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Affordable Care Act Summary
October 18, 2013
Update:
According to numbers released by the White House on April 17, 2014, 8 million people have signed up for private insurance through the Health Insurance Marketplace. For states that have Federally-Facilitated Marketplaces, individuals under 35 years old make up 35% of those signed up and 28% are between 18 and 34 years old. 
 
As of March 5, 2014, the White House announced individuals with health insurance plans that don't comply with Affordable Care Act standards can keep them through October 2017 if their states allow it.

It was also announced that open enrollment for next year has been extended by a month -- now running from November 15, 2014 - February 15, 2015. Insurers will be given additional financial help to offset costs of benefit claims from new ACA enrollees. The aim is to keep "Obamacare" premiums affordable in the coming years.

As of February 10, 2014, the White House announced a new set of extensions to the Affordable Care Act's employer mandate. Medium to large businesses (50-99 employees) that don't already offer health insurance to employees will now have until 2016 to comply. These businesses will however, have to certify with the government that they're not firing employees just to qualify for this extension.

Large companies (100+ employees) will only have to offer insurance coverage to 70% of full-time employees in 2015. Previously, 95% of full-time employees needed coverage. In 2016, these companies will have to comply with the original target percentage.

Additionally, the Treasury Department provided clarification that volunteers do not count as full-time employees for the purposes of the this law.
 
On November 27, 2013, administration officials announced that the Small Business Health Options Program (SHOP) will not be operational until the end of 2014. This delay in accessibility provides small businesses with an extension of time (January 1, 2015, if elected) to provide employees with health insurance coverage.
 
This extension of one year provides businesses time to consider health insurance coverage options for employees, comparative to a private health insurance plan. As it stands, it's believed employers would be eligible for the 50%/35% credit on Form 8941 for 2014, even if coverage is purchased through insurance agents, brokers, or insurers.
The “Patient Protection & Affordable Care Act” as well as the “Health Care & Education Reconciliation Act” are in effect.
 
The purpose of the Acts is to provide affordable health insurance to all Americans and to decrease the overall cost of health care. The Acts include several provisions to facilitate this process, the key highlights of which are discussed below. 

Please note that not all of the specifics of the Acts are covered below. The intent is to provide you with a general outline of the provisions. If you have any questions or concerns regarding the provisions listed below please do not hesitate to contact us.

Individual Mandate


Starting on January 1, 2014, individuals who do not receive health care insurance from 1) their employer, 2) a government program, or 3) are exempt from the provisions of the Acts and do not purchase it through a private company or the Health Exchange, will be subject to a “penalty.” The penalty will be paid with their individual tax return. The penalty varies depending on each taxpayer’s individual facts and circumstances. Individuals who purchase insurance through the Health Exchange may also be entitled to a credit for the premiums paid if certain requirements are met.. 

Please note that there are specific rules for dependents of a taxpayer and who is responsible for ensuring the dependent has health coverage.

Employer Mandate


On January 1, 2015, large employers will be required to provide affordable “minimum essential coverage” to their employees. If the employer does not provide affordable “minimum essential coverage” to its full-time employees the employer will be subject to a penalty. A large employer is defined as an employer with an average of 50 full-time employees during the preceding calendar year. A full time employee is defined as an employee who is working at least 30 hours a week. Furthermore, there are specific rules and exemptions for part-time as well as seasonal employees.

In general, coverage is determined to be unaffordable if it costs the employee more than 9.5% of their household income. Minimum essential coverage is defined as coverage whereby the plan pays at least 60% of the total allowed cost of benefits permitted by the plan.

The penalty varies depending on each taxpayer’s situation. As a result, the facts and circumstances of each taxpayer’s situation should be carefully reviewed to determine if the penalty does or does not apply.

0.9% Tax on High Wage Taxpayers


For tax years beginning January 1, 2013, taxpayers who are considered “high wage” earners, will be subject to an additional 0.9% Medicare tax.  Their employer will be required to withhold the 0.9% from the employee’s paycheck for wages in excess of the defined thresholds.  The thresholds are as follows:

  • Married filing jointly — $250,000
  • Married filing separately — $125,000
  • Single — $200,000
  • Head of Household — $200,000
  • Qualifying Widow(er) — $200,000
If the employer does not withhold the 0.9% from the employee’s paycheck, the employee is still responsible to pay the tax, however the employer may be subject to penalties.

Net Investment Income Tax


Taxpayers with Adjusted Gross Income (“AGI”) that exceeds certain thresholds will be subject to an additional 3.8% tax on their Net Investment Income (“NII”). In general, NII is defined as:

  • Gross income from interest, dividends, annuities, royalties, and rents (other than from trade or business)
  • Other gross income from business to which the tax applies
  • Net gains from the disposition of property other than property used in the taxpayer’s trade or business
  • NII also includes trade or business income from passive activities (i.e. activities/investments that they taxpayer does not materially participate in)
When computing the NII tax, taxpayers may reduce their investment income by expenses that are attributable and directly allocatable to NII. Generally, qualified plan distributions from certain retirement accounts are not included as part of NII.

The tax is 3.8% of the lesser of:
 
  • Net Investment Income
  • The excess modified adjusted gross income (“MAGI”) over the following thresholds:
                  – $250,000 for married filing joint or surviving spouse
                  – $125,000 for married filing separately
                  – $200,000 in any other case
 
Please note that estates and trusts are also subject to the 3.8% tax. 

