After what seems like decades of debate and frustration, the Affordable Care Act has finally gone into effect. Well sort of. While some requirements have kicked in, others have been delayed, and still others are in limbo – not delayed, not yet defined, so unenforced. It’s no wonder that so many people are confused! Whether you’re an HR professional looking at companywide benefits or an individual concerned with your own health care needs, the new requirements affect us all. So here are a few major points to be aware of as we move into this brave new world!
So exactly what is the Affordable Care Act? Depending on your opinion of the law, it’s either the first step toward the salvation of universal healthcare or the end of the free market. Either way, it certainly spells big changes for the way we do business.
Commonly referred to as Obamacare, the ACA was designed as a way to ensure that all Americans have access to affordable health insurance. While many people with full time jobs have always had health insurance benefits offered by their employer, according to the Income, Poverty, and Health Insurance Coverage in the United States: 2012 report published by the US Census in 2013, about 48 million Americans were still uninsured. This number accounts for people who can’t afford or don’t qualify for employer benefits based on their work status, as well as the unemployed population.
So the ACA was born and now health insurance coverage is required for all Americans. In order for this to happen, many complicated rules and regulations were written into law. The short version – if you are an individual and don’t have health insurance, you will pay a penalty. If you are an employer with 50 or more employees (more on that later) and you don’t provide an affordable health care option (again, more on that in a minute), you will pay a penalty.
The individual mandate was one major part of the ACA that was not delayed, which means that at this moment you are required to have health insurance by the law. So what happens if you don’t?
First of all, it’s not too late. Open enrollment continues through March 31, and as long as you enroll in that time period you won’t be assessed a penalty. However, if you miss the window you won’t be able to enroll until next year’s open enrollment period unless you have a major qualifying life event such as a marriage, death, or birth or adoption of a child. Missing the window also means that you will be penalized when you file your taxes at the end of the year.
The penalty for 2014 is $95 or 1% of your income, whichever is more. While that might not seem like much right now, that penalty rises each year. In 2015 it will become 2% of your income or $325, and by 2016 it will be 2.5% or $695.
You can buy insurance directly from health care providers, but by purchasing through the exchange you may be able to qualify for a subsidy. These subsidies can either reduce your monthly premium, or be claimed as a refund during your yearend tax filing. Subsidies are available for those whose income is up to 400% above the poverty line, and how much you qualify for is directly proportional to where you fall on that scale.
One very important note on subsidies. If your employer provides at least a self-only health care plan that meets the minimum care and affordability standards, you do not qualify for any subsidy. According to the law, plans are affordable if they do not exceed 9.5% of the federal poverty level for an individual. This comes to roughly $190. So as long as you wouldn’t have to pay more than that each month for an individual plan, even if you really would need family coverage, you don’t qualify. This is especially important to be aware of, because some people that will qualify this year might not next year.
First things first, yes the mandate was delayed until 2015. However, there is still much to do in order to be prepared. In other words, don’t slack off just because the deadline was pushed back! As we get prepared for the new requirements, here are some major things to keep in mind.
The new hire wait period requirement was not delayed. The new maximum wait period for benefit enrollment is now 90 days. Which means that if your policy is first of the month after 90 days, you are out of compliance. This new rule goes into effect when your policy renews in 2014.
It’s time to figure out exactly how much the law affects your company. All employers with 50 or more full time employees will need to offer minimum affordable coverage beginning in 2015, so let’s break that down.
Number of Employees
If you have significantly more or less than 50 employees, you can move right along, but if you are somewhere close to that number, pay attention and we’ll cover how to know if you are considered a small employer in the eyes of the ACA.
The first thing to keep in mind, if you have multiple companies under one parent company, your employee count includes all businesses. The IRS will be looking for people attempting to avoid going over the 50 employee line in this way.
The other major consideration is the system the ACA uses to determine your employee count.. Full time is considered working 30 or more hours in the week. And the full time employee count is not a head count, but a Full Time Equivalent (or FTE) count. So if you have 2 employees that work for a combined 30 hours in a week, that counts as one. Now these hours are only hours actually worked: PTO, holiday time, and other paid time that isn’t worked by the employee is not included in the count.
The easiest way to find your count is to look over the prior year using the following equation for each month:
# of full time employees + (# of hours worked by all other employees / 120 hours for the month)
If your average is more than 50 for the year – you are included in the ACA.
Minimum Affordable Coverage
The basic requirements for the coverage required by the ACA is actually one of the least confusing parts of the law. It will not be very hard to find an insurance plan that doesn’t meet the minimum coverage rules as it will no longer make sense for the health care providers to offer it.
As for affordability, the ACA has some built in safe harbors to make calculating this level easier. First of all, regardless of the type of insurance purchased by the employee, if you offer an individual plan that meets the affordability threshold, you have met the requirement. That affordability is considered no more than 9.5% of the income level of the employee, so the ACA allows for the Federal Poverty Level (or FPL) safe harbor. As long as the employee’s monthly contribution is no more than 9.5% of the FPL, it is considered affordable. This calculates to roughly $190 per month.
And now for the scary part, what happens if you don’t comply? There are two main types of penalties that can be assessed. The 4980H(a) for not offering insurance and the 4980H(b) for not providing affordable coverage.
4980H(a): If you have over 50 full time employees and chose not to offer insurance you will be fined $2000 per year for each employee after the first 30.
4980H(b): If the plans offered do not meet the minimum affordable coverage requirements, the company will be fined $3000 for each employee that purchases coverage from the exchange and qualifies for a subsidy.
While these fees may seem minor in comparison to the cost of health care, they are many hidden costs associated with choosing to accept the penalty, the biggest being taxes. You should always review your options, but calculations provided by some of Las Vegas’ largest health care brokers proved that they have yet to find a scenario where not complying with the ACA is in the best financial interest of the business.
Employers also need to keep in mind that because the individual mandate was not delayed, some of their employees will qualify for subsidies if they elect not to provide coverage in 2014. While this will not result in penalties for the year, it can make for some sticky ER situations in 2015 if the employer plan is more expensive than the subsidized plan they had chosen for 2014.
The ACA is a highly complicated piece of legislation and our understanding of its impact continues to evolve as the roll out progresses. While by no means an exhaustive discourse, hopefully this quick summary helped explain some of the ACA basics. For more information, please visit www.HealthCare.gov or contact us at firstname.lastname@example.org.