Your Source for Health Reform

Case Study 1: ABC Auto

Case Study 1: ABC Auto

Body shop uses tax credits to cover all its mechanics

Gregory Williams, owner of ABC Auto Mechanics, does not currently offer a group health insurance benefit for himself or his four other full time employees. Pre-ACA Gregory thought that providing a group plan, particularly for so few employees, would be cumbersome and expensive. Recently, he had some staff turnover and has difficulty competing with larger auto mechanic chains in retaining employees.

Greg is happy with the employees that he has now, and wants to find ways to make sure that they stick around. Greg believes that a substantial employee benefit package is key to retaining his staff, but previously thought of health insurance as unattainable. He attended a small business event through his local chamber and talked to a member of the Enroll Chicago Small Business Initiative. Through this he learned the ACA may provide opportunities for businesses like his to begin an employer sponsored health insurance plan that won’t break the bank, through the Small Business Health Options program, or SHOP.

At first, Greg was skeptical, but thought it would be worth his while to explore the options and see if it was something that could make financial sense for his business. Greg went to getcoveredillinois.gov/brokers and found a broker right in his neighborhood who helped him compare options.

Given that ABC Auto Mechanics has fewer than 50 full-time equivalent employees, the company is eligible to purchase and enroll in the plan as an employer through the SHOP. (A larger company, with some part-time workers, could have used this calculator to check.)

With the help of a broker, Greg’s steps are to:

  1. Determine if his business is eligible for the employer tax credit to offset up to half of the employer’s premium contributions.
  2. Compare plans and pricing and select a plan for the group.
  3. Establish a premium contribution strategy. Greg will need to pay at least 50% of the premium to qualify for the tax credit.
  4. Inform and educate employees about their new health insurance options. Assist them in the enrollment process.

STEP 1. Is ABC Auto Eligible for the Employer Tax Credit?

Greg looks at his employee characteristics. He lists the people on his team and their annual income. Since no one on his team makes over $50,000, he knows that the average salary will not be over the maximum average salary to qualify for a tax credit.

Employee Payroll
1. Age 18, Single $20,000
2. Age 22, Single $25,000
3. Age 27, with a Child $25,000
4. Age 40, with a Spouse and Child $30,000
5. Age 50, Single $40,000
Average Salary $28,000

Greg sees immediately that he has met the first two of the three core eligibility requirements for the employer tax credit. He has fewer than 25 FTEs, and their average salary is less than $50,000.

Requirement Eligibility ABC Auto Requirement Met?
Number of FTEs Less than 25 5 YES!
Average Salary Less than $50,000 $28,000 YES!
Minimum Contribution 50% of the Single Rate Let’s decide!

The third core eligibility requirement is an employer contribution of at least 50% towards employee premiums. Greg must now find out precisely how much he needs to contribute the in order to qualify for the employer tax credit on a SHOP plan. Greg checked eligibility requirements using a tax credit calculator and found that his company could qualify for a tax credit on a group plan, so his next step is to compare options and make some choices.

STEP 2: Compare Plans Options and Choose a Plan

Knowing that ABC auto likely qualifies for a tax credit, Greg decided to meet with a broker. Together they looked through all available options and decided that a Silver HMO plan through the SHOP marketplace would be the best option for Greg and his employees. Silver plans have coinsurance of 70%, meaning that 70% of all covered medical expenses will be paid for by the plan after the plan holder reaches his/her deductible. Like all plans on the marketplace, this plan covers preventive care at 100% and the 10 categories of essential health benefits. After choosing a plan, Greg needs to figure out what ABC Auto can and will pay towards employee premiums.

STEP 3: Establish an Employer Contribution Strategy

Greg and his broker find a suitable plan, and list out how much the premium for each of his staff and their dependents would be. This allows them to calculate the amount of the Employer Tax Credit for each employee, and arrive at the approximate monthly cost of the plan for his business as well as for members of his staff.

Worker Total Premium Minimum Employer Contribution (50%) Employer Tax Credit Employer Expense after Tax Credit
1. age 18 $133.00 $66.50 $33.25 $33.25
2. age 22 $210.00 $105.00 $52.50 $52.50
3. age 27 $221.00 $110.50 $55.25 $55.25
3. child $134.00
4. age 40 $354.00 $134.50 $67.25 $67.25
4. child $354.00
4. spouse $134.00
5. age 50 $376.00 $188.00 $94.00 $94.00
Total $1,745.00 $604.50 $302.25 $302.25

This estimate shows ABC Auto’s costs coming to just over $300 a month, and his employees’ monthly premiums ranging from $66.50 for the single 18-year-old to $188 for the mechanic in his 50s if ABC Auto contributes 50% towards employee premiums.

If an employee’s share of the premium were to exceed 9.5% of his/her income, that person could qualify for a premium tax credit on their own in the marketplace. At this level, Greg’s employees have the following expected monthly contributions, showing that they are not eligible for tax credits on the marketplace because employer coverage is affordable.

Worker Expected Worker Contribution Monthly Income % of Salary for Employee Coverage Is Individual Market Tax Eligible?
1. $66.50 $1,666.67 4% No
2. $105.00 $2,083.33 5% No
3. $243.50 $2,083.33 5% No
4. $537.50 $2,500.00 5% No
5. $188.00 $3,333.33 6% No

Employers need to meet participation requirements to begin a plan. As a result, Greg could choose to increase his contributions, to incentivize enrollment into a group plan.

What if Greg pays 75% of premium costs? The table below reflects how an increase on his part changes each employee’s situation.

Worker Premium Employer Contribution Employer Tax Credit Employer Expense after Tax Credit Worker Premium
1. $133.00 $99.75 $49.88 $49.88 $33.25
2. $210.00 $157.50 $78.75 $78.75 $52.50
3. $354.00 $165.75 $82.88 $82.88 $188.25
4. $672.00 $201.75 $100.88 $100.88 $470.25
5. $376.00 $282.00 $141.00 $141.00 $94.00
Total $1,745.00 $906.75 $453.38 $453.38 $838.25

A shift from $302 to $453 in the employer contribution due to the continued tax credit translates into significant reductions in the worker contribution, which now range from $49 to $141, Greg chooses to pay 75% of premium costs as part of his plan offering.

STEP 4: Educate Employees on New Health Insurance Options

Greg informs his employees of health insurance options now available through his business, the individual health insurance marketplace, and Medicaid. He uses information from Illinois Health Matters to supplement informing his employees about their health insurance options. In addition, he provides all necessary enrollment documents. After weighing options, all of Greg’s employees chose to enroll in the SHOP plan provided through ABC Auto. Several of Greg’s employees, who had been uninsured in the past, went to see a doctor for the first time in years.

Conclusion

Ultimately, Greg chose to work with a broker and purchase a group health insurance plan through the SHOP to cover his employees. He chose the SHOP because it meant he was eligible for the small business tax credit to help him pay for employee premiums. He chose a generous employer premium contribution of 75%, ensuring that premiums were kept very affordable for his employees, and utilized the tax credit to offset some of that cost.

 

Is This Similar to Your Business?
Contact a certified broker or navigator to help you through the process of comparing plans and prices for you and your employees. They can help you in working through the steps to determine your best course of action. And if your particular small business’ health insurance challenge does not resemble this one, take a look at our other case studies.