Small Business Health Insurance Credit


For tax years starting after 2013, qualified employers are required to purchase health insurance coverage for its employees through a State exchange in order to qualify for the credit. Furthermore, the credit is only available for a maximum of 2 consecutive taxable years. The credit percentage also increases to 50% from 35%. 

Patient-Centered Outcomes Research Institute (“PCORI”) Fees


Health insurance policies, as well as self-insured health plans, beginning after September 30, 2012 and before October 1, 2019, will be required to pay an annual fee to the PCORI Trust Fund. The fee is based on the average number of lives covered under the plan. The fee is $1 per life for policies ending after September 30, 2012 and before October 1, 2013. The fee per life is $2 for policies ending after September 30, 2013 and before October 1, 2014. For policies ending after September 30, 2014 and before October 1, 2019, the fee will be adjusted for inflation.

The fee is reported on an Excise Tax form. Please see the attached charts which discuss the various types of plans and those that are subject to the fee. 

Reporting of Health Insurance Coverage


Insurers, including employers who self-insure, that are required to provide minimum essential coverage to any employee are required to report certain health insurance coverage information to the IRS as well as the covered employee. The reporting requirement is in effect for 2014 and later.
 
 

Application of the Patient-Centered Outcomes Research Trust Fund Fee to Common Types of Health Coverage or Arrangements


Subject to the Fee


  • Accident and health coverage or major medical insurance coverage. The issuer, if insured, is responsible for paying and reporting the fee. If self-insured, the plan sponsor is responsible.
  • Retiree-only health or major medical coverage. The issuer, if insured, is responsible for paying and reporting the fee. If self-insured, the plan sponsor is responsible.
  • Health or major medical coverage under multiple policies or plans. Each issuer or plan sponsor is responsible for paying and reporting the fee. See below for special rules for coverage under multiple applicable self-insured health plans.
  • COBRA coverage. The issuer, if insured, is responsible for paying and reporting the fee. If self-insured, the plan sponsor is responsible.
  • Health Reimbursement Arrangement (HRA), including a premium-only HRA. This arrangement is subject to the fee unless the arrangement satisfies the requirements for being treated as an excepted benefit. The plan sponsor is responsible for paying and reporting the fee. See below for special rules for coverage under multiple applicable self-insured health plans and special counting rules for HRAs.
  • Flexible Spending Arrangement (FSA). This arrangement is subject to the fee unless the arrangement satisfies the requirements for being treated as an excepted benefit. The plan sponsor is responsible for paying and reporting the fee. See below for special counting rules for FSAs.
  • State and local government health or major medical plans for employees and/or retirees. The issuer, if insured, is responsible for paying and reporting the fee. If self-insured, the plan sponsor is responsible.

Special Rules for Coverage Under Multiple Applicable Self-Insured Health Plans

 
Generally, separate fees apply for lives covered by each specified health insurance policy or applicable self-insured health plan. However, two or more applicable self-insured health plans may be combined and treated as a single applicable self-insured health plan for purposes of calculating the PCORI fee, but only if the plans have the same plan sponsor and the same plan year.

Example: If amounts in an HRA may be sued to pay deductibles and copays under a specified health insurance policy, the HRA (an applicable self-insured health plan) and the policy would be subject to separate PCORI feeds. However, an HRA that may be sued to pay deductibles and copays under the applicable self-insured health plan is not subject to a separate fee (and the fee will apply only to the applicable self-insured health plan) if both the HRA and the applicable self-insured health plan have the same plan sponsor and the same plan year.

There is no similar rule for lives covered by more than one insurance policy subject to the PCORI fee.

Special Counting Rule for HRAs & FSAs


  • Plan sponsors are permitted to assume on covered life for each employee with an HRA
  • Plan sponsors are permitted to assume on covered life for each employee with an FSA

NOT Subject to the Fee

  • Stand-alone dental or vision coverage
  • Group insurance policy designed and issued specifically to cover primarily employees working and residing outside the United States
  • Self-insured health plan designed specifically to cover primarily employees who are working and residing outside the United States
  • Medicare (the insurance program established under title XVIII of the Social Security Act)
  • Medicaid (the medical assistance program established by the title XIX of the Social Security Act)
  • Children's Health Insurance Program (CHIP) (the medical assistance program established under title XXI of the Social Security Act)
  • Military health plans (programs established by Federal law for providing medical care, other than insurance policies, to individuals — spouses or dependents — by reason of the individual being or having been a member of the Armed Forces of the United States
  • Certain Indian tribal government health plans (programs established by Federal law for providing medical care, other than through insurance policies, to members of Indian tribes as defined in section 4(d) of the Indian Health Care Improvement Act)
  • Health Savings Arrangements (HSAs)
  • Archer Medical Savings Accounts (MSAs)
  • Hospital indemnity or specified illness benefits
  • Stop-loss or indemnity reinsurance
  • Employee assistance programs, disease management programs, or wellness programs (provided the program does not provide significant benefits in the nature of medical care or treatment)
  • Accident-only medical coverage (including accidental death or dismemberment)
  • Disability income coverage
  • Workers' compensation or similar coverage
  • On-site medical clinic
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