This fall, qualified small businesses in Vermont will need to decide whether to offer their employees a choice of health insurance plans on Vermont Health Connect. When making this decision, employers should be aware of potential federal tax liabilities that may arise if they elect not to offer insurance, or if they offer insurance that is unaffordable to their employees.
As we wrote about previously, businesses will first need to determine whether they qualify to buy health insurance on Vermont Health Connect. Businesses with at least one and no more than 50 full-time employees during at least 50% of the calendar days of 2013 will qualify to offer insurance plans to employees through the Vermont Health Exchange. For purposes of this calculation, only full-time employees, defined as employees who worked at least 30 hours per week are counted. Vermont Health Connect has published a worksheet to help businesses calculate the number of employees. Part time employees are not included in this calculation.
Federal law under the Affordable Care Act, however, counts employees differently to determine whether a business is an “applicable large employer” for purposes of assessing a tax for employers who either do not provide health insurance at all, or offer plans that do not meet certain standards, like affordability and essential coverage. Businesses that meet the large employer standard may be liable for the assessments under IRS section 4980H (the portion of the Affordable Care Act that allocates “shared responsibility for employers regarding health coverage”), whereas small employers are exempt.
An “applicable large employer” under federal law has a total of 50 or more full-time employees and full-time equivalents (FTEs). FTEs for a calendar month are calculated by totaling up all the hours of employees who did not work an average of at least 30 hours per week in a given month, then dividing this total by 120. Add the total monthly FTEs for the calendar year; then divide by 12.
| Vermont | Federal | |
| 1 to 49 full-time employees | Small business eligible to offer plans via Vermont Health Connect | Small employee exempt from section 4980H assessments |
| 50 full-time employees | Small business eligible to offer plans via Vermont Health Connect | Applicable large employer, potentially liable for section 4980H assessments |
| 51 or more full-time employees | Not eligible to offer plans via Vermont Health Connect for 2014 calendar year | Applicable large employer, potentially liable for section 4980H assessments |
What is most important for a Vermont employer to note is that a small business, which qualifies under Vermont law to offer insurance to its employees through Vermont Health Exchange because it has fewer than 50 full-time employees, could possibly be considered a large employer under federal law. Typically, this would occur when a business has fewer than 50 full-time employees, in addition to a number of part-time employees whose hours add up to a sufficient number of FTEs to bring the federal calculation of employees to 50 or more.
Example: A business employs 31 full-time employees (more than 30 hours/week) and 60 employees for an average of 20 hours/week. With fewer than 50 full-time employees, the business is eligible to offer health coverage via Vermont Health Connect in 2014. Because the total number of full-time employees and FTEs (from the part-time employees) is greater than 50, the business is also an applicable large employer and may be liable for federal assessments under section 4980H.
In a future post, we will discuss some situations in which the method of calculation is tricky , such as when businesses employ seasonal workers or employees who have fluctuating schedules so they sometimes work more or less than 30 hours per week.
One of the primary purposes of the ACA is to make sure all Americans have health insurance, because the more people who are in the insurance pool, the lower the rate. So, it is no surprise that employers with 50 or more FTEs, which tend to be the bulk of the employers in the U.S., will be assessed if they do not offer insurance. Fortunately, for these employers and their employees alike, 96% of U.S. employers with over 50 employees already provide insurance to their employees.
Nonetheless, it is confusing that employers are required to count their employees in two different ways – one way to determine if they are required to use Vermont Health Connect if they are purchasing health insurance for their employees, and one way to determine if they are responsible for an employer assessment.
In our next post, we will give greater detail about the circumstances under which a small business in Vermont may be liable for federal assessments under section 4980H. Also note that businesses that are not “applicable large employers” under federal law may still be liable for assessments under Vermont law if they do not provide health coverage for their employees.
The information provided in this blog is generic and based on the general definitions and provisions in the new legislation (Affordable Care Act, Act 48, and Act 171). This blog post and the information it contains should not be interpreted as legal advice for any specific situation. Individuals with specific questions about their business are encouraged to consult an attorney.
