Health Reform Frequently Asked Questions
Do I Pay or Play?
Starting January 2014 large employers will be subject to an employer shared responsibility (ESR) payment if they are not offering affordable benefits to full time employees. Almost each word in the above sentence has a complex definition that may not align with what you currently understand today.
Questions to assess:
Is our company "large"? This calculation includes part time employees and businesses owned within the same control group. Employers with less than 50 full time equivalents in the prior calendar year (must count part time employees) are not subject to the ESR.
Who is a "full time employee"? Once you've determined if you are a "large" employer, then you need to determine who is considered full time. Full time employees are those regularly working 30+ hours/week, with some exceptions for seasonal or variable hour employees. If your policies cover employees working 40 hours or more, then they will need to be amended to cover these employees.
When must they be given benefits? Federal law requires coverage no later than the 90th day from date of hire. California law will require coverage after 60 days (first of the month following 60 days from Date of Hire).
Are our benefits affordable for employees? There are several safe harbors for determining if your contributions are affordable. If they are not, and your employee qualifies for subsidized coverage from the Exchange, then you may be assessed a penalty. Note that if your benefits are affordable for the employee, but they cannot afford to cover their spouse, the spouse will not be eligible for subsidized benefits from the exchange. This is a complex nuance to understand.
What are the penalties? If no employee received subsidies, then there is no penalty. If benefits are not offered at all, and only one employee receives a subsidy, then the penalty is $2,000 per employee, minus the first 30 employees. If benefits are offered, but not affordable, then the penalty is the lessor of (a) # of employees receiving a subsidy X $3,000 or (b) # of employees - 30 times $2,000. Penalties are not tax deductible as a business expense, making them potentially more expensive than affordable, qualifying health insurance.
Contact me to discuss in more detail.
Are your employees eligible for a subsidy?
If your employees are not offered "affordable" health insurance, they may be eligible for a federally subsidized plan from the Exchange. In California, this is called Covered California. The amount of tax credit a person can receive varies with income and household size. Income that is below 400% of the Federal Poverty Limit is eligible for some subsidy, and the subsidy increases if their income is lower.
400% of Federal Poverty Limit is based on household size:
1 Person - $45,960
2 Persons - $62,040
3 Persons - $78,120
4 Persons - $94,200
Contact me for more detail on the FPL Guidelines and calculating affordable contributions for your employees.
What is the Individual Mandate?
The individual mandate requires most individuals to have minimum essential coverage or pay a penalty beginning in 2014. The penalty is now called a “shared responsibility payment.” Some individuals may qualify
for an exemption so they will not be required to have coverage or pay a penalty.
What qualifies as minimum essential coverage? There are many types of that qualify, for most people this includes employer sponsored health coverage, an individual plan or Medicare. If you've had coverage for one day in that month, then you are considered covered for the entire month. You can have a gap in coverage of up to 3 months without triggering a penalty. If you currently have an individual insurance policy, you may be allowed to keep it. Starting in 2014, individual policies may not have an out of pocket maximum, including the deductible, greater than is allowed for a Health Savings Account eligible plans (in 2013 that is $6,250 individual/$12,000 family).
How will penalties be determined and paid? The first penalties will be due when individuals file their 2014 tax returns in 2015. The penalties for 2014 through 2016 are noted below. Beginning in 2017, penalties will increase based on the cost of living. If your net income
2014: Greater of $95 per adult and $47.50 per child under age 18 (maximum of $285 per family) or 1% of net income
2015: Greater of $325 per adult and $162.50 per child under age 18 (maximum of $975 per family) or 2% of net income
2016: Greater of $695 per adult and $347.50 per child under age 18 (maximum of $2,085 per family) or 2.5% of net income
If the penalty applies for less than a full calendar year, the penalty will be 1/12 of the annual amount per month
Are there any exceptions? Yes, there are several. These are the most common three. (1) If you cannot afford insurance offered by your employer or the Marketplace (Covered California or other Federal Exchange). Insurance is deemed unaffordable if the contribution is more than 8% of household income. (2) Taxpayers with income below the tax filing threshold. (3) With an exemption approved by the Marketplace for several reasons such as hardship, religious reasons, native americans, and non-US citizenship.
Do I have to purchase from the Health Exchange (also called Insurance Marketplace)? Yes, if you want and are eligible for federal subsidies. If you aren't, then there is no advantage to enrolling through the Marketplace. California's exchange is called Covered California. State law has been passed that mandates that insurance premiums on the policies within the exchange have to be exactly the same as policies purchased directly from carriers. The advantage of the exchange is that they will work with low income individuals to verify if they are eligible for any tax subsidies. They also hope to make it simpler for people to move between employer coverage and individual coverage as long as both are purchased on their platform. The advantage of purchasing direct from the insurers is that they will have more benefit plan options. We're still waiting on a considerable amount of detail around rates and benefit options.
The following is a very high level summary of some of the most sweeping and complex legislation in health care since the introduction of Medicare. This is intended to be a general summary only and not legal guidance.