The Supreme Court this summer upheld a key part of the Affordable Care Act that provides health insurance subsidies to all qualifying Americans. Looking deeper, what does this mean for the convenience store industry?
By Mark Battersby, Contributing Editor
The U.S. Supreme Court in King v. Burwell has ruled the tax subsidies for health insurance provided by the federal government to citizens in the 34 states that have not established health insurance marketplaces or exchanges were legal.
In other words, some six million people, including the nearly 3.5 million people in small-business plans, small business owners, self-employed professionals and early retirees who depend on subsidized healthcare costs, will continue to receive them.
Unfortunately, despite those subsidies and other tax incentives, healthcare costs continue to remain high. 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 the future.
THE ACA TODAY
The Affordable Care Act (ACA) does provide c-store retailers and businesses with insurance options, increased buying power via the government sponsored marketplace—and an overwhelming amount of confusion and paperwork. What can a convenience store operator, manager or executive do to keep healthcare costs manageable while complying with the ACA’s updated 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. Broken down, 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 that total.
THE DOWNSIDE
Much of the negative impact of the ACA’s looming “employer mandate,” stems from employers reportedly cutting workers’ hours. Although the impact of the ACA is very real for some businesses, many such reports were often over-dramatized.
Of those that are required to comply, only truly large businesses that don’t currently offer benefits and employ many low wage full-time workers, face 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 owing the 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. After all, 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 the SHOP to get better deals on employee insurance, but aren’t mandated to do so.
Consider a few of the ACA’s other applicable rules:
• Small c-store operators can see up to a 50% 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%.
• 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 the SHOP, a c-store business now has the same buying power as larger businesses. Along with tax credits and increased buying power, many c-store 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.
• Retroactive to Jan. 1, 2014, through at least 2015, 2% of shareholders in a c-store business operating as an S corporation can receive reimbursement for their individual health insurance premiums. Even better, the S corporation will not be subject to the excise tax penalty if it correctly includes the health insurance premiums on the 2% shareholders’ W-2.
• Effective for 2015, every c-store 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 smaller 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.
MEDICARE TAX HIKE
The Medicare Part A tax is paid by both employees and employers. However, an individual with income in excess of $250,000, or a c-store business with profits more than $250,000, faces a 0.9% increase (to 3.8% from 2.9%) on the current Medicare part A tax.
Since this tax is split between the employer and employee, they will both see a 0.45% increase. Small businesses making under $250,000 are exempt from the tax. Employees making less than $200,000 as an individual, or $250,000 as a family, are also exempt.
2015, 2016 AND LATER
Looming on the horizon is an excise tax on so-called 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% nondeductible 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 c-store operators and workers in small-businesses have, at least since late 2013, been able to buy subsidized individual health insurance plans on government-run exchanges. Subsidies, available to anyone who earns between 100-400% of the poverty level, have helped reduce the cost of insurance—at least until recently. Escalating insurance costs have already begun impacting c-stores and others who do not qualify for subsidies.
Experts agree every c-store retailer should seek professional assistance. Keeping abreast of the many benefits and potential pitfalls of an extremely complex, often confusing and frequently changing ACA are also extremely important.