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Q: What is the Employer Requirement to Offer Coverage?
A: There is no employer mandate, however, employers with more than 50 employees who do not offer health insurance and have at least one employee who receives a premium tax credit will be assessed a fee of $2000 per full-time employee, excluding the first 30 employees from the assessment. Employers who offer coverage but have one or more employees receiving premium tax credits will be assessed a fee of the lesser of $3000 for each employee receiving a premium tax credit, or $2000 for each full-time employee. In order to determine if an employer is covered by this language, the employer will count the number of full time employees each month, and also the number of full-time equivalents, which is calculated by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120. Employers with less than 50 employees are exempted from these penalties.
The bill also requires employers who offer insurance to provide a free-choice voucher to employees with incomes less than 400% of the federal poverty level ($14,404 for individuals and $29,327 for a family of four in 2009) if their share of the premium cost is between 8-9.8% of income to enable the employee to purchase insurance in the proposed Insurance Exchange. Employers who offer vouchers will not be subject to the penalties listed above. Employers with over 200 employees must automatically enroll employees into a health insurance plan. Employees may opt out. These changes will go in to effect on January 1, 2014.
Q: Are there tax credits for small businesses?
A: There are small business tax credits in the law that will be phased in over the next four years. These tax credits are available for employers with no more than 25 employees and average annual wages of less than $50,000. In the first phase, which will be implemented from the years 2010-2013, the government will provide a tax credit of up to 35% of the employer's contribution to the employee's health insurance premium if the employer contributes at least 50% of the total premium cost or 50% of a benchmark premium. The credit will be awarded on a sliding scale. The full credit will be given to employers with less than 10 or fewer employees and average wages of $25,000. The credit phases out as the firm size and average salary increases. Tax-exempt small businesses meeting these requirements are eligible for a tax credit of up to 25% of the employer's contribution to the premium. In the second phase (2014 and beyond), eligible businesses who buy insurance through one of the State exchanges will receive a tax credit of up to 50% of the employer's contribution if the employer contributes at least 50% of the employee's premium total cost. As with phase 1, the full credit will be given to employers with less than 10 or fewer employees and average wages of $25,000. The credit phases out as the firm size and average salary increases. Tax-exempt small businesses meeting these requirements are eligible for a tax credit of up to 35% of the employer's contribution to the premium. These credits will be available for two years.
Q: Is there an individual mandate to purchase health insurance?
A: Yes, all U.S. citizens and legal residents will be required to purchase health insurance with the exceptions granted for financial hardship, religious objections, American Indians, undocumented immigrants, individuals without coverage less then three months, incarcerated individuals, if the lowest cost plan is 8% of an individual's income, and for those with incomes below the tax filing threshold for taxpayers under 65.
Q: What happens if I am not eligible for the exceptions and choose not to purchase health insurance?
A: If you do not have qualifying insurance, you will pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount per family, or 2.5% of household income. The phase in for the penalty is as follows: 2014, flat fee of $95.00 or 1.0% of taxable income; 2015, flat fee of $325.00 or 2% of taxable income; 2016, flat fee of $695 or 2.5% of taxable income. After 2016, the penalty will be increased annually by a cost-of-living adjustment.
Q: How will this legislation improve coverage?
A: There are numerous provisions in the legislation that will improve individual coverage:
- A group health insurance plan and a health insurance issuer offering group and individual plans may not establish lifetime limits on the dollar value of benefits or unreasonable annual limits on the dollar value of benefits;
- A group health insurance plan and a health insurance issuer offering group and individual plans may not rescind the plan or coverage once the insured is covered under the plan;
- Require coverage without cost-sharing for certain preventive health services;
- Extends dependent coverage to 26 years of age;
Q: I cannot get insurance now because of a preexisting condition, how will the legislation help with this?
A: Within 90 days, the law would establish a temporary national high-risk pool to provide health insurance coverage for eligible individuals. This program will end on January 1, 2014, when the health insurance exchange is functional. Eligible individuals must meet the following criteria: (1) is a citizen or national of the United States or is lawfully present in the United States; (2) has not been covered under creditable coverage as in effect on the date of enactment of this Act) during the 6-month period prior to the date on which such individual is applying for coverage through the high risk pool; and (3) has a pre-existing condition, as determined in a manner consistent with guidance issued by the Secretary of Health and Human Services.
Q: What will be required of employers in terms of providing qualified coverage for its employees?
A: There are complex employer mandates requiring some firms to provide insurance, pay penalties or both. Insurance must meet a 60% actuarial value test to qualify. The penalties are based on (1) the number of full-time and full-time equivalent employees, (2) if the firm offers coverage, and (3) whether or not one or more employees qualify for government subsidies toward the purchase of health insurance. An employee qualifies for a subsidy if his or her household income is below 400% of the federal poverty line. For a family of four, the Federal poverty guidelines for the 48 contiguous states and the District of Columbia is $22,050; for Alaska it is $27,570 and for Hawaii it is $25,360. Here are some of the rules:
- More than 50 full-time employees. Does not offer insurance. Has one or more employees receiving premium subsidies. The first 30 workers would be subtracted from the calculation. Penalty = $2,000 per employee.
- More than 50 full-time employees. Offers qualified health insurance. Has employee(s) receiving premium subsidies. Penalty = lesser of $3,000 per subsidized employee or $2,000 per employee.
- More than 50 full-time employees. Offers qualified insurance. Has no employees receiving premium subsidies. No penalty.
