Outsourcing Healthcare to Comply with ACA
Professional Employer Organizations have always offered a break on benefits including healthcare insurance. That’s because they can negotiate from a position of strength representing larger numbers of employees. That much is simply a question of a volume discount.
However, the issue is one of growth and performance strategy as much as an accounting issue.
What about ACA?
The Patient Protection and Affordable Care Act (PPACA) challenges small businesses to comply. Things to consider:
- With less than 50 full-time employees, you do not have to provide healthcare insurance.
- With less than 25 full-time employees (making an average of $40k or less), your business is eligible for a tax credit up to 35% of the employer contribution if you pay at least 50% of their health insurance premiums.
- With less than 10 full-time employees (making an average of $20k or less), your business is also eligible for tax credits up to 35% of employer contribution (50% after 2014) on a sliding scale based on number of employees.
Beginning in 2014, your small business can earn tax credits of up to 50% of the cost of insurance – if you purchase the insurance through a Small Business Health Options Program (SHOP) exchange.
What does this mean to you?
It means you should talk to your CPA who will be responsible for the audits that justify whatever position you take. You should plan on where you want to be now and in each of the next five years. Otherwise, you will only grow into surprises.
It is certainly possible that you can actually find some benefit in these criteria. It is also possible that you can adjust your hiring to your advantage. And, it is absolutely possible that after doing the math it will encourage you to offer benefits in one shape or another or direct them to lower cost options in the SHOP exchange.
But . . .
As the National Association of Professional Employer Organizations (NAPEO) points out, “There are no PEO-specific provisions in the Affordable Care Act ("ACA") and no guidance as to how any of the provisions apply to PEOs.”
- There is the issue of employer of record. Small company or large, when you lease employees in a PEO contract, there is shared responsibility. Effective 2014, one employer or the other will have responsibility for the cost and administrative compliance.
- If you are the sole employer with less than 50 employees, your small business is exempt. If the PEO is responsible, those employees are now part of a larger employee pool requiring you (a) to offer the insurance and (b) to incur the additional cost through PEO billing without benefit of any tax credit.
- It is not clear whether your business or the PEO will be responsible for all the several filings, the W-2 reporting, and the payroll reporting. You might expect some redundant filing until the process sorts itself out. But, it is not likely you can avoid any accountability.
On the other hand –
If you are a large employer, several provisions bind your operation:
- You must offer group insurance to your employees.
- You can do this through the PEO’s programs.
- You can direct your employees to the SHOP exchange.
At this time:
The PEO offers health insurance coverage to your co-employees at lower rates than the street market or the exchanges. After all, the PEO has the advantage of numbers, the ability to offer the insurance for pre-tax dollars, and the option to pursue the most efficient managed risk pool (for example, by avoiding clients with high health risk and negative experience). The larger PEOs will be able to compete favorably with the available SHOP exchange on cost and service.
Full compliance is likely in the short- and long-term because it is in the PEO’s self-interest. In the short-term, there may be some challenges. But, the Massachusetts and Utah representations have made room for the PEO model. In the long-term, the federal agencies will decide what is administratively workable for them.
Full compliance will be an auditing issue. The reporting required will run and regulate the system. Until real time experience firms that up, questions remain. Fortunately, there are no compliance issues that your CPA cannot resolve with you and your current or prospective PEO.
This article published Dec, 2013.
Carolyn Sokol is the founder and President of PEOcompare.com, owner of compareHRIS.com, current member of SHRM, and writes about HR tech & HR issues affecting small businesses.
