The Affordable Care Act, Churches, and Ministers

churchmedical_icon-copyI’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. 

Large Employers

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.

Small employers

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.

Individuals

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.

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  1. Don’t forget to look at Christian Health Share Programs! As a Christian, I found my self needing insurance after retiring from my public service job 2years ago. I found Samaritan Ministries Health Care, which is a health share program not an insurance company. SM now has over 85,000 Christian members sharing over 6 million medical needs each and every month. My faith has been raised beyond what I could see. As a member of a church of Christ body my out look to those who practice there faith in different ways has opened my eyes.
    These health care sharing ministries are recognized in the Affordable Care Act in US Code 26 Sec 5000(d),(2),(B) Health care sharing ministry.
    http://www.samaritanministries.org

  2. Thanks Jay, for taking the time to explain some of the law. The greatest opponent of the law is ignorance of the law. any law, not just this one. I know that many people are not competent to understand such complicated jargon lawyers use to write laws. therefore it becomes incumbent upon politicians to represent their constituents the best they can, and explain such laws in plain language, language everyday people can grasp. But in stead of representing the interest of their people, they use their knowledge to hornswoggle the facts to their own political advantage.
    Texas has refused to raise the financial limits in order for folks to get help from Medicaid.
    In other words their Governor had refused to accept money back from the Feds to help their fellow Texans, money that Texas sent in to the Feds in the first place. Makes no sense. It will go to other states, so at least it will help someone.

  3. The State of Texas is currently of the opinion that a golden ring in the snout is still a ring in the snout.

    Participating in the redistribution system being offered by Washington simply gives the federal government de facto eventual control the state Medicaid system via that most powerful of levers: offering to pay or withhold taxpayer money. Texas does not really trust Washington to have our best interests at heart, nor believes the feds are competent to do the job better in any case. We would just as soon continue to manage our own system, thank you. There is no “political advantage” to be had by rejecting the federal Medicaid deal in Texas, in fact, those who measure good exclusively by how much money they get this month have pounded Rick Perry hard and long over it.

    But those who keep up with the issues tend to see this as mainly an argument over who will have long-term control over the Texas Medicaid system, and as such, the decision is much more complex than, “They are giving away free money! Why don’t you idiots have your hand out?” Sigh.

  4. Charles, you have just affirmed what I said in my comment, ignorance of a law does not mean the law is bad. The only federal handout Texas would be getting, is their own money back. states like Texas, New York, and California send in a lot more money to the feds than they ever receive back, but like I said someone will get good out of it, it just won’t be Texans. Well maybe some of the poor uninsured Texans will benefit , the feds will just have to figure out how to circumvent the ignorance of Texas state government. and I do believe this act has done exactly that by federally subsidizing
    the poor in Texas to buy their own insurance policy .

  5. Charles if you truly feel that way, I feel sorry for you. I hope you never need any help, but as a golden rule observer natural you wouldn’t want any one to help you, or your wife and children.

  6. Charles,

    The Feds already provide the vast majority of Medicaid funding and already have substantial control. In Alabama, Medicaid is limited to those qualifying for SSI, meaning those who are virtually penniless. http://www.ssa.gov/ssi/text-income-ussi.htm

    ACA gives states the option to increase Medicaid eligibility to 133% of the poverty limit, with Congress paying from to 90% to 100% of the increased cost.

    Actually, as enacted, this increase was mandatory but the Supreme Court held that it’s unconstitutional for Congress to impose this mandate on the states, and hence it’s optional.

    The tax credits that help pay for individual policies bought through an Exchange subsidize individual premium costs for those between 133% and 400% of the poverty limit. As a result, in states that do not elect to expand Medicaid, individual between 100% and 133% of the poverty limit get no Medicaid and no premium subsidy — and thus will remain uninsured.

    http://www.forbes.com/sites/bernardkrooks/2012/07/10/medicaid-expansion-under-the-affordable-care-act-what-happens-when-states-refuse-to-enlarge-this-coverage-to-its-residents/

    Because hospitals and doctors pay various state taxes, it’s often demonstrable that the states will more than make up the 10% of Medicaid not paid by expanding Medicaid and thus reducing unpaid hospital care.

    Final point: In Alabama, the governor, a retired dermatologist, rejected the expansion because Medicaid pays physicians so poorly — which is true. But no one is forced to accept Medicaid patients, and it’s better for the individual to have insurance that pays poorly than no insurance at all — with hospitals forced to provide care regardless of ability to pay. At least, that would seem to make economic sense at the state level.

    One may question the wisdom of enacting ACA (I have serious complaints myself), but it’s now the law, it’s been upheld as constitutional (largely), and the Republicans can’t defund it.

    With that information in mind, what would be the position of a Moses or Isaiah or Amos or Jesus? You see, I have no interest in the political math. I just want to know what’s right.

  7. Jay, there is no doubt what Jesus told us as Christians to do in this situation. If I were blessed with the powers Charles claims , the god given power to heal by laying on of hands, I would spend my
    waken hours helping these people. It cannot be known how many children have died because they didn’t have proper care. There are thousands of children who suffer in a country of plenty suffer needlessly. I pray for these people every day, and it saddens me beyond description when I here someone say “It’s not my problem”. Please God forgive us that we can’t do more. I thank God every day that my little grandchildren and great grandchildren are blessed with very good doctors, and care. and I cry every night for those children who are not so blessed. God bless the little children.amen.

  8. Can’t find an answer anywhere for this. Maybe you can help. When applying through the exchange, because of the ministers housing allowance, it is forcing my kids into Medicaid, however, I know the housing allowance is taken into account for the purpose of Medicaid. Is there a work around this. My kids don’t need to be on Medicaid, yet the application process through the exchange doesn’t allow me to add the kids to the policy. Any advice?