June 6, 2013
RE: Affordable Care Act Update
We have begun to receive a number of questions regarding the Patient Protection and Affordable Care Act (PPACA), popularly called Obamacare or the Affordable Care Act (ACA). Signed into law by President Obama on March 23, 2010, the ACA is aimed at increasing the number of Americans covered by health insurance and reducing the overall costs of health care. It provides a number of mechanisms—including mandates, subsidies and tax credits to employers and citizens – in order to increase the rate of insurance coverage. Other provisions are intended to improve healthcare outcomes and streamline the delivery of health care. The ACA requires insurance companies to provide coverage to all applicants and offer the same premium rates, irrespective of gender or pre-existing conditions. The Congressional Budget Office has projected lower future budget deficits and lower future Medicare spending, as a result of the ACA. On June 28, 2012, in the case of National Federation of Independent Businesses v. Sebelius, the U.S. Supreme Court upheld the Constitutionality of most of the provisions of the ACA.
The law provides a phase-in time-line, extending into 2020, during which different provisions become effective at different times. For example, immediately upon enactment, Medicaid drug rebates increased and the independent, non-profit Patient- Centered Outcomes Research Institute was established. On July 1, 2010, a 10% sales tax on indoor tanning took effect. For plan years beginning 180 days after enactment, health insurers were required to insure children under 19 with pre-existing conditions, children were permitted to remain on their parents’ policies until age 26 and limits on life-time benefits were prohibited. On January 21, 2011, the “Medical Loss Ratio” policy went into effect, limiting the percentage of premium dollars that could be spent for administrative purposes or retained as profits. A number of different provisions became effective at different times during 2012, including the controversial “contraceptive mandate.” (By regulation, religious institutions were given an additional 12 months - until August 1, 2013 - to come into compliance with this provision.)
Beginning on January 1, of this year, income from self-employment and wages of single individuals in excess of $200,000 annually will be subject to an additional tax of 0.9%. The threshold amount is $250,000 for a married couple filing jointly, and $125,000 for a married person filing separately. In addition, a Medicare tax of 3.8% will apply to unearned income, specifically the lesser of net investment income or the amount by which adjusted gross income exceeds $200,000 ($250,000 for a married couple filing jointly; $125,000 for a married person filing separately.) Further, the limit on pre-tax contributions to healthcare flexible spending accounts will be capped at $2,500 per year. Most medical devices became subject to a 2.3% excise tax collected at the time of purchase. And insurance companies are now required to use simpler, more standardized paperwork, with the intention of helping consumers make apples-to-apples comparisons between the prices and benefits of different health plans.
On January 1, 2014, major provisions affecting local governments as employers and all citizens will go into effect. These will include the establishment of State Health Insurance exchanges, the imposition of fines on uninsured individuals, the provision of subsidies to qualifying individuals seeking coverage through an Exchange and the assessment of penalties against “large employers,” which do not offer affordable, essential health insurance to their full-time employees.
In anticipation of those, and other, requirements, we have been assured that the State’s Division of Pensions and Benefits and the Division of Local Government Services will be issuing guidance next month. In the meantime, based on current regulations (which could be changed by the Federal government prior to implementation), and for planning purposes, here is some basic information.
Under the Employer Shared Responsibility Provisions:
- Any employer with 50 or more full-time employees (or the equivalent thereof) will have to offer affordable health care that provides a minimum level of coverage to all full-time employees or pay a penalty.
- A full-time employee (at least for the purposes of determining whether an employer has reached the 50 full-time threshold) is anyone who works 30 hours per week (on average), for at least 4 months of the year.
- For the purpose of determining whether an employer has reached the 50 employee threshold, the collective hours of part-time employees, divided by 120 each month, equals the number of full-time equivalent employees.
- If the numbers you get in 2. (above) plus the number you get in 3. equals 50 or more, the municipality will have to provide affordable care or pay the penalty.
- If your number is under 50, you will still face some reporting requirements.
A plan is considered “Affordable” if the employee’s share of the premium FOR THE EMPLOYEE ONLY does not exceed 9.5 percent of the employee’s household income. (The act allows employers to use the employee’s W2 to calculate “household income.”) And while the Act requires employers to provide coverage for dependents, it does not require THAT coverage to be affordable. In addition, the regulations as proposed define dependents to include only an employee’s child (including biological child, step child, adopted child, a child placed up for adoption or a foster child) up to age 26. A plan provides “minimum value” if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services (HHS) and the IRS will post a “minimum value calculator.” By entering certain information about the plan, such as deductibles and co-pays, into the calculator employers can get a determination as to whether the plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulation regarding the other methods available to determine minimum value.
The penalties (Employers Shared Responsibility Payment) will fall into two categories. FIRST, if the employer does not offer coverage to at least 95% of its full time employees: The fine will be $2,000 per number of full time employees greater than 30, per year, if any employee applies for coverage through the Exchange and receives a premium tax credit to help pay for the coverage. The penalty will apply for the number of full time employees greater than 30 (that is, for employee number 31, 32, 33, etc) even if only 1 employee gets coverage through the Exchange and receives a premium tax credit to help pay for the coverage. SECOND, if the employer offers coverage to at least 95% of its full time employees, but employs at least one full time employee who applies for coverage through the Exchange and receives a premium tax credit to help pay for that coverage, the employer would also owe an Employers Shared Responsibility Payment. This may occur if the employee is not offered coverage, if coverage offered by the employer is not “affordable,” or if coverage offered by the employer does not provide “minimum value.” In this scenario, the employer will be fined $3,000 per year, per employee who actually receives a premium tax credit to help pay for coverage through the Exchange. This fine is calculated separately for each month (by taking the number of full time employees who receive a premium tax credit each month and multiplying that figure by 1/12 of $3,000). The amount will be capped at what you would have paid if you had not provided coverage at all.
PLEASE NOTE. The Division of Pensions and Benefits has determined that the State Health Benefits Plan meets all affordability and minimum value requirements of the ACA.
We will keep you posted as further guidance becomes available. In the meantime, we have been asked to direct you to pertinent websites. You can visit http://www.dol.gov/ebsa/healthreform/ and http://www.irs.gov/
Very truly yours,
William G. Dressel, Jr.