This article refers to all regulations issued through March 6, 2014. It is intended to be a summary of important issues and should not be considered legal or tax advice.
Obamacare – it’s everywhere these days. And every pundit and politician has an opinion on each of the law’s provisions and how they will affect the way healthcare will be delivered. With all the conflicting information out there, it can be hard to get a handle on what the truth is. Here’s our summary of the five most misunderstood aspects of the Affordable Care Act – and some insight into how these provisions might affect your business.
1. All businesses will be required to provide employee health insurance.
Not true. The Affordable Care Act does not require employers to offer health coverage. However, it does impose a penalty on larger employers that either do not offer a health plan to their full-time employees or those that offer “unaffordable” coverage. The penalty is only applied when a full-time employee purchases health coverage from the state or federal Exchange (now referred to as a “Marketplace”). This penalty is $2,000 per full-time employee (minus the first 80 employees in 2015 and 30 employees in 2016 and after) if at least one employee receives subsidized coverage from the Marketplace. If the coverage offered is unaffordable, the penalty is $3,000 per year for each employee who receives subsidized coverage from the Marketplace. This second penalty is capped at the amount that the employer would pay if it did not offer coverage at all.
2. Small employers do not need to know whether the coverage they offer is affordable to employees or provides minimum value.
It’s true that small employers (those with fewer than 50 full-time and full-time equivalent employees) and for 2015 large employers (those with fewer than 100 full-time and full-time equivalent employees ) are not required to offer coverage to their full-time employees, but those employees are required to have health coverage. If one of your employees wants to purchase coverage from the Marketplace, he/she needs to know whether the coverage offered through your company is affordable and if it provides minimum value. This information will be used to determine whether or not the employee is eligible for premium credits and cost sharing reductions. When the employee applies for this coverage, you will be asked to complete a section of the application, providing information about the coverage available through your company. In addition, you may want to include the same information in the Marketplace Notice that must be provided to all new employees.
3. It is cheaper for employees who are not eligible for group coverage to not have health coverage and pay the penalty than it is to purchase insurance.
It depends on how much the employee makes, because the penalty gets more expensive each year. In 2014, the penalty is the greater of :
- 1 percent of the employee’s household income or
- $95 per person in the family (half for a child under 18), capped at $285.
The penalty may not seem significant now, but the number continues to increase each year. For example, the penalty for an individual without health insurance in 2016 is the greater of:
- $695 per person (half for a child under 18) capped at $2,085 or
- 3% of household income.
In addition to paying the penalty, anyone without health insurance will be responsible for 100 percent of all healthcare expenses. If you have a medical emergency and do not have health insurance, you will not have any financial protection against bankruptcy. Individuals will only be permitted to enroll in Marketplace coverage once per year, unless they have an event, such as loss of employer-sponsored coverage, marriage or birth of a child, which would allow a mid-year enrollment.
4. Healthcare reform creates a government-run health plan.
False. There is no government-run health plan. The government is not paying the claims, the government will not hire doctors or run hospitals. Private insurance companies are the core of the Affordable Care Act. The government is just setting the rules and requirements for the private insurance companies and is running and/or regulating a federal insurance exchange and various state Marketplaces through which individuals and small businesses can shop for insurance and compare products. Private companies are selling policies in the Marketplace, but they will also continue to sell outside of the Marketplace.
If an individual purchases insurance through the Marketplace (whether state-run or federal), he/she buys from a private company, not from the government. The Marketplace, however, will provide individuals with savings on premiums and out-of-pocket costs based on the individual’s household income and on the federal poverty level. Individuals with household income that is less than 400% of federal poverty level will have access to premium credits and cost sharing subsidies.
5. Large employers do not need to do anything until 2015.
False. Large employers cannot wait until 2015 to prepare for and avoid penalties. The final regulations allow employers with non-calendar year plans to avoid penalties until the first day of the 2015 plan year (for employers with 100 or more full-time plus full-time equivalent employees). This safe harbor, however, is not available to all employers or to all employees employed by those employers. We do not expect there to be a safe harbor in 2016 for employers with 50-99 employees. .
For those employers that sponsor calendar year plans, changes may need to occur in 2014. For example, if your company employs any variable hour employees or seasonal employees, you should begin now to determine if you will need to offer coverage to any additional employees during the next open enrollment period. For planning and budgeting purposes, this information will be helpful to have sooner rather than later.
In addition, some employers may determine that coverage is unaffordable for some employees. If this is the case, you may decide to continue the contributions as they are and accept a potential penalty or you may decide to make changes to ensure that coverage is affordable for all employees. Alternatively, you could offer an additional benefit option that provides minimum value. Or, if your plan is self-funded, you could exclude some essential health benefits so that the premiums are lower and contributions can be set low enough to make the plan affordable. This is another area where planning will prevent last-minute surprises.
Finally, large employers will need to begin tracking employees’ hours worked and other information in 2014 to prepare for the new reporting requirements that will become effective in 2015. This information will also be helpful for planning purposes and for determining which employees must be offered coverage.
Hopefully, this has cleared up some misunderstandings about Obamacare. Are there other aspects of the law that you’re confused about or that you’d like to know more about? Leave a comment to let us know and we’ll try to address them in a future post.
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