If you are a sole proprietor, a small company with fewer than 50 employees or a large, national firm with thousands of employees, you will have opportunities, responsibilities and challenges complying with the Patient Protection and Affordability Care Act (PPACA), also known as ObamaCare. This far-reaching legislation is the most significant and impactful law since the establishment of Social Security and it will affect every American.
Enacted into law in 2010, PPACA requires all citizens to have health insurance, guarantees coverage by eliminating pre-existing medical condition requirements, removing insurance plan limitations and adding free wellness checks for all. With these benefits come obligations and tax penalties for non-compliance; not only for employers, but individuals as well. The Congressional Budget Office projects that 92 percent of Americans will be insured by 2019. Nearly 84 percent of Americans are currently insured through employer plans, individual health insurance plans, Medicare, Medicaid and other government programs. It is anticipated that more will gain access to healthcare, however the affordability aspect of the law remains debatable.
The Individual Mandate
Various provisions of the law have been implemented since enactment, however, January 2014 is the magic date when critical components take effect. Primarily there are four key areas that will rollout: the individual mandate, employer mandate, Medicaid eligibility expansion and the creation of healthcare exchange marketplaces. In 2014, if you are insured through an individual medical policy, your employer or a government program, i.e., Medicaid or Medicare, military health care, etc., keep doing what you’re doing. By maintaining your existing coverage, you satisfy the
individual mandate requirement. Those who are not insured in 2014 will be subject to an annual health tax penalty starting at $95 or 1 percent of taxable income—whichever is greater—and rising to $695 or 2.5 percent in 2016. Some categories of individuals will be exempt from this penalty, including those whose premium exceeds 8 percent of their income, those in certain religious sects and incarcerated individuals.
The Medicaid Expansion
The federal government is assisting those uninsured to get coverage specifically by urging states to expand the income eligibility to obtain Medicaid. By raising the income requirements to qualify for this government health insurance program for the poor, the net widens to include those earning
up to 138 percent of the federal poverty level (FPL). This means a single person could now earn up to $15,000 and a family of four, up to $32,000, and meet Medicaid eligibility. And for the first time, single adults without children will be guaranteed coverage through the program. The federal government is paying the total costs to the states for the new enrollees beginning 2014 through 2016, after which their share will gradually decline over future years. According to the Urban Institute and the Kaiser Family Foundation, if Ohio expands Medicaid, the state is expected spend $4 billion, while the federal government would send $53.3 billion to the state to cover 684,000 Ohioans between 2014 and 2022.
The Healthcare Exchange Marketplaces
One of the cornerstone provisions of ObamaCare requires states to establish healthcare exchange marketplaces or default to the federal government. With an Open Enrollment slated for October 1st of this year and an effective date of January 1, 2014, these virtual marketplaces will offer consumers
the opportunity to shop and compare qualified health plans from private insurance companies just like we shop for car insurance or travel online today. It will provide another option to the individual and employer medical plans currently available. Four different plans and levels of coverage will be marketed. Called metal tiers – Bronze, Silver, Gold and Platinum – these plans provide minimum essential benefits coverage with premiums only determined by geographical region, age, single or family and smoker status. Individuals and families purchasing health insurance through the exchanges (and in the private market) will be guaranteed coverage regardless of medical history—with comprehensive benefits—including hospital, emergency and maternity care, prescription drugs, mental health as well as certain wellness and preventive services. Individual and small group plans whether inside or outside of the exchange are required to offer essential health benefits packages. Although large group plans are not required to do so, they are prohibited from imposing lifetime or annual limits on any essential health benefits that they do offer.
Households with incomes between 133 percent and 400 percent of the federal poverty level (about $15,000 for a single person to about $92,000 for a family of four) that enroll in the healthcare exchange marketplaces will be eligible for premium assistance or subsidies financed by the federal government. The sliding scale of assistance will require this group to make a premium contribution of 3 percent up to 9.5 percent of income toward the cost of their health insurance. It’s projected that the average subsidy could be approximately $5,000, however, low-income married couples could be left out of this important benefit. For example, if two people each earn $30,000 annually, individually, they would be judged to have incomes at about 300 percent of the FPL. But if that couple were to marry, their combined income would total $60,000, or about 500 percent of the FPL as a household of two and therefore would make too much money for the subsidy. Also, if an individual’s employer offers minimum health benefits, they would not be eligible for any premium subsidies.
As of this writing, 26 states (including Ohio) have defaulted to a federally-run exchange, seven states are implementing a partnership exchange where the federal government assists states with specific portions of the exchange, and 17 are establishing their own state-based exchange. The Congressional Budget Office estimates that 7 million people nationally, including self-employed individuals and those who do not currently receive health insurance through work, will obtain coverage through exchanges in 2014. This number is expected to rise to 13 million people in 2015, and 24 million by 2016 as the individual mandate penalties rise. States need large numbers to buy insurance through these online marketplaces to build greater market power, economies of scale and more stable risk pools; thus helping to control the growth of health care spending and insurance costs. This growth is important also to lessen the risk of adverse selection. In insurance jargon, those who need the coverage most have a higher propensity to purchase.
The Employer Mandates
ObamaCare does not require employers to offer health insurance coverage to their employees, however, it does impose a penalty on businesses that fail to insure their employees in certain circumstances. Small employers with fewer than 50 employees are exempt from any penalties.
As an incentive to small businesses to maintain their health insurance programs, the law provides tax credits. Those for-profit small businesses with fewer than 25 employees who have average annual wages of $50,000 or less and who contribute at least 50 percent of the premium for a
health plan, can receive a tax credit toward their costs of health care premiums. From 2010 through 2013, the tax credit will cover up to 35 percent of an eligible small employer’s contribution to employee’s health insurance. Beginning in 2014, they can receive a maximum tax credit of 50 percent of the employer’s contribution to premiums. Those same employers with 10 or fewer full-time employees would be eligible for the full tax credit.
For those large employers, businesses with more than 50 full-time equivalent (FTE) employees (30 hours or more weekly), there are two situations where a tax penalty could be incurred. First, if the company does not offer health insurance coverage and at least one full-time employee purchases coverage from the exchange marketplace and receives a subsidy, the company would be assessed an annual penalty of $2,000 per FTE, excluding the first 30 employees. And second, if a large employer offers health insurance coverage to their full-time employees, but the coverage does not meet the law’s standard for affordability or minimum value, the company incurs a tax penalty of the lesser of $3,000 per FTE receiving premium subsidy from the exchange marketplace or $2,000 per each FTE. To meet the standard of affordability, the employee’s share of the premium cannot exceed 9.5 percent of their annual wages and the plan must meet at least 60 percent actuarial value. These tax penalties begin January 2014, when the exchange marketplaces are active. ObamaCare also establishes numerous additional provisions and reporting requirements for employers, including reporting the value of employer-sponsored health insurance on employees’ W-2 forms; and for those with more than 200 employees, executing auto-enrollment of full-time employees into the health insurance programs.
[To remain informed about ObamaCare and its implementation, visit the U.S. Department of Health & Human Services online at www.HHS.gov/HealthCare or log on to www.healthcare.gov ]
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Sandra Moody is Managing General Agent for Dehan Enterprises Insurance & Financial Services Agency, LLC, providing professional insurance and financial services.