Credit Changes for Small Employer Health Insurance Premiums

Changes to the Credit for Small Employer Health Insurance Premiums:

The Credit for Small Employer Health Insurance Premiums is generally available to small businesses which have fewer than 25 full time equivalent employees (FTE’s) and whose average salary is less than $50,000 per FTE. Also, the credit is available only to employers who pay more than 50% of the premium costs for their employees.

Among other changes mandated by The Patient Protection and Affordable Care Act (PPACA), changes have been made to the Credit for Small Employer Health Insurance Premiums (reported on IRS form 8941). Starting January 1, 2014 the following changes will be made to the program:

• The maximum credit will rise to 50% of small business health insurance premiums (previously 35%)
• The credit will be available for the first two years in which health insurance coverage is offered to employees (disregarding 2010 – 2013)
• The credit will only be available for coverage purchased via Small Business Health Options Program (SHOP) Marketplaces – see below for discussion of SHOP marketplaces

Small Business Health Options Program (SHOP) Marketplaces:

Small Business Health Options Program (SHOP) plans will be available to employers with fewer than 100 FTE’s. The insurance products will be available via marketplaces similar to individual coverage and are designed to give employers options and competitive pricing for health insurance products.

• SHOP coverage is not available for sole proprietors or their spouses. Sole proprietors may purchase coverage from individual marketplaces

• If employers already provide health insurance for their employees they should generally be able to continue that coverage
  • Depending on the state in which your business purchases coverage significant changes to the plans offered may be expected starting in 2014

• Business owners may be able to use their existing insurance broker to evaluate and purchase coverage offered via the SHOP marketplaces

• There is no specific open enrollment period, but in some states employers can sign up for coverage as soon as November 1, 2013 with coverage starting as soon as January 1, 2014
  • Note for Maryland employers: The Maryland SHOP marketplace will not be open for enrollment until January 1, 2014 and coverage cannot begin until March 1, 2014

• The coverage offered via the SHOP market places will generally depend on the state in which the business has its principal business address. For business with employees working/living in multiple states other options may be available

• Some states will create their own SHOP marketplaces (such as Maryland) while others will allow the federal government to oversee their SHOP marketplace (Such as Pennsylvania and Virginia)
  • Note to Maryland Employers: Maryland’s SHOP program requires that participating employers select either an “Employer Choice” or “Employee Choice” structure
    • The “Employer Choice” structure allows the employer to select a provider and allows the employee to select any product offered through SHOP by that provider
    • The “Employee Choice” structure allows the employer to select a level of coverage (commonly referred to by the metal levels Bronze, Silver, Gold & Platinum) and allows the employee to select any provider’s product at that level

For more information or specific questions, please contact a KatzAbosch tax advisor at 410-828-CPAS (2727) or email jeaton@www.katzabosch.com.

prepared by James F. Eaton, III, CPA, MBA