What Businesses Need to Know for 2015
The Affordable Care Act (ACA) was signed into law on March 23, 2010, with the aim of reducing the number of individuals without health insurance and minimizing health care costs in the United States.
Many of the ACA components implemented to date focus on health insurance reform, expanded health insurance coverage and health plan administration. In 2014, individuals were required to purchase health insurance either through their employer or on their own, and face penalties on their tax returns for 2014 if they failed to do so. That fee will increase from $95 or 1 percent of individual annual income to $395 and 2 percent next year. For those unaware of the new mandatory requirement, insurance brokers were able to guide them through a special open enrollment period that ends April 30 and help them avoid the penalty.
The ACA also spawned the creation of government-offered exchanges starting in 2014 offering approved private insurance carriers with affordable health plans, both at the state and federal level, through a health exchange program that allows consumers to receive a potential federal subsidy and possibly a cost sharing reduction. This reduces the deductible for individuals or families that qualify for the program based on their income.
ACA – Affordable Care Act
“There is definitely a benefit for lower income families that were unable to afford it and for those with pre-existing conditions,” says E. Glenn Arrington Jr., president of Group Benefit Strategies, LLC in Bel Air and board member of two national insurance associations and the Joint Legislative Committee in Maryland. “People are now able to get insurance without medical underwriting. Those who were uninsured in the past are now able to get insurance easier in the exchanges.”
However, the ACA has not benefitted all individuals and families. Arrington has had clients who had individual affordable coverage prior to 2014 individual exchanges, who were enrolled through medical underwriting while healthy and renewing for years. Under the Affordable Care Act, they were required to purchase an ACA compliant plan and saw their rates double in some cases.
In 2015, the ACA focuses on the employer, with an employer coverage mandate, employer reporting requirements and health plan administration requirements.
Employer Coverage Mandate
The Employer Coverage Mandate is effective in 2015 for Applicable Large Employers (ALEs), those with 100 or more full-time employees or the equivalent of 100 full-time employees, based on computing total hours for part-time employees (Full Time Equivalent employees, or FTEs).
Under what is called the “employer shared responsibility” or “pay or play” rule, employers are required to offer affordable group health insurance for full-time and full-time equivalent employees and their dependents that meets minimum coverage standards and is approved by the ACA. According to Arrington, an employee is considered full-time at 30 hours per week, and affordable is defined as if the employee does not have to contribute more than 9.5 percent of his or her annual household income. Employers will be subject to penalties if any full-time employee receives a subsidy from the government to enroll in the health exchange for insurance coverage because the employer plan is deemed unaffordable.
The penalties went into effect in January for employers with 100 or more full-time equivalent employees and will be assessed in 2016. For smaller applicable large employers, with 50-99 ALEs, the penalties will be enforced in 2016 for tax filings completed in 2017.
Beginning with the 2015 tax year, groups of 100 or more ALEs, medium-sized and large employers not offering health insurance will pay a penalty of $2,000 for each full-time employee. To phase in the process, the ACA stipulates that for 2015, the first 80 full-time employees, and their dependents, not offered health coverage will be exempt from the penalty calculation. After 2015, employers will be exempt from paying the penalty for only the first 30 full-time employees not offered coverage.
However, an ALE can satisfy the requirement for 2015 if it provides health coverage to at least 70 percent of its full-time employees and their dependents. In 2016 and beyond, the mandate stipulates that 95 percent of full-time employees must be provided coverage.
ALEs with 100 or more FTEs who offer “unaffordable” health coverage and their employees choose coverage on the health exchange will be subject to a $3,000 annual fine for each full-time employee receiving a subsidy from the exchange, excluding the first 80 employees for 2015. After 2015, only 30 employees are exempt from the calculation.
Employer Reporting Requirements
The ACA created new reporting requirements for employers to ensure that employer-offered plans meet criteria as being affordable. Under the Internal Revenue Code, employers must provide information about the type of health plan coverage they offer to their employees and the premiums they are charging. The detail includes a list of the employees covered by the plan as well as information about the makeup and cost of the plans. The 2015 tax year is the first to require this reporting, which will be filed in 2016.
These requirements pertain to employers with self-insured plans and ALEs with at least 50 full-time employees including FTEs.
All entities playing a role in the administration of a self-insured plan must file an annual return with the Internal Revenue Service. This includes companies that issue, sponsor or administer the plan or provide minimal essential coverage. Reporting information includes providing a list of all employees who are delivered coverage and a statement to each of those employees.
Returns must also be filed to the IRS by ALEs with at least 50 full-time employees, including full-time equivalents. The filing must report the terms and conditions of provided health care coverage during the calendar year. Statements must be provided as well to the employees.
Health Plan Administration
The ACA also requires employers to comply with requirements of the federal Health Insurance Portability and Accountability Act (HIPAA), which protects the confidentiality and security of health information. This pertains to electronic transactions as well as paper transactions. Employer representatives must become HIPAA certified through a reputable provider by Dec. 31, 2015.
The ACA also limits health care Flexible Spending Account (FSA) contributions. The limit for plan years beginning after Jan. 1, 2015 is $2,550. This federally mandated maximum amount will increase in later years to meet cost-of-living expense growth. Employers may offer a FSA plan up to but not exceeding the maximum spending amount.
“The Affordable Care Act has helped some citizens of Maryland that needed the help to be able to receive health benefits,” Arrington says. “It has also empowered business owners to provide insurance. For years, some employers have offered insurance to attract good employees. Now, large employers with over 100 employees are required to offer insurance or find themselves with potential penalties. Next year, employers with 50 employees will face penalties as well.” I95