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Healthcare Exchanges and other Affordable Care Act Provisions

The Affordable Care Act is dominating the news again thanks to the Federal shut down and the beginning of enrollment for healthcare exchanges.  With so much discussion surrounding the debate, these and other provisions that affect you can be overlooked and the moving dates can make them confusing.  Here is a look at the key provisions that affect individuals and small businesses and the effective dates currently in place.

Individual Regulations

Individual Coverage Mandate

Starting in 2014, most people must have “minimum essential health coverage”.  Most Americans must have health insurance by March 31, 2014 or face a tax penalty.  (You can get an exemption in certain cases)

Individual Shared Responsibility Payment

If someone who can afford health insurance doesn’t have coverage by March 31, 2014, they may have to pay a fee in addition to being responsible for all of their health care. The fee for failure to buy qualifying insurance will be the greater of $95 per adult or 1% of household income in 2014, climbing to $695 per adult or 2.5% of income by 2016.

Health Insurance Marketplace (Exchanges)

Many people will continue getting their insurance coverage through work, but for everyone else, states or the federal government offer an "exchange" where people can purchase insurance which meets the minimum coverage requirements.  Open enrollment in these exchanges began on October 1, 2013 and will end on March 31, 2014.  After open enrollment ends on March 31, 2014, they won't be able to get health coverage through the Marketplace until the next annual enrollment period, unless they have a qualifying life event such as moving to a new state, certain changes in your income, and changes in your family size.

How do Healthcare Exchanges Work

In Tennessee, the exchange is run by the federal government and can be accessed at Healthcare.gov.  Getting coverage through the Exchange is a 4 step process involving:

1. Set up an Account – You will enter basic information and create a user name and password
2. Apply Online - Here you will need to enter details of your family, income, household size and current coverage information.
3. Compare your options – Once the application is submitted you will be presented with the options you qualify for and their cost.
4. Enroll.  After you have compared your options and decided on a plan, you can enroll online and arrange to pay for your premiums.

When comparing your options, there are 4 categories of insurance plans in the exchanges: Bronze, Silver, Gold, and Platinum. The categories do not reflect the quality or amount of care the plans provide, but rather how much your premium costs each month and your total out-of-pocket costs—the total amount you’ll spend for the year.  Each plan level is designed to cover at least a certain percentage of a typical person’s expected out of pocket costs as shown below.

 

The cost of the plans offered on the exchange vary widely depending on your specific family size, age, and makeup and which level plan chosen.  You must enter detailed information about your situation and submit an application to see what options are available to you and what they will cost. 

The Kaiser Family Foundation has created an online calculator that will prepare a simple estimate of what may be available to you.  Below are some examples we ran for comparative purposes.

• A single individual aged 30 could pay an annual premium of $1,479 for a bronze plan or $2,006 for a Silver plan before any subsidies are determined.
• A married couple aged 40 with 2 children under 20 could pay an annual premium of $4,985 for a bronze plan or $6,763 for a Silver plan.
• A married couple, aged 55 with no dependents could pay an annual premium of $5,811 for a bronze plan or $7,884 for a Silver plan.

You can run your own estimate on the Kaiser Family Foundation Calculator Here:

Premium Assistance Credit

The Affordable Care Act also provides a new tax credit which is designed to make health insurance affordable to individuals with incomes between 100% and 400% of the federal poverty level who are not eligible for other qualifying coverage, such as Medicare.  The federal poverty level for 2013 is $11,490 plus $4,020 for each additional household member.  This means that an individual would be eligible for the credit if their income is between 11,490 and $45,960.  A family of four, (poverty level of $23,550) would be eligible for the credit if the family income is between $23,550 and $94,200.

The credit is available for individuals who purchase affordable coverage through the exchanges. 

Surtax on Investment Income (3.8%)

As part of the Affordable Care Act a new tax kicked in this year, the Unearned Income Medicare Contribution Tax.  It is a 3.8 % surtax levied on the net investment income of taxpayers in the higher income brackets.

Surtax on wages (.9%)

Also effective for tax years beginning with 2013, an additional 0.9% tax applies to individuals receiving wages or earning self-employment income in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

Small Business Regulations

Employee Notification Requirement

Beginning Oct. 1, any business with at least one employee and $500,000 in annual revenue must notify all employees by letter about the Affordable Care Act’s health care exchanges. The requirement applies to any business regulated under the Fair Labor Standards Act (FLSA), regardless of size. Going forward, letters are to be distributed to any new hires within 14 days of their starting date, according to the Department of Labor.

The Department of Labor provides model notices for employers:

• Employers with plans: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
• Employers without plans: http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf

Employer Mandate

The employer mandate had been scheduled to take effect in January 2014, but was delayed by 1 year until January 1, 2015.  Companies with at least 50 full-time equivalent employees (A 30-hour work week counts as full-time) must offer health insurance or face a penalty.

The employer mandate rules don't apply to the vast majority of small businesses since as of 2010, 97% of small businesses have fewer than 50 employees.  A huge majority of those with more than 50 employees already offer benefits but could still be affected if their insurance does not meet the essential minimum coverage or does not meet the affordability rules.  In general, an employer-sponsored plan is not affordable if the employee's required contribution with respect to the plan exceeds 9.5% of his household income for the tax year.

Credit for Small Employer Health Insurance Premiums

The tax law provides a credit for small business employers who pay the health insurance premiums for their workers. This credit can be as much as 35% of the insurance premiums paid by the employer in 2013.

Beginning in 2014, the credit percentage increases to 50%.  Claiming the credit is limited to two consecutive years, but does not include credits claimed for any of years 2010 through 2013. In addition, for 2014 and later years, the insurance must be purchased through a state exchange, and the coverage must be uniform and not less than 50% of the premium cost.

To qualify for the credit, the employer can’t have more than 25 full-time equivalent employees, and the average wage of the employees cannot exceed $50,000 for the year. The 25 full-time equivalent employee limit is computed by taking into account both full-time and part-time employees for the year using a formula.