Editor: Anthony S. Bakale, CPA, M. Tax.
Special Industries
Like other employers, oil and gas companies throughout the United States need to be prepared for several provisions of the Patient Protection and Affordable Care Act, P.L. 111-148 (PPACA), that go into effect in 2014. However, the nature of the industry raises some special concerns for oil and gas employers.
Some of the relevant provisions are:
- Health plans may not exclude adults with preexisting health conditions;
- Health plans offered by employers and new plans in the individual market cannot have annual coverage limits;
- States will offer policies through health insurance exchanges for individuals and small employers;
- Individuals will be required to obtain health insurance or face a possible penalty;
- Penalties will be assessed on employers with at least 50 employees that do not offer qualifying coverage. (Treasury announced in July that it plans to postpone enforcement of the penalty until 2015.)
How individual oil and gas companies comply will hinge in large part on the specific nature of their workforce. Companies with employees sited in numerous states need to consider offerings from those states’ health insurance exchanges. Smaller companies may want to use PPACA’s Small Business Health Options Program (SHOP) for purchasing coverage within those exchanges.
The steps companies take for compliance will also be influenced by their number of full-time, variable-hour, seasonal, or part-time employees. Once an individual is hired, an employer faces time constraints for determining what designation applies to that new employee. Oil and gas companies often have high employee turnover, so they will need to pay close attention to how long a particular employee is on the payroll and what employment designation should be applied to that person. The number of individuals designated as full-time employees, in turn, affects an employer’s compliance re quirements, as does employee household income. Employers face excise tax penalties for noncompliance.
Given the magnitude of the changes, each employer must prepare to comply with the act, understanding the relationship between workforce size and compliance options.
Small Employer Health Insurance Credit
Companies with 25 or fewer full-time equivalent employees are currently eligible for a tax credit of up to 35% of what they pay for employee health insurance (Sec. 45R). This tax credit took effect for the 2010 tax year. To qualify for it, the average annual salary of the employees cannot exceed $50,000. The employer must offer health insurance to all employees (as defined in Sec. 45R(e)(1)) and must pay at least 50% of the costs. The full 35% credit applies to companies with 10 or fewer employees that pay wages averaging less than $25,000. Beginning in 2014, this credit increases to a possible 50% of health insurance costs.
Applicable Large Employer Assessable Payment
Companies with 50 or more full-time and full-time-equivalent employees (applicable large employers) will need to provide full-time employees and their dependents affordable minimum essential coverage or face excise taxes (assessable payment) (Sec. 4980H).
The act defines a full-time employee as working at least 30 hours per week on average each month. To calculate full-time equivalents, an employer must divide by 120 the total hours worked by part-time employees in a month. An employer is not an applicable large employer if the number of full-time and full-time-equivalent employees exceeded 50 for no more than 120 days in a calendar year and the employees over 50 were seasonal employees.
Proposed regulations issued in January (REG-138006-12) provide that employers of new variable-hour or seasonal employees may measure those employees’ full-time status for an initial period of between three and 12 months (Prop. Regs. Sec. 54.4980H-3(c)(3)).
Employees’ Wages and Household Income
Employee household income also determines the potential impact the legislation will have on applicable large employers. Coverage qualifies as minimum essential coverage if it is affordable and provides minimum value. Coverage is affordable if the employee’s required contribution for self-only coverage does not exceed 9.5% of the employee’s household income. The IRS allows employers to use an employee’s wages reported on Form W-2, Wage and Tax Statement , to determine household income. Coverage provides minimum value if the employer’s share of the cost of allowed benefits is at least 60%.
If an applicable large employer fails to offer its full-time employees minimum essential coverage and at least one full-time employee enrolls in a qualified health plan for which a premium tax credit or cost-sharing reduction is allowed or paid, the excise tax is equal to one-twelfth of $2,000 per month of noncompliance, multiplied by the total number of full-time employees employed that month (less a 30-employee threshold).
If an employer does offer its employees minimum essential coverage, but at least one employee receives a premium tax credit or cost-sharing reduction, the excise tax is the lesser of (1) one-twelfth of $3,000 per month for each full-time employee receiving the credit or cost-sharing reduction or (2) one-twelfth of $2,000 per month for each full-time employee over the 30-employee threshold.
Premium tax credits are available to U.S. citizens or nationals and aliens lawfully present in the United States whose incomes range from 100% to 400% of the federal poverty line and who purchase coverage through an insurance exchange.
Be Prepared for 2014 and Continual Compliance
Companies need to prepare for the requirements for 2014 by addressing overall health plan costs, adjustments they may need to make to existing coverage, processes to ensure compliance, and other crucial concerns.
Health care plans that existed on March 23, 2010, have “grandfather” status, enabling employers and employees to stay with those plans. A grandfathered plan, though, must comply with various health care reform requirements. Among other features, such plans cannot significantly cut or reduce benefits, raise co-insurance charges, or significantly raise deductibles.
Preparing now will better equip companies to meet the requirements they will face for 2014 and beyond.
EditorNotes
Anthony Bakale is with Cohen & Co. Ltd., Baker Tilly International, Cleveland.
For additional information about these items, contact Mr. Bakale at 216-774-1147 or tbakale@cohencpa.com.
Unless otherwise noted, contributors are members of or associated with Baker Tilly International.
