Wednesday, March 6, 2013
Health care Reform Implementation-A Pragmatic View of the Affordable Care Act
This article addresses the implementation of the medical insurance mandate under the Affordable Care Act of 2010, which will be implemented next year. Federal insurance purchasing subsidies, health insurance exchange plan design, and tax penalty information is highlighted for businesses and individuals.
Small businesses with less than twenty-five employees who meet certain criteria are eligible to receive federal subsidies to purchase health insurance for their employees. One of the criteria is an average wage of $50,000 or less for the entire workforce in determining any federal subsidy for insurance.
How much is the subsidy?
Only employer sponsored health plans with an actuarial value of 60% or higher will be eligible to receive the tax credit subsidies, so this is important information for small businesses who are considering starting or modifying their health insurance plans. Also, if the employee’s share of the premium would exceed 9.5% of their income that makes them eligible for a federal tax credit subsidy. So there are two ways an individual may qualify for a federal subsidy to buy insurance through their employer, either through the plan design or the income level of the individual.
Penalties for Noncompliance
The penalty is $2,000 times the number of employees less thirty employees. So, this means employers with fewer than thirty would not have a tax penalty. Also, $2,000 is less than half of what it would cost for a typical employer to provide medical insurance for a single employee, so some employers may still choose to opt out of the mandated coverage. The Kaiser Family Foundation has a nice algorithm of the PPACA and employer impact on their insurance reform web site.
Government Assistance to Purchase Medical Insurance
You will be eligible for a government subsidy to purchase medical insurance if your income falls within 133% of the poverty thresholds, which are listed below for 2012. The government subsidy is 98% of the health insurance premium, which will be based on a Blue Cross Blue Shield calculation each year for people who fall within this threshold.
Single individuals- No more than $14,856
Individual plus one dependent- $20,123
Individual plus two dependents- $25,390
Individual plus three dependents- $30,657
Individual plus four dependents- $35,923
Individual plus five dependents- $41,190
Individual plus six dependents- $46,457
Individual plus seven dependents- $51,724
If your income is within 250% to 400% of the federal poverty level, the government subsidy, via a tax credit will be roughly equal to 93.7% to 90.5% of the national Blue Cross Blue Shield annual health insurance premium calculation. Here is what those income thresholds were in 2012:
Individual plus one dependent- $ 80,492
Individual plus two dependents- $101,559
Individual plus three dependents- $122,628
Individual plus four dependents- $143,693
Individual plus five dependents- $164,760
Individual plus six dependents- $185,828
Individual plus seven dependents- $206,895
Insurance Exchange Coverage
For those whose income is within 250% of the annual federal poverty calculation, they will also have a cap on the total amount per year that the individual is expected to pay for health care, based on a government formula. For example, if your income falls within 100% to 200% of the federal poverty limits, then the total amount for which you are responsible for health care costs within your insurance plan is reduced by 66%. The thought here is someone who is of low income will not be able to access health care services if their out-of-pocket expenses are too high. This is also a concern for middle class people, which is why the government has also limited the maximum out of pocket charges for those who are within 400% of the federal poverty level as well. This subsidy impacts only those plans offered through the federal insurance exchanges. Using 2012 figures, a family within 150% of the poverty level would have a maximum for total out of pocket expenses for the year of $3,963, including co-payments and premiums.
Penalties for Not Purchasing Insurance
For individual tax payers who do not obtain medical insurance and submit proof with their income tax return, a monetary penalty will be assessed. Though there are no civil penalties associated for failure to obtain the insurance, failure to file income taxes can be considered tax evasion and is prosecuted as a crime in the United States. For those who are considering not obtaining health insurance, be prepared to pay the fine. The penalty will start at $95 per year and increase to $695 by 2016 for individuals.
Impact on Larger Businesses
Businesses which have ERISA exempt health and welfare trust plans AKA which are self-insured, will not have to comply with much of the insurance reforms as their plans are already exempted, however the limitations on pre-existing condition waiting periods and extension of coverage for adult children provisions do apply to these plans. Larger businesses will do what they have always done, which is using their broker/consultant to scout around and figure out ways to tweak their plans to meet budget.
For more information on the healthpolicymaven’s analysis of the Patient Protection and Accountable Care Act, please look for Unraveling U.S. Health Care-A Personal Guide, this summer. You can read more about the book and its reviews on Rowman & Littlefield Publishing Group’s web site by following this link: https://rowman.com/ISBN/9781442222984
And this is the healthpolicymaven signing off.