If you are a sole proprietor, small company with less than fifty employees or a large, national firm with thousands of employees, will have opportunities, responsibilities and challenges complying with the Patient Protection and Affordability Care Act (PPACA), also known as ObamaCare, This far-reaching legislation is the most significant and impactful law since the establishment of Social Security and it will affect every American.
Enacted into law in 2010, PPACA requires all citizens to have health insurance, guarantees coverage by eliminating pre-existing condition requirements, removing insurance plan limitations, and adding free wellness checks for all. With these benefits come obligations and tax penalties for non-compliance, not only for employers but individuals as well. The Congressional Budget Office projects that 92% of Americans will be insured by 2019. If you are a sole proprietor, a small company with less than fifty employees, or a large, national firm with thousands of employees, you will have opportunities, responsibilities, and challenges complying with the Patient Protection and Affordability Care Act (PPACA), also known as ObamaCare. This far-reaching legislation is the most significant and impactful law since the establishment of Social Security and it will affect every American.
Enacted into law in 2010, PPACA requires all citizens to have health insurance, guarantees coverage by eliminating pre-existing medical condition requirements, removing insurance plan limitations and adding free wellness checks for all. With these benefits come obligations and tax penalties for non-compliance, not only for employers but for individuals as well. The Congressional Budget Office projects 92% of Americans will be insured by 2019 due to these changes. Nearly 84% are currently insured through employer plans, individual health insurance plans, Medicare, Medicaid, and other government programs. It is anticipated that more will gain access to healthcare, however, the affordability aspect of the law remains debatable.
Various provisions of the law have been implemented since enactment, however, January 2014 is the magic date when critical components take effect. Primarily there are four key areas that will rollout; the individual mandate, employer mandate, Medicaid eligibility expansion, and the creation of healthcare exchange marketplaces.
The Employer Mandates
ObamaCare does not require employers to offer health insurance coverage to their employees however, it does impose a penalty on businesses that fail to insure their employees in certain circumstances. Small employers with less than 50 employees are exempt from any penalties. As an incentive to small businesses to maintain their health insurance programs, the law provides tax credits. For those for profit small businesses with fewer than 25 employees who have average annual wages of $50,000 or less and who contribute at least 50% of the premium for a health plan, can receive a tax credit towards their costs of health care premiums. From 2010 through 2013, the tax credit will cover up to 35% of an eligible small employer’s contribution to employee’s health insurance. Beginning in 2014, they can receive a maximum tax credit of 50% of the employer’s contribution to premiums. Those same employers with 10 or fewer full-time employees would be eligible for the full tax credit.
For those large employers, businesses with over 50 full-time equivalent (FTE) employees (30 hours or more weekly), there are two situations where a tax penalty could be incurred. First, if the company does not offer health insurance coverage and at least one full-time employee purchases coverage from the exchange marketplace and receives a subsidy, the company would be assessed an annual penalty of $2,000 per FTE, excluding the first 30 employees. And secondly, if a large employer offers health insurance coverage to their full-time employees, but the coverage does not meet the law’s standard for affordability or minimum value, the company incurs a tax penalty of the lesser of $3,000 per FTE receiving premium subsidy from the exchange marketplace or $2,000 per each FTE. To meet the standard of affordability, the employee’s share of the premium cannot exceed 9.5% of their annual wages and the plan must meet at least 60% actuarial value. These tax penalties begin January 2014 when the exchange marketplaces are active. ObamaCare also establishes numerous additional provisions and reporting requirements for employers, including reporting the value of employer-sponsored health insurance on employees’ W2 and for those with more than 200 employees, executing auto-enrollment of full-time employees into the health insurance programs.
The individual Mandate
In 2014, if you are insured through an individual medical policy, your employer or a government program, i.e., Medicaid or Medicare, military health care, etc., you keep doing what you’re doing. By maintaining your existing coverage, you satisfy the individual mandate. Those who are not insured in 2014 will be subject to an annual health tax penalty starting at $95 or 1% of taxable income whichever is greater and rising to $695 or 2.5% in 2016. Some categories of individuals would be exempt from this penalty including those whose premium exceeds 8% of their income, those in certain religious sects and incarcerated individuals.
The Medicaid Expansion
The federal government is assisting those uninsured to get coverage specifically by urging states to expand the income eligibility to obtain Medicaid. By raising the income requirements to qualify for this government health insurance program for the poor, the net widens to include those earning up to 138% of the federal poverty level. This means a single person could now earn up to $15,000 and a family of four; up to $32,000 and meet Medicaid eligibility. And for the first time, single adults without children will be guaranteed coverage through the program. The federal government is paying the total costs of the states for the new enrollees beginning 2014 through 2016, after which their share will gradually decline over future years. According to the Urban Institute and the Kaiser Family Foundation, Ohio is expected to spend $4 billion while the federal government would send $53.3 billion to the state to cover 684,000 Ohioans between 2014 and 2022.
