocked to learn that employee payment plans, plans under which they reimbursed employees for the cost of obtaining individual health insurance, violated the ACA rules, and they risked a $100-per-day-per-affected-employee excise tax if they continued using the arrangements. The IRS recently provided guidance that clears up some of the earlier confusion.
• Don’t forget there is an additional cost for some small businesses – a $63 pre-existing conditions fee. The ACA small business fee decreases each year until 2017 when pre-existing conditions are phased out.
  
   

Optional strategies.

Instead of shifting to the individual markets, some businesses have opted for a high-deductible group plan and set up a health reimbursement arrangement (HRA) to help offset employees’ medical expenses. An employer can dictate the expenses they will reimburse, thus limiting their out-of-pocket exposure.

The advantage of an HRA over a health savings account (HSA) is that the plan can be structured so that if an employee does not use the money in an HRA, the money will still belong to the nursery business. An HSA is another option, but it gives employers less control over how the money in an account is spent; the funds are made available to employees whether or not they incur any medical expenses. 
 

This year and beyond

On the horizon is an excise tax on high-cost plans (also known as the “Cadillac Tax”) that kicks in for employers starting in 2018. Employers may have to pay up if their group health plans exceed a certain dollar limit. The limit for 2018 is $10,200 for individual coverage and $27,500 for family coverage.

For self-insured plans that exceed these limits, the employer will pay a 40 percent non-deductible excise tax on every dollar above the limit. This penalty can be significant even for a plan that exceeds the limits by only a few hundred dollars per year, making now the time to think about changing an existing plan.
 

The subsidies.

Self-employed contractors and workers in small businesses can buy subsidized individual health insurance plans on government-run exchanges. This has reduced the uninsured rate among non-elderly workers at businesses with fewer than 50 employees from 23.5 percent in June 2013 to 13.2 percent currently. The uninsured rate among self-employed workers fell from 30.4 percent in mid-2013 to 19.6 percent.

The subsidies, available to anyone who earns between 100 and 400 percent of the poverty level, have helped reduce the cost of insurance – at least until recently. Escalating insurance costs have already begun impacting green-industry businesses and others who do not qualify for subsidies.

Skyrocketing healthcare costs are not however, the only reason every green-industry business – and its owners – should seek professional assistance. Keeping abreast of the many benefits and potential pitfalls of the ACA are also extremely important.

Mark E. Battersby is a financial writer based in Ardmore, Pa.