Despite efforts to repeal or replace, veterinarians still need to be aware of health insurance regulationsfor themselves and their employees.
Shutterstock.comAlthough the U.S. House of Representatives passed a bill this session that would have repealed and replaced the Affordable Care Act (ACA), often referred to as “Obamacare,” similar legislation in the Senate failed. The stalled efforts to repeal the ACA may have provided a temporary reprieve for Medicaid and the federal insurance exchanges, but the continued uncertainty is trickling down to employer-sponsored healthcare plans.
The healthcare overhaul proposals didn't target the employer-provided plans that insure the bulk of the country, but insurance companies are still negotiating harder than ever with hospitals and other care providers on what employer-supported healthcare plans need to cover.
As things now stand, everyone must have basic health insurance that meets the government's standards. Larger employers are required to provide their workers with that coverage. Independent contractors, sole practitioners, practice owners and other principals classified as self-employed have to obtain health insurance by different means.
The ACA's “individual mandate” means that those who fail to obtain health insurance face annual penalties. This penalty equals 2.5 percent of household income or $695 (whichever is larger), up to a $2,085 maximum. The good news, of course, is that self-employed veterinarians can deduct the cost of their health insurance and that of their spouses and dependents.
Much of the ACA's negative impact stems from the so-called “employer mandate” requiring employers with more than 50 full-time-equivalent (FTE) employees to provide health coverage for full-time workers. The penalty is generally equal to $2,260 divided by 12 for each month an employer fails to provide coverage, multiplied by the number of eligible employees (minus the first 30 employees).
However, many of the ACA's taxes and tax credits are based on the number of FTEs and their average annual wages. To determine total FTEs, a veterinary practice generally can add total part-time-employee hours divided by 30 to the total number of full-time employees. Seasonal employees, sole practitioners and veterinary practice principals generally don't count toward the total.
A net investment income tax (NIIT) of 3.8 percent continues to apply to the net investment income of individuals, estates and trusts that have income above the statutory threshold amounts-$200,000 for single filers and $250,000 for joint filers. Net investment income includes capital gains, dividends, interest and most investment earnings, along with income from activities that are considered passive.
Fortunately, the NIIT does not apply to operating income from a nonpassive practice or self-employment income, although gain from the sale of interests in a partnership or S corporation (to the extent the partner or shareholder was a passive owner) is included.
Keep in mind that an ACA surtax on earnings above $200,000 (or $250,000 for joint-filing taxpayers) went into effect in 2013. At that earnings threshold, the portion of the FICA health insurance tax paid by employees increases by 0.9 percentage points to a total of 2.35 percent. The surtax does not apply to the portion of the health insurance tax paid by employers, which remains at 1.45 percent of earnings, regardless of how much the worker earns.
An additional Medicare tax also went into effect in 2013 that applies to wages, compensation and self-employment income above a threshold amount received in taxable years. The 0.9 percent Medicare Part A tax is paid by both employees and employers. Often overlooked, however, is the fact that a veterinarian or practice with profits over $250,000 faces a 0.9 percent increase (from 2.9 percent to 3.8 percent) on the current Medicare Part A tax.
AdvertisementThe ACA continues to offer small veterinary practices affordable insurance options, cost assistance and increased buying power via the Small Business Health Options Program (SHOP). Small practices and businesses employing fewer than 50 can use SHOP to get better deals on employee insurance, but they aren't mandated to do so. It's not necessary to wait for an open enrollment period to use the SHOP Marketplace.
A DIY option: Spending accounts
Currently, more than 20 million Americans use healthcare savings accounts (HSAs) and another 30 million use flexible spending accounts (FSAs). Although the ACA “repeal/replace” legislation remains in limbo, both the successful House version and the failed Senate attempts would have expanded the use of tax-deferred savings accounts to save for healthcare expenses.
Used to pay for medical expenses such as deductibles and copays as well as other expenses, HSA plans are tax-advantaged medical savings accounts available to individuals who are enrolled in a high-deductible health plan. Offered by banks, insurance companies, brokers and credit unions, HSAs combine a high-deductible health plan with an HSA, allowing an individual to pay for certain medical expenses using untaxed dollars. These high-deductible plans have lower monthly premiums than plans with lower deductibles, and unlike other flexible spending accounts, funds in an HSA are not lost when the plan year is over.
In 2017, anyone (and his or her employer) can contribute up to $3,400 to an HSA for individuals and $6,750 for families. Accountholders age 55 and older can contribute an extra $1,000. Unfortunately, in 2017, only health plans with a deductible of at least $1,300 for single individuals or $2,600 for family coverage qualify.
The promised increased benefits for tax-deferred HSAs and FSAs remain a great way for the self-employed and principals in small veterinary practices to cover their healthcare costs.
The plans offered by each state's exchange are classified in four primary tiers: bronze, silver, gold and platinum, with higher premiums but better coverage as the levels ascend. The ACA offers a tax credit for so-called “lower-wage” small practices and businesses that buy insurance coverage through SHOP. Small veterinary practices and businesses that provide healthcare coverage can see up to a 50 percent reduction in their share of the cost.
Employers with fewer than 25 FTEs with salaries averaging $50,000 or less per year and paying at least 50 percent of their full-time employees' premium costs on coverage obtained through the SHOP Marketplace qualify for tax credits to help pay employee healthcare premiums. Employers with 10 or fewer full-time employees paying annual average wages of $25,000 or less qualify for the maximum credit of 50 percent. The amount employers pay is tax-deductible and can be carried forward or backward.
On the down side, many veterinarians have snubbed the exchanges because of the small size of the tax credits and administrative challenges in securing them. These challenges are likely to continue.
Still, before the ACA, many self-employed individuals, small businesses and practices were pushed or priced out of health insurance. Nearly one out of five insurance applicants was denied coverage altogether due to preexisting conditions and more than a third were charged higher rates, according to a Health and Human Services study. The ACA has changed the landscape for these entities, despite its pitfalls.
With talk of further attempts to repeal or replace the Affordable Care Act, keeping abreast of the many benefits and potential pitfalls of the ACA is more important today than ever. It is, however, the skyrocketing cost of healthcare that makes professional guidance a necessity for every veterinarian and his or her practice.
Mark Battersby writes on tax and financial topics for a variety of professions, including veterinary medicine. He lives in Ardmore, Pennsylvania.