The Healthcare Exchange Marketplaces
One of the cornerstone provisions of ObamaCare requires states to establish healthcare exchange marketplaces or default to the federal government. With an Open Enrollment slated for October 1st of this year and an effective date of January 1, 2014, these virtual marketplaces will offer consumers the opportunity to shop and compare qualified health plans from private insurance companies just like we shop for car insurance or travel online today. It will provide another option to the individual and employer medical plans currently available. Four different plans and levels of coverage will be marketed. Called metal tiers, Bronze, Silver; Gold and Platinum, these plans provide minimum essential benefits coverage with premiums only determined by geographical region, age, single or family and smoker status. Individuals and families purchasing health insurance through the exchanges ( and in the private market) will be guaranteed coverage regardless of medical history with comprehensive benefits, including hospital, emergency and maternity care, prescription drugs, mental health as well as certain wellness and preventive services. Individual and small group plans whether inside or outside of the exchange are required to offer essential health benefits packages, though large group plans are not required to do so, they are prohibited from imposing lifetime or annual limits on any essential health benefits that they do offer.
Households with incomes between 133% and 400% of the federal poverty level (FPL) (about $15,000 for a single person to about $92,000 for a family of four) and who enroll in the healthcare exchange marketplaces will be eligible for premium assistance or subsidies financed by the federal government This sliding scale of assistance will require this group to make a premium contribute of from 3% up to 9.5% of income towards the cost of their health insurance. Its projected that the average subsidy could be approximately, $5000, however; low income married couples could be left out of this important benefit For example, if two people each earn $30,000 annually, individually, they would be judged to have incomes at about 300% of the FPL But if that couple were to marry, their combined income would total $60,000, or about 500% of the FPL as a household of two and therefore would make too much money for the subsidy. Also, if your employer offers minimum health benefits, you would not be eligible for any premium subsidies.
As of this writing, 26 states including Ohio have defaulted to a federally run exchange, seven states are implementing a partnership exchange where the federal government assists states with specific portions of the exchange, and seventeen are establishing their own state based exchange. The Congressional Budget Office estimates that 7 million people nationally, including selfemployed individuals and those who do not currently receive health insurance through work, will obtain coverage through exchanges in 2014. This number is expected to rise to 13 million people in 2015, and 24 million by 2016 as the individual mandate penalties rise. States need large numbers to buy insurance through these online marketplaces to build greater market power; economies of scale and more stable risk pools, thus helping to control the growth of health care spending and insurance costs. This growth is important also to lessen the risk of adverse selection. In insurance jargon, those who need the coverage most, have a higher propensity to purchase. These exchanges will need young and healthy people to buy policies and not just the older and sicker Americans.
The Longevity Insurance
An extension of medical insurance, longevity insurance, also known as long term care insurance, is designed to protect healthy life extension. Previously apart of ObamaCare, the CLASS Act (Community Living Assistance and Support Services Act), was repealed January of this year because it was deemed fiscally unsustainable. With individuals over the age of 85 representing America’s fastest growing segment of the population, the federal government saw the swelling need for these services. Long-term Care insurance protects the financial risk of aging and requiring assistance with activities of daily living. It provides individuals and families choice of where and how that assistance can be delivered. It is projected that 70% of Americans at some point in their lives will need care at home, assisted living communities, or other facilities and current medical policies, Medicare or Obama Care will not provide coverage these expenses. Next to the cost of your home and college tuition, paying for long-term expenses could be the next great expense impacting your family and other than pensions and family income, long-term care insurance is likely the cheapest alternative.
The Call to Action
With all these planned changes and unknown outcomes, how can an individual, family and business soften the impact of ObamaCare on their bottom line?
- Continue to stay informed and become knowledgeable about ObamaCare.
- Engage healthcare and accounting professionals who can help you stay compliant.
- Educate your employees about ObamaCare. Many may be eligible for premium subsidies through the exchanges or Medicaid.
- Educate your family members. Many family members are uninsured who could benefit from the premium subsidies or Medicaid.
- Buy medical and long-term care insurance now. Premiums are still determined by age and right now you are the youngest you will ever be.
- Institute a culture of wellness personally and corporately. By replacing coffee and donuts with fresh fruit and yogurt at meetings, adding healthy choices in the vending machines, and establishing health-oriented competitions for employees and your family, are simple ways to introduce healthy options.
- Explore adding ancillary benefits through group or voluntary plans like disability, life insurance and long-term care insurance if you don’t or will not offer health insurance. These can be less expensive benefits and provide high value.
- Get healthy, stay healthy. The best way to control health care costs is to take better care of your health.