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The Affordable Care Act—Understanding the Individual and Employer Mandates All audio is streamed through your computer speakers. There will be several attendance verification questions during the LIVE webinar that must be answered via the online quiz at the conclusion to qualify for CPE. For the archived/recorded version of this webinar, there are also 3 review questions per hour and the link to the attendance verification quiz is a final exam on the topics covered during the presentation.
The Affordable Care Act—Understanding the Individual and Employer Mandates Presented by Steven G. Siegel J.D., LL.M (Taxation)
Learning Objectives Upon completion of this webinar you will be able to: Identify what the new law requires Determine eligibility for Exchange subsidies List and explain the four levels of insurance plan options Explain the individual mandate rules and exemptions, what minimum coverage requirements do and don’t include, and penalties for noncompliance Apply the rules for individuals with and without employer coverage Determine eligibility for the health insurance premium assistance refundable credit Calculate tax penalties for not having coverage Explain the employer mandate, employer obligations, and penalties List three safe harbors large employers can rely on when determining affordable coverage
Introduction • The Patient Protection and Affordable Care Act is 2,409 pages long. • The law is divided into 10 “titles,” each addressing a different part of the health care system. • Title I is 374 pages and addresses “Quality Affordable Health Care for All Americans”. • This is the part of the law that deals with health insurance. It is a complex body of law, and the focus of most of this program.
Introduction • Title II is the “Role of Public Programs” • Title III is called “Improving Quality and Efficiency of Health Care” • Title IV is “Prevention of Chronic Disease and Improving Health” • Title VI is “Transparency and Program Integrity” • Title VII is called “Improving Access to Innovative Therapy”
Introduction • Title VIII is called “Community Living Assistance Services and Support” (CLASS) • Title IX is the “Revenue Provisions” • 93 pages describing how this law will be paid for, including the Medicare surtax on net investment income • Title X is called “Strengthening Quality Affordable Health Care for All Americans”
Fair Labor Standards Act • Most U.S. employers—even those with just one employee—are required to send a notice to all employees via first-class mail by Oct. 1 informing them about the new public health insurance exchanges • The notification requirement applies to any business regulated under the Fair Labor Standards Act • Which covers all companies with at least one employee and $500,000 in annual revenue • The letters must be sent to all employees, full-time and part-time and regardless of their benefits plan status • There is no penalty for failure to comply with this rule
Fair Labor Standards Act Specifically, the notice must include: • The existence of the exchange; • A description of the services provided by the exchange; • How to contact the exchange to request assistance; • The employee’s potential eligibility for subsidized coverage on the exchange if your company’s group health plan doesn't provide “minimum value” (i.e., the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs); and • The fact that the employee may lose the employer contribution (if any) toward health insurance coverage if he or she chooses to purchase individual coverage on the exchange.
Fair Labor Standards Act The Notice may be found at: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
The Affordable Care Act Understanding the Individualand Employer Mandates
Overview of What the New Law Requires • The law requires most U.S. citizens and legal U.S. residents to have minimum health insurance coverage or pay a penalty. • It creates state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, through which individuals and small businesses with up to 100 employees can purchase qualified coverage, with premium and cost sharing credits available to individuals and families with income between 133–400% of the federal poverty level.
Overview of What the New Law Requires • The law requires employers to pay penalties for employees who receive tax credits for health insurance through an Exchange, with exceptions for small employers. • It imposes new regulations on health plans in the Exchanges and in the individual and small group markets. • The law expands Medicaid to 133% of the federal poverty level. • Small employers can participate when the Exchanges open by 2014.
Health Insurance Marketplaces Exchanges The exchanges: Every state will have a Health Insurance Marketplace (Exchange) where individuals, families and small business owners can shop online for insurance. • Open enrollment begins October 1, 2013 • Coverage begins January 1, 2014
Health Insurance Marketplaces Exchanges • To date, 18 states and the District of Columbia have elected to have state-run Exchanges: • Seven states have elected to have planned partnership exchanges where the responsibility is shared between the state and federal government • The remaining states will have federally run Exchanges • The law requires the Office of Personnel Management to contract with insurers to offer at least two multistate plans in each Exchange.
