Small employers who think the Affordable Care Act’s Small Business Health Options Program (SHOP) is going to finally help them provide health insurance to their employees at an affordable rate are being sold a bill of goods. Below are the top nine reasons that no employer should consider SHOP.
1.) When I originally drafted this column, I had this reason as No. 9, but reconsidered at the last minute because, of all the reasons, this is really the most important. SHOP is not in the best interest of your employees. If you look at how SHOP’s tax credits are set up, you can see that employees are far better off if their employer does not provide health insurance and simply lets the employees apply for a subsidized health plan through an exchange.
For example, the silver plan premium for a 30-year-old mother of two is approximately $6,097 per year ($508.08 per month), according to the Kaiser Family Foundation. If this mother makes $25,000 per year ($12.50 an hour), the total premium for her and her children through a subsidized plan is only $41.67 per month. In addition, because of where she and her family rank in relation to the FPL (Federal Poverty Level), the family qualifies for additional assistance in paying for doctor visits, prescriptions, shots and emergency room visits.
What if her employer offered coverage through SHOP? SHOP plans are usually set up so that the employer covers a percentage of the employee’s premium and the employee is responsible for the cost of additional family members. If this same employer chooses a SHOP plan and is paying 50 percent of this employee’s premium, it would cost this woman more than $375 each month to insure herself and her family. (Compared to a $41.67 monthly charge if she sought a subsidized plan on her own.) Plus, under SHOP, the employee would receive no additional assistance with the cost of everyday medical bills. The employer would have to be willing to pay 81.4 percent of her and her family’s coverage to even begin to compete with the federally subsidized plan.
If none of the rest of this makes any sense or difference to you as an employer, it’s a simple decision. DON’T SCREW YOUR EMPLOYEES.
2.) Employers who take a tax credit through SHOP lose the ability to take a tax write-off for the premiums they pay for their employees equal to the amount of the tax credit. If an employer paid $20,000 in premiums and qualified for a 50 percent tax credit ($10,000), the same employer would only be able to deduct, as a business expense, $10,000 in premiums. In effect, employers will pay their corporate tax rate on the amount of their tax credit, further reducing the value of the credit. Current calculations shown on Healthcare.gov do not reflect these realities because they don’t know the employer’s corporate tax rate, but this can be very misleading. An employer could end up giving as much as 35 percent of his or her tax credit back to the government.
3.) The premiums employers pay may not all count towards the tax credit. Employers are limited to claiming either their actual premiums or those listed in the average premium table for their rating area provide by HHS, whichever is less. Any additional premiums for tobacco do not count toward the tax credit either.
4.) For the purposes of the tax credit, this is the only place in the Affordable Care Act where a full-time employee is defined as working 40 hours instead of 30. Anyone working less than 40 hours is considered part-time. The net effect of this regulation is to lower the tax credit for which you qualify.
5.) Owners don’t count. Most of us who are business owners know that already, but in this case, it costs us money. Owners are excluded from calculations of wages, employee count and premiums. Directly from recent IRS publications, here’s the actual list of people whose premiums, hours and wages don’t count.
“The following individuals are not considered employees for purposes of the tax credit: owners of the small business, such as sole proprietors, partners, shareholders owning more than 2% of an S corporation or more than 5% of a C corporation; spouses of these owners; and family members of these owners, which include a child, grandchild, sibling or step-sibling, parent or ancestor of a parent, a step-parent, niece or nephew, aunt or uncle, son-in-law or daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law. A spouse of any of these family members should also not be counted as an employee.”
To put this in perspective, your third cousin, twice removed by another mother, doesn’t count.
“As a result, for purposes of the credit, these individuals’ hours are not counted in determining the employer’s full-time equivalent employee, their wages are not counted in computing the employer’s average wages, and health insurance premiums paid on their behalf may not be counted.”
6.) The SHOP tax credits are available for two consecutive years only, and then they go away. It’s kind of like those 0 percent credit-card offers. So the plan is to get you and your workers used to the new system, and then take away the tax credit that was supposed to make it financially viable.
7.) A ruling from DOT mandates that an employee’s portion of the premium cannot exceed 9.5 percent of the employee’s income from the employer. If it does, the employee is free to decline the employer’s coverage and go to an exchange to get a subsidized plan. If the employee does get a subsidized plan, it results in a $3,000 fine to the employer. SHOP requires employers to pay a minimum of 50 percent of an employee’s premium. But based on the employee income levels necessary to qualify for a SHOP tax credit, employers will have to pay a minimum of 82 percent of the employees’ premiums to guarantee that they avoid the $3,000 penalty.
8.) SHOP requires a minimum participation rate of 70 percent in 2014 and 95 percent in 2015 and beyond. When was the last time an employer got 95 percent of his or her employees to do anything?
9.) According to a June announcement from the Centers for Medicare and Medicaid Services, insurance commissioners in each region requested permission to limit carrier choices through SHOP to just one employer-designated plan. This further limits your employees’ choices.
As employers, we have a moral and ethical obligation to do the right thing by our employees. In most cases, SHOP is not it.
Our goal is to help employers gain certainty in their decision-making process about health insurance and the Affordable Care Act. The alternative to all of this—which has already been implemented, in one form or another, by IBM, GE, Sears, TimeWarner, Papa John’s and a host of other Fortune 500 companies—is the Defined Contribution Private Exchange model, which gives employees more choices and allows them to take advantage of federal subsidies. Employers can still provide health benefits to their employees through a Section 125 cafeteria plan and fix their health insurance costs in the process.
We have developed a SHOP calculator for employers to use to evaluate their own situation. Go to www.acamadeeasy.com, and select the SHOP Calculator under the Employers tab.
You can reach us for more information at 888.427.3270 or info@ACAMadeEasy.com.