On March 23, 2010, President Obama signed the Patient Protection & Affordable Care Act (PPACA) into law, followed by the Health Care and Education Reconciliation Act signed on March 30, 2010. Both together are the Affordable Care Act (ACA), which makes sweeping changes to the U.S. health care system.
The goals of the legislation were to expand access to health care coverage for all citizens, make coverage more affordable, improve the quality of care that consumers receive, promote preventive care and wellness, and increase transparency in the health care system.
In 2014, employees may satisfy the individual mandate by purchasing acceptable coverage through their workplace or an insurance exchange. If coverage is not purchased, the penalty will start at $95 per person or up to 1 percent of income for 2014. Income for this purpose is the taxpayer’s household income minus the taxpayer’s exemption (or exemptions for a married couple) and standard deductions. The penalty amount increases to $325 or up to 2 percent of income in 2015. In 2016 and thereafter, the penalty increases to $695 or up to 2.5 percent of income. The penalty for dependent children without coverage is half the amounts listed above. Exemptions to mandatory coverage and penalties may apply.
The changes made by ACA take effect over a period of years (2010-2018). Provisions of the law’s changes are already in effect while other changes are being amended or will become effective in the future. Two key provisions critical to businesses become effective Jan. 1, 2014 – Health Care Exchanges and the Play or Pay penalty for individuals and businesses.
Beginning in 2014, each state will have a health benefits exchange. Each state can decide whether to operate its own exchange or have the federal government run the exchange for its residents.
What is an exchange?
State or federal exchanges are marketplaces for insurers to offer commercial products that contain the essential health benefits outlined in the ACA.
The state of Maryland has been awarded more than $150 million to develop an exchange. The exchange must be financially self-staining by 2015. Products provided in the exchange are insured and managed by private carriers, just as they are now in the group and individual markets today.
Who is eligible to enroll?
In theory just about every citizen is potentially eligible to enroll. Excluded individuals are those eligible for Medicare, those eligible for Medicaid, those living in or entering a country illegally, and certain persons under incarceration. Under certain circumstances if you choose to enroll and purchase a policy through an exchange, you may be eligible for a tax credit. Based on your income you are expected to make a contribution toward the premium. As your income increases, your expected contribution that you must make will increase. Remember, you are buying a policy on your own through a private carrier just like you do now. You may also decide to purchase insurance outside the exchange.
Who is eligible for a tax credit?
Individuals and families with incomes between 100 percent and 400 percent of the federal poverty level (FPL) are eligible. For example, a family of four with income of approximately $23,467 is at 100 percent of the FPL and is expected to pay no more than 2.5 percent of household income toward health insurance premiums. At 400 percent of FPL or income of about $90,000 for a family of four, expected contribution toward premiums is not to exceed 9.5 percent of household income.
Small Businesses (<50 employees in Maryland) will be able to purchase health insurance through the exchange, Small Business Health Option Program (SHOP). However, the Feds have delayed this until 2015 and Maryland is undecided. Unless you are eligible for a tax credit, there is no benefit to purchase insurance through the state exchange.
Having the right insurance advisor is more important than ever before. There are more options to consider and your advisor needs to look at your unique situation from every angle. Most importantly business owners need to know how decisions will affect their business, what the competition is doing and how to attract and retain valuable employees. Of paramount importance, is determining the businesses risk, return on investment and tax minimization strategies. The exchange will limit cost containment strategies and some funding vehicles. Business owners will need a competent advisor versed in various funding options (HSAs, FSAs, HRAs, Defined Contributions, Premium Reimbursement Arrangements, Simple Cafeteria Plans, Section 125 and 105 plans) and ensure they are set up properly.
For businesses, a “hot” topic is the Employer Play or Pay penalty, which comes into effect on Jan. 1, 2014. ACA’s employer penalty is referred to as the “employer shared responsibility payment.” It requires large employers to either “play” by offering health coverage to their full-time employees and dependents that is affordable and provides minimum value or “pay” a substantial excise tax. These excise taxes apply only to large employers.
Determining which businesses are subject to Play or Pay is more complicated than a simple employee count. To confound the matter, there are multiple calculations to determine whether the regulation applies, such as the look-back measurement method and the complex transition rule that determines whether a company is a large employer for 2014, which may be made based on any period of at least six consecutive calendar months during 2013. The transition rule may allow some non-calendar year plans to delay compliance until the beginning of their 2014 plan year.
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For the purposes of calculating whether your business is subject to Play or Pay penalty in the most simplistic terms, a full-time employee is any employee who works 30 hours a week or more. You must also factor your part-timers into the equation. To do this, businesses need to total all of the hours worked by part-timers in a month and divide that number by 120. If the average number of employees is greater than 50 FTEs (full-time equivalents), with some exceptions for seasonal workers, the company is subject to Play or Pay in 2014. Although part-timers are included in the calculation to determine if an employer is eligible for a penalty, the employer is not required to offer benefits nor will they be penalized for those employees working less than 30 hours.
While those employers subject to Play or Pay are not required to offer benefits, a penalty is triggered when a full-time employee is not offered coverage or when the coverage is unaffordable or does not provide minimum value as defined by the ACA. Employers are fined $2,000 per year ($166.67 monthly) x the number of full-time employees minus a 30 employee grace.
If an employer with more the 50 Full-Time Equivalent (FTE) employees offers benefits, they must offer at least the minimum essential health benefits package to all of its full-time employees, pay at least 60 percent of the individual premium and ensure that your employees are paying no more than 9.5 percent of their income toward the premium to avoid the “affordable” coverage penalties. Also, if an employee receives a tax credit in the exchange and is between 100-400 percent of the FPL, the employer will be faced with a $3,000 penalty per affected individual.
The misconception is that most employers think that because they have less than 50 employees that they are not subject to penalties. Although employers with less than 50 employees are exempt from the Employer Pay or Play penalty, they are not exempt from ERISA and Health Care Reform compliance should they offer benefits to employees.
Compliance with the multitude of regulations has become part of the health insurance landscape for small employers. This is true of the ACA, and also the 1974 ERISA laws, that has been overlooked by many businesses. Regardless of your company size, ERISA and Health Care Reform compliance applies to all businesses that offer benefits. There are potential fines of tens of thousands of dollars for non-compliance and the Department of Labor has increased audit frequency.
What Innovative Insurance Solutions does when it comes to multi-level planning and data reporting is identify your risk to exposure, quantify that risk and make the determination of whether or not it is possible to eliminate the risk, mitigate the risk or transfer the risk to third party. Most of us do not think of employee benefits with regard to risk management. We council our clients with an eight-step evaluation to help develop a plan to achieve and maintain compliance with these complex laws. We evaluate and implement robust voluntary programs that directly interface and complement employer paid benefits and provide a HRIS system fit for the clients’ needs.