Health Insurance Marketplaces Exchanges U.S. citizens and legal U.S. residents who are not incarcerated may purchase coverage through the Exchange. The coverage will be subsidized for individuals in families with income not exceeding 400 percent of the Federal Poverty Level ($44,680 for an individual and $94,200 for a family of four in 2013) who are not eligible for Medicare, Medicaid, the Children’s Health Insurance Program, or affordable employer-sponsored insurance.
Health Insurance Marketplaces Exchanges For purposes of determining eligibility for Exchange subsidies, affordable employer-sponsored insurance is defined as requiring an employee contribution of less than 9.5 percent of household income for an employee-only plan that covers at least 60 percent of medical costs on average (minimum value). If self-only coverage costs less than 9.5 percent of household income, then both employees and their family members are ineligible for subsidies regardless of whether or not family coverage is affordable.
Health Insurance Marketplaces Exchanges • Employers of all sizes may also continue to purchase coverage outside of the Exchange. • The Exchanges will have many responsibilities, including: • Certifying for purposes of the individual responsibility penalty where there has been a failure to maintain minimum essential health coverage. • Advising Treasury which individuals are exempt from the penalty for failing to carry health insurance. • Providing each employer with the name of each of its employees who ceases coverage under a qualified health plan during a plan year and the date of such cessation.
Health Insurance Marketplaces Exchanges The application process: • There is an application presently available online at Healthcare.gov • It can be used by single adults who are not offered health care coverage from their employer and who do not have any dependents and who cannot be claimed as a dependent on someone else’s return. • A different form will be needed for persons who are married or who have dependent children.
Insurance Plan Options Four benefit categories—plus one • Each state will have its own set of plan options, broken down into four tiers, or levels, or benefit categories, namely Bronze, Gold, Silver and Platinum. • In addition, a separate catastrophic plan will be offered through the Exchange.
Insurance Plan Options The four levels are based on actuarial value, i.e., how much of the total health care costs the plan will cover after deductibles, copays, coinsurance and annual out-of-pocket caps. • The Bronze plan represents minimum creditable coverage and provides the essential health benefits, covers 60% of the benefit costs of the plan, with an out-of-pocket limit equal to the Health Savings Account (HSA) current law limit: • $6,400 for individuals and $12,800 for families in 2014 • The Silver plan provides the essential health benefits, covers 70% of the benefit costs of the plan, with the HSA out-of-pocket limits.
Insurance Plan Options • The Gold plan provides the essential health benefits, covers 80% of the benefit costs of the plan, with the HSA out-of-pocket limits. • The Platinum plan provides the essential health benefits, covers 90% of the benefit costs of the plan, with the HSA out-of-pocket limits. • The Catastrophic plan will be available to those up to age 30 or to those who are exempt from the mandate to purchase coverage and provides catastrophic coverage only with the coverage level set at the HSA current law levels.
Insurance Plan Options Special rules for persons with income up to 400% of the federal poverty level • The out-of-pocket limits will be reduced for those persons with incomes up to 400% of the federal poverty level to the following levels.
The Individual Mandate Everyone MUSThave coverage: • Beginning January 1, 2014, nonexempt individuals must either maintain “minimum essential health coverage” for themselves and their dependents or pay a “shared responsibility payment”. • i.e., a penalty • The rules apply to individuals of all ages, including senior citizens and children • The person who claims the child as a dependent for federal income tax purposes is responsible for paying for the insurance if the dependent does not have coverage or an exemption.
