I’m sure that many readers have concerns about the application of the Affordable Care Act (“ACA”) to their church and to themselves as a minister or other church employee. I’m going to try to provide some answers here, but obviously can’t cover everything. It’s a HUGE piece of legislation and many answers are yet to come as regulations are issued.
Nonetheless, we can at least try to build a framework of understanding.
First, notice the legal disclaimer on this site.
Second, we need to narrow down our focus just a bit.
Q. What if my church has over 50 employees or full-time equivalents (FTEs)?
A. If you’re that big, you need to hire a capable benefits attorney or consultant. At 50 employees or FTEs, the “employer mandate” kicks in on January 1, 2015, imposing penalties if you don’t provide group health care for your employees.
The rest of this post is limited to churches that employ fewer than 50 employees or FTEs.
Q. Is my church subject to the employer mandate?
A. No. The church is under no obligation to provide group health insurance if it has fewer than 50 employees or FTEs.
Q. Could state law change the answers here?
A. It depends, but often the federal government allows states to impose stricter rules than imposed by Congress. This post only addresses the federal rules, and in most states, there are no higher state requirements — but you will need to check with local experts.
Q. If the church provides group health insurance, must it pay a certain percentage or amount? Must it offer family coverage?
A. For now, the rule is that you may structure your group health plan any way your insurer will allow. But the ACA requires the IRS to issue non-discrimination rules. These are two-years past due and likely won’t be effective any sooner than 2015 (when the employer mandate kicks in for large employers).
When the rules comes out and become effective, all employers will likely be required to comply, but until then, there are no non-discrimination rules as to health plans (except for self-funded plans). State law could have its own requirements.
Q. Is the church entitled to a payroll tax credit for health insurance premiums paid for this year?
A. Your church likely qualifies to claim a tax credit against payroll for health insurance premiums paid. One summary of the law may be found here. To qualify for the Small Business Health Care Tax Credit, you must pay at least 50% of your full-time employees’ premium costs. You don’t need to offer coverage to your part-time employees or to dependents.
It’s astonishingly complex, but the fewer employees a church has and the lower the wages, the higher percentage of premiums paid qualify for the credit. It could mean several thousand dollars to the bottom line.
You’ll need a CPA to help figure the credit.
Note that beginning in 2014, you must buy insurance through the SHOP Exchange to qualify for a premium credit.
Beginning in 2014, the church may only claim the credit for a two consecutive year period elected by the church.
Q. My church has too few employees to qualify for group health insurance. What should I do?
A. Parallel with the Exchange for individuals is the SHOP Exchange for small employers. Therefore, your church may either buy health insurance through an insurance agent or through the SHOP Exchange via the internet.
Generally, there is no minimum size for a church to participate in a SHOP Exchange to sponsor a group health plan.
Moreover, beginning in 2014, the church may only claim a payroll tax credit if it buys through the SHOP Exchange.
Q. What is the “individual mandate”?
A. Beginning January 1, 2014, every individual must have health insurance or else pay a penalty to the federal government, as part of their Form 1040 filing.
The penalty is the greater of:
- For 2014, $95 per uninsured person or 1 percent of household income over the filing threshold,
- For 2015, $325 per uninsured person or 2 percent of household income over the filing threshold, and
- For 2016 and beyond, $695 per uninsured person or 2.5 percent of household income over the filing threshold.
There is a family cap on the flat dollar amount (but not the percentage of income test) of 300 percent, and the overall penalty is capped at the national average premium of a bronze level plan purchased through an exchange. For individuals under 18 years old, the applicable per person penalty is one-half of the amounts listed above.
Beginning in 2017, the penalties will be increased by a cost-of-living adjustment.
Obviously, the cost of health insurance will normally be higher than the penalty, but perhaps not after tax credits are taken into account. In any event, the penalty may be enough to tip someone’s decision toward buying on the Exchange or participating in an employer’s group health plan.
Q. I have an individual health insurance policy that the church reimburses me for, with before tax dollars. Does the ACA change the result?
A. Yes. Beginning January 1, 2014, employers may only use before-tax dollars to pay for their own group health insurance premiums. Individual policies, whether or not bought on the Exchange (see below), do not qualify.
Q. Could the church adopt a cafeteria plan so I could pay individual or Exchange policy premiums with before-tax dollars?
A. No. A cafeteria plan does not change the result.
Q. The guy I share a locker with at the gym says I’m not an employee for ACA purposes because I’m a minister of the gospel.
A. Wrong! Many ministers are exempt from FICA (but subject to the Self-Employment Tax) because the Social Security Act treats ministers of the gospel as non-employees. But that has nothing to do with anything else in this world. Period.
Q. What’s an Exchange?
A. Every state has a website that you may use to buy individual health insurance. The websites are open, but insurance will not become effective until January 1, 2014.
Moreover, if your income is low enough, you may claim tax credits (which you’ll receive even if you don’t pay enough taxes to cover the credit) to help pay the premiums. This is handled electronically through the website. There’s a calculator that will estimate your tax credits.
However, you may not receive tax credits if you’re eligible under your employer’s group health plan and that plan meets “minimum essential coverage” and is “affordable.”
Q. Does my housing allowance count as income for purposes of figuring the tax credit?
A. Evidently not. “Income” for this purpose is your adjusted gross income modified by adding to it any non-taxable Social Security benefits you receive, any tax-exempt interest you earn, and any foreign income you earned that was excluded from your income for tax purposes. I’ve seen nothing that requires you to add in your housing allowance (although this could change when regulations come out).
As a result, ministers could qualify for a significant premium credit despite having a higher income than most qualifying individuals.
Q. Will pre-existing conditions be covered?
A. Yes. Immediately.
Q. Are the church’s employees better off under a group health plan sponsored by the church or buying insurance on the Exchange?
A. It’s hard to say.
First, you have to compare premiums. Group health plans aren’t necessarily priced the same as Exchange plans.
Second, you have to compare coverage. Coverages will be similar but may not be identical, and the coverages that matter most to one person may not matter as much to someone else.
Third, you have to compare subsidies. The church might pay 50% or more of the premium, whereas the tax credit you receive from the Exchange may be more or less than that.
It’s easy to imagine cases where the employees of the church would be better off with no group health plan, and cases where a group health plan would be better.
Moreover, at this point, it’s very hard to predict future premium increases or to predict whether group plans will experience the same rate increases as Exchange plans.