Healthcare Staffing Agencies and Affordable Care Act: A Taxing Issue

Many healthcare staffing agencies that have over 50 FTEs are looking at the cost (or Tax) associated with NOT complying with the Affordable Care Act.  In 2015, employers with more than 100 FTEs will need to cover 70% of their full-time employees and by 2016 employers with more than 50 FTEs will have to cover substantially all employees, (95% with margin of error of 5%). 

The annual fee for non-compliance is $2,000 on an annual basis, but it is actually calculated on a month-to-month basis for employers. The fee could rise to $3,000 if at least one employee receives a premium tax credit because employer coverage is not affordable or employer coverage does not cover at least 60% of total healthcare costs.

There is only one possibility that there will be no penalty (tax) for any company with over 50 FTEs that does NOT offer any health insurance; no employee receives a premium tax credit or cost-sharing subsidy in an Exchange. When considering all the possibilities for 50 + employees, the likelihood is very small that not one employee would receive a tax credit, or cost sharing subsidy.

Here are the balance of the possible combinations and their impact:

Result:

Employer of over 50 FTEs offers health coverage

Result:

If the insurance does not cover at least 60% of the covered healthcare expenses of a typical population, then the penalty will be $3,000 per employee that receives a tax credit as a result of the disqualified employer insurance. (this penalty cannot exceed $2,000 times the number of FTEs over 30.) i.e. total FTEs =75, then limit would be $2,000 for FTEs 31 to 75, or $90,000. Since $90,000 is the cap, the $3,000 penalty could only apply to the first 30 FTEs that received a tax credit. 

If the insurance DOES provide coverage for at least 60% of covered healthcare expenses but it requires a payment of more than 9.5% of the family income for the employer coverage, then the penalty will be $3,000 per employee that receives a tax credit as a result of the disqualified employer insurance. (this penalty cannot exceed $2,000 times the number of FTEs over 30.) i.e. total FTEs =75, then limit would be $2,000 for FTEs 31 to 75, or $90,000. Since $90,000 is the cap, the $3,000 penalty could only apply to the first 30 FTEs that received a tax credit.

If the employer-offered coverage provides at least 60% coverage as in (a) above, and does not cost more than 9.5% of annual FTE income, then there is no penalty for the employer.

Despite this relative straightforward explanation, there are sure to be grey areas in defining 60% coverage in specific markets, as well as some further explanation on the 9.5% of total family income.