The Individual Mandate There are several exemptions from the requirement to maintain minimum health coverage including those for: • Members of recognized religious sects • Members of health care sharing ministries • Persons not U.S. citizens or U.S. nationals • Incarcerated individuals
Everyone Must Have Coverage Some persons will be subject to the requirement to maintain minimum essential health coverage, but exempt from the penalty for noncompliance. Such persons include: • Individuals unable to afford coverage because the health insurance premiums exceed 8% of their household income. • When household income is being determined, a taxpayer’s family includes all individuals for whom the taxpayer properly claims a personal expense deduction. • Taxpayers with household income below the income tax filing threshold: • $10,000 single; $20,000 for married for 2013 • Hardship cases
Everyone Must Have Coverage • Native Americans • Short lapses of coverage (less than 3 months) during the year • Persons residing outside the United States • Dependents, since the person claiming them as such is the responsible party • The spouse is notconsidered a “dependent” for purposes of these rules • An individual is exempt from the requirement to have minimal essential health coverage if the coverage gap is a continuous period of less than 3 months
Minimum Coverage RequirementsThe Essential Health Benefits Package Effective in 2014, these are the health benefits that insurance companies must provide in the policies offered:
Minimum Coverage RequirementsThe Essential Health Benefits Package Vision Dental Care Worker’s Compensation Insurance Automobile Liability Insurance Medigap Coverage • In addition, the law imposes a series of Coverage Mandates • Minimum essential coverage does not include “specialized coverage” such as:
Minimum Coverage RequirementsThe Essential Health Benefits Package Minimum essential health coverage doesinclude: • Government-sponsored health programs • Eligible employer-sponsored plans and grandfathered group health plans • i.e., coverage in effect on March 23, 2010 • Certain changes to plan design will nullify a plan’s grandfathered status • Fully insured plans pursuant to a collective bargaining agreement (CBA) are grandfathered • Plans in the individual (i.e., non-group) market and plans offered by an Exchange
Individuals without Employer Coverage or Eligible to Purchase Coverage Only on the Open Market • Individuals must pay for the lowest-cost bronze plan available minus any credit from the Exchange. • An individual ineligible for coverage under an eligible employer-sponsored plan must pay the premium for the “Applicable Plan” less the maximum amount of the credit allowable • The “Applicable Plan” refers to the single lowest-cost bronze plan available in the individual market through the Exchange serving the rating area in which the individual resides that would cover all individuals in the individual’s nonexempt family.
Individuals Eligible to Be Covered by an Employer’s Plan • If an employee or dependent of an employee is eligiblefor minimum essential health coverage under an employer-sponsored plan, onlythe cost of the employer’s plan determines if the individual lacks affordable coverage. • An employed spouse’s eligibility for the credit is determined by testing the spouse’s own employer’s health plan for affordability.
Individuals Eligible to Be Covered by an Employer’s Plan • Employees with no dependents must purchase the lowest cost self-only coverage. • Employees with dependents must purchase the lowest-cost family coverage • If the coverage offered by the employer is deemed to be “unaffordable” by the employee (i.e., the cost of the coverage exceeds 8% of the employee’s household income), the employee will be deemed to lack affordable coverage and will be exempt from the penalty for not having health insurance.
The Health Insurance Premium Assistance Refundable Credit • A refundable tax credit, the “premium assistance credit” is available to help subsidize the purchase of health insurance. • The credit is not available when minimum essential health coverage is available from an employer or government. • An employer-sponsored plan is not considered “minimum essential coverage” if the required employee’s contribution exceeds 9.5% of household income, or the plan fails to meet the minimum value bronze plan.
The Health Insurance Premium Assistance Refundable Credit The following are required to qualify as an Applicable Taxpayer—for the subsidy: • Taxpayer’s household income must be between 100% and 400% of the federal poverty line (FPL). • If married at year end, the taxpayers must file a joint return • The taxpayer must not be claimed as a dependent on another taxpayer’s tax return. • The taxpayer must be a U.S. citizen or national or an alien lawfully in the U.S. and not incarcerated. • The taxpayer must be enrolled in a qualified health plan which is certified as eligible to be offered by an Exchange.
The Health Insurance Premium Assistance Refundable Credit • Determining the amount of the Premium Assistance Credit requires a complex calculation: • It is anticipated that the Exchanges will perform this computation for the taxpayer. • Initial eligibility for the premium assistance credit is based on the individual’s income for the tax year ending two years prior to the enrollment period. • Once the Premium Assistance Credit has been determined, individuals failing to pay all or part of the remaining premium amount are given a mandatory three-month grace period prior to an involuntary termination of their participation in the plan.
