Nonprofits and the Affordable Care Act | by Danny Mayer

The 2010 Patient Protection and Affordable Care Act, better known as Obamacare, is set to begin in 2014. The Affordable Care Act (ACA) is intended to increase the quality and affordability of health insurance, expand public and private insurance coverage, and reduce the costs of health care for individuals and the government. The ACA’s two main innovations are requiring all citizens to purchase health care and creating state exchanges for individuals to purchase individual health insurance. But what do all the changes mean for the nonprofit sector?

The short (and easy) answer is that nobody really knows for sure. Though passed in 2010, the ACA has been subject to delays, legal challenges, and changes in implementation. Most of its key provisions are slated to kick in on January 1, 2014, while others will not be phased in until 2020. And because much of the Affordable Care Act operates on a state-by-state level, citizens and nonprofits can expect some degree of variability in how the coming changes will play out. But as 2014 looms, here are some things to be aware of.

Under the ACA, nonprofits are not categorized as a special employment category for determining payment coverage in the new health care marketplace. As with other small businesses, the cut-off line stands at 50 employees. Beginning in 2015, workplaces employing 50 or more full time employees are subject to penalties under the Act’s “shared responsibility” provision requiring employers to provide a predetermined minimum level of coverage to all (full time) employees. The coverage may be employer based, or it may help subsidize employees’ plans in a state-brokered “marketplace” of coverage options.

For those nonprofits who employ less than 50 people (most likely the majority of you reading this), the federal government has created a marketplace, called SHOP (Small Business Health Options Program), to help provide options for employee health care. The federal government lists three benefits to using SHOP: (1) Employers can control coverage offerings and how much is paid toward employee premiums; (2) employers can compare health plans on line on an apples-to-apples basis; and (3) using SHOP may qualify nonprofits for a small business health care tax credit worth up to 50% of premium costs.

For nonprofits employing less than 25 people, the Affordable Care Act provides further incentives in the form of tax breaks. If your nonprofit pays premiums for health insurance for its employees, and average wages for all employees is less than $50,000 annually, you may be eligible for the Small Employer Health Credit to help pay for the cost of health insurance for your staff.

These refunds are scaled to offer greater help to even smaller nonprofits with smaller average employee wages. For 2010-2013, nonprofits employing less than 10 people and paying less than $25,000 in average wages per employee can get up to 25 percent of their expenses paid towards employees’ health insurance premiums. The refund amount will increase to 35 percent on January 1.

Larger nonprofits with higher average salaries that fall under the 25 employee/$50,000 average salary may also qualify for part of the credit if they pay at least half the costs of employee’s health coverage. These tax credits may be claimed retroactively for the 2010-2013 tax years. All you need to do is file. As the Council of Nonprofits notes, “Since tax-exempt organizations do not pay income tax to the IRS, the ‘credit’ is in the form of a refund on employee income tax withholdings.”

A recent article appearing in the Athens, Georgia, newspaper the Athens Banner Herald noted that most nonprofits it had contacted were unaware of the changes and opportunities coming on the horizon. Being aware of the changes, the article noted, “could be seen as a godsend to many nonprofits in the area that already are struggling financially and find it hard to keep qualified staff members.” The same might be said for Commonwealth nonprofits.