Affordable Care Act for Nonprofits as Employers

Nonprofit Operations

The Issue

In 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (PL 111-148), or ACA, also known as Obamacare.

The comprehensive health care reform law provides a number of sweeping changes for our nation’s health care system that impact nonprofit organizations both as employers and service provides. Among the reforms included are new community benefit requirements for nonprofit hospitals, new requirements for large nonprofit employers to provide health insurance to their employees, and creation of tax credits for qualifying small employers, including nonprofit organizations, to provide health insurance for their employees.

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Small Employers: What You Need to Know

Tax-exempt organizations are eligible to claim the small-employer tax credit for providing health insurance coverage for their employees. The IRS has provided updated information and tips on its website regarding the eligibility requirements and has published rates to guide credit calculation. The IRS has also announced that qualifying tax-exempt organizations will calculate the credit using an updated Form 8941 and claim the credit on a revised Form 990-T. learn more at IRS.gov.

Nonprofit Employer Health Insurance Coverage

In 2012, Washington Council Ernst & Young released a comprehensive guide to employer coverage responsibility. View the guide.

Essential Health Benefits

The Department of Health and Human Services (HHS) has issued a final rule on the definition of essential health benefits (EHBs), the determination of actuarial value in the individual and small group markets, and the minimum value (MV) standard for large employers. The final rule implements a requirement in the ACA that the plans cover essential health benefits (EHBs) for 10 categories of care, including basic services such as hospitalization and emergency care, as well as mental health and maternity care. In addition, it has posted a MV standard calculator for employers to determine whether their offered coverage meets minimum requirements to avoid penalty excise taxes for unaffordable coverage.

Read FAQs on Essential Health Benefits on CMS.gov.

Shared Responsibility Provisions

The IRS finalized regulations (TD 9655) on the shared responsibility provisions under the ACA in February 2014. New tax code Section 4980H requires employers with at least 50 full-time and/or full-time equivalent employees to offer affordable health care coverage to provide a minimum level of coverage, or pay a penalty. The rules phase-in for employers with 100 or more employees beginning in 2015 and for those with 50 to 99 employees in 2016. An employee is considered full-time if he or she works at least 30 hours per week, or 130 hours in a calendar month. Volunteers do not count towards the total number of employees under the law.

The IRS also released a series of questions and answers on employer shared responsibility issues, such as liability for the employer shared responsibility payment, how to calculate the employer shared liability payment, and transition relief.

“Cadillac Tax” Affects “High-Cost” Employer-Provided Health Plans

The so-called “Cadillac Tax” is a 40% non-deductible excise tax on employer-sponsored health coverage plans which provide high-cost benefits. Under the terms of the law, health plans will pay the tax on the cost of their coverage over a threshold value, currently $10,200 for individuals or $27,500 for families. The tax, created within the Affordable Care Act, was originally scheduled to take effect in 2018. However, following a number of concerns raised by unions and employers, including many nonprofits, the effective date was delayed by two years to 2020 by a provision of the Omnibus spending bill for Fiscal Year 2016. Read a Congressional Research Service report on the tax.

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