The Health Insurance Premium Assistance Refundable Credit Accordingly, when the PAC is implemented for the first time commencing with the 2014 tax year, it can be administered as an advance credit if the taxpayer so chooses: • When the taxpayer later files their return for the year in which the coverage was in effect, the tax return will show a reconciliation between the state exchange-calculated PAC applied against the cost of coverage and the actual PAC that will be calculated and shown on the tax return for that year. • Any amount of state exchange-calculated PAC paid to the insurance plan that was over and above the actual tax return PAC that the taxpayer qualifies for will be recovered in the form of an additional tax liability. • This additional tax liability has some applicable caps for taxpayers with incomes below 400% of the poverty income guidelines.
The Health Insurance Premium Assistance Refundable Credit • The cap for these taxpayers is implemented along the following three-tiered guideline: • Household Income Percentage of Poverty Income
Tax Penalty for Not Having Health Plan Coverage Those persons without health plan coverage must pay a tax penalty to be included on their 2014 tax return if they do not have appropriate coverage for 2014. • The amount of the penalty is equal to the greaterof: • (a) $695 per year up to a maximum of three times that amount ($2,085) per family, or • (b) 2.5% of the excess of their household income over their tax return filing threshold amount.
Tax Penalty for Not Having Health Plan Coverage • The $695 penalty amount is phased-in • The 2.5% penalty amount is phased-in
Tax Penalty for Not Having Health Plan Coverage Exemptions from imposition of the penalty are available as follows • Financial hardship • Religious objections • American Indians and Alaskan natives • Persons without coverage for less than three months • This exemption only applies to the first gap in coverage • Undocumented immigrants • Incarcerated individuals • Persons for whom the lowest health plan option exceeds 8% of their income • Persons with income below the tax return filing threshold for the applicable tax year
Tax Penalty for Not Having Health Plan Coverage The IRS administers the penalty • It is treated as an additional amount of federal tax owed • However, IRS enforcement provisions are limited
Review Questions for Self-Study CPE For the recorded version of this webinar, now’s the time to answer review questions 1-3. Follow this link: http://www.proprofs.com/quiz-school/story.php?title=NjAyNTky
Employer Obligations • An employer subject to PPACA is only required to provide its full-time employees with the opportunity to enroll in a health care program. • Part-time employees, although counted when determining large employer status are not required to be provided with health care • The non-compliance penalties described below are levied upon a business only if a full-time employee receives subsidized health care through the Exchange.
Employer Obligations PPACA requires that all large employers provide their employees, and dependents, the opportunity to enroll in a health care plan. • Here, the focus is on whether a business is considered a large employer and, if so, is health insurance provided. • To be considered a large employer, a business must employ, at a minimum, 50 full-time equivalent employees. • This includes counting all employees in a control group.
Employer Obligations A full-time employee is one who works 30 or more hours a week or provides 130 hours a month service. • After all the full-time employees have been counted, a business must then determine how many full-time equivalents exist. • This has the effect of converting the part-time workers to full-time equivalents for purposes of applying the large employer test.
Employer Obligations • Waiting periods of more than 90 calendar days (including weekends and holidays) are banned effective 2015. • For new variable-hour employees, coverage must begin less than 14 months from the employee’s start date. • IRS Notice 2012-58 describes safe-harbor methods that an employer may use to determine which employees are considered full-time employees for purposes of administering the PPACA employer penalty provision. • The safe-harbor methods include a measurement, or look-back, period that allows an employer to measure how many hours an employee averaged per week during a defined period of not less than three and not more than 12 consecutive months.
Employer Obligations • Businesses that employ a large number of seasonal employees (retail, farm, etc.) have an exception that they may use: • Full-time seasonal employees who work under 120 days during the year are excluded from this calculation. • The PPACA definition of an employer is based on the common law standard.