- 50 or fewer full-time employees. No penalty.
Q: Has the Obama Administration released any information on the small businees tax credits?
A: Yes. Last month, the IRS released guidance on the new Small Business Health Care Tax Credit The guidance is intended to make it easier for small businesses to determine whether they are eligible for the new health care tax credit and how large a credit they will receive. IRS Notice 2010-44 provides guidance on the credit, including guidance for determining eligibility for the credit, calculating the credit and claiming the credit.
The small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. The credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers. Small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Small businesses are permitted to receive the credit not only for regular health insurance but also for add-on dental and vision coverage. For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.
More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the Affordable Care Act page on the IRS website. IRS Notice 2010-44 is posted on www.IRS.gov and provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit.
Q: We have heard much about the health insurance exchanges-how will they work?
A: The legislation authorizes the creation of state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges. These plans would be administered by a governmental agency or nonprofit entity that is established by a State. Individuals and businesses with up to 100 employees can purchase insurance through the exchange. Beginning in 2017, businesses with more than 100 employees can purchase insurance coverage through the SHOP exchange. A State may elect to provide only one Exchange in the State for providing both Exchange and SHOP Exchange services to both qualified individuals and qualified small employers, but only if the Exchange has adequate resources to assist such individuals and employers. These state-based exchanges would be established by 2014.
Q: What type of health insurance plans would be offered through the exchanges?
A: The legislation would create four benefit categories and a separate catastrophic category to be offered through the exchanges:
- Bronze plan: Provides essential benefits and covers 60% of the benefit costs of the plan. The out-of-pocket limit would be equal to the Health Savings Account(HSA) current law limit ($5950 for individuals and $11,900 for families in 2010)
- Silver plan: Provides essential benefits and covers 70% of the benefit costs of the plan. The out-of-pocket limits would be the same.
- Gold plan: Provides essential benefits and covers 80% of the benefit costs of the plan. The out-of-pocket would be the same.
- Platinum plan: Provides essential health benefits and covers 90% of the benefit costs of the plan. The out-of-pocket would be the same.
- Catastrophic plan: This would be available to those younger than 30 or those exempt from the mandate to purchase coverage. This would provide catastrophic coverage only with the coverage level set at the Health Savings Account current law levels, except that prevention benefits would be exempt from the deductible. This plan would be available to those in the individual market.
The legislation would reduce the out-of-pocket limits for those with incomes up to 400% Federal Poverty Level (currently $18310 for a family of three) by the following:
- 100-200% FPL: one-third of the HSA limits
- 200-300% FPL: one-half of the HSA limits
- 300-400% FPL: two-third of the HSA limits
Q: What is the Essential Benefits package and who defines the package?
A: Effective June 1, 2014 the Secretary of Health and Human Services would define the essential health benefits, which would be updated annually through a transparent and public process. The Secretary shall ensure that the scope of the essential health benefits is equal to the scope of benefits provided under a typical employer plan, The benefits shall include at least the following general categories and the items and services covered within the categories:
- Ambulatory patient services.
- Emergency services.
- Hospitalization.
- Maternity and newborn care.
- Mental health and substance use disorder services, including behavioral health treatment.
- Rehabilitative and habilitative services and devices.Prescription drugs.
- Laboratory services.
- Preventive and wellness services and chronic disease management.
- Pediatric services, including oral and vision care.
Q: What are some of the tax changes in the healthcare reform legislation?
A: There are numerous tax changes related to health insurance:
- Tax on individuals without qualifying coverage of the greater of $695 per year up to a maximum of three times that amount or 2.5% of household income. This will be phased in beginning in 2014
- Exclude the costs for over-the-counter drugs not prescribed by a physician from being reimbursed through a Health Reimbursement Account (HRA) or a Flexible Spending Account (FSA) and from being reimbursed on a tax-free basis through a Health Savings Account or Archer Medical Savings Account. Effective January 1, 2011.
- Limit the amount of contributions to a flexible spending account for medical expenses to $2500 per year. This will be increased annually by the cost of living adjustment, and will go into effect January 1, 2013.
- Increase the threshold for the itemized deduction for unreimbursed medical expenses medical expenses from 7.5% to 10% of adjusted gross income. This will go into effect on January 1, 2013, and would be waived for individuals over 65 for tax years 2013-2016.
- Increase the tax for non-health withdrawals from a health savings account to 20% of the disbursed amount. Effective January 1, 2011.
- Increase the Medicare payroll tax by .9% on earned income in excess of $200,000 for individual taxpayers and $250,000 for married couples filing jointly. Effective January 1, 2013.
- Impose a $3.8% investment tax on unearned income for taxpayers with an adjusted gross income in excess of $200,000 for individual taxpayers and $250,000 for married couples filing jointly. Effective January 1, 2013.
- Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments. Effective January 1, 2013.
- Impose a 40% excise tax on high-cost health plans. Effective January 1, 2018.
- Beginning in 2012, impose new annual fees on the pharmaceutical manufacturers and importers.
- Beginning in 2014, impose an annual fee on health insurance companies.
- Impose a 2.3% excise tax on sales of medical devices beginning in 2012. Taxable medical devise is defined as any device (as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act) intended for humans. In general, according to this act, the term "device" means an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is
- recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them,
- intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
- intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes.
- $500,000 deduction limit of executive and employee compensation for health insurance providers. Effective January 1, 2009.
- 10% tax on services indoor tanning saloons. Effective July 1, 2010.
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