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July 2013
A Brief Review: Health Care Insurance Changes as a Result of The Affordable Care Act
By John Kapelar

     The Affordable Care Act of 2010 set in place gradual reforms to America’s health care system, and some of the most impactful changes are scheduled for 2014. The Act’s provisions are intended to provide comprehensive health care insurance coverage by imposing policy requirements for certain employers and also creating health care exchanges (or marketplaces) for individuals who remain uncovered.

     A full discussion of the health care changes is well beyond the scope of this article. However, we present the following to help establish or strengthen a foundation that you can build a better understanding on.

     The health insurance exchanges will be available October 1, 2013, and can be state or federally based. Both the North and South Carolina exchanges will be federally based. The year 2013 will usher in call centers, mall kiosks, radio ads, TV ads, and Internet sites dedicated to providing information about health insurance options for individuals.

     These plans will allow some flexibility in price and coverage through the creation of platinum, gold, silver, and bronze levels. Individuals will be required to obtain minimum essential coverage, with all options offered by the exchanges meeting this requirement. Individuals who do not purchase insurance will pay a penalty through their 2014 tax returns at a rate of 1 percent of household income over a threshold amount (minimum $95 penalty). Through 2016 the penalty will increase to 2.5 percent of household income above a threshold amount (minimum $695 penalty).

     Purchasers of insurance through an exchange may be eligible for a premium assistance credit if income is less than 400 percent of the poverty level. Currently, a family of four with income less than $92,200 would qualify for some level of assistance. Some people will be exempt from the mandate, primarily those who are not required to file an income tax return and those who would have to pay more than 8 percent of household income for minimum health insurance.

     Some employers will be mandated to provide minimum essential coverage to employees. Beginning in 2014, an employer would be subject to this mandate if it had at least 50 full-time employees for the previous calendar year (2013). A full-time employee is considered to be one who averages at least 30 hours a week. However, part-time employees’ hours are added together to make more full-time equivalents. In other words, cutting all of a business’s employees’ hours back to 29 would not circumvent the mandate.

     There are two potential penalties to not complying with this law:

     The first penalty is imposed if the employer does not offer minimum essential insurance to at least 95 percent of employees. If at least one employee obtains insurance from an exchange using an assistance credit, a $2,000 annual penalty will be charged. The penalty is based on the number of employees that exceed 30 for the employer.

     An employee obtaining insurance from an exchange will have to complete a questionnaire including information about his/her employer. The IRS will contact employers to inform them of their potential liability and provide them with an opportunity to respond before any liability is assessed. The contact for a given year will not occur until after employees’ individual tax returns are due for that year claiming premium assistance credits and after the due date for employers meeting the 50-employee threshold to file information returns regarding insurance coverage.

     The second penalty is for unaffordable insurance. “Affordable” is defined as the employee-paid portion being 9.5 percent or less of his/her household income. If an employee’s cost of insurance provided by an employer is greater than 9.5 percent of their household income, this penalty would be imposed on the employer.

     If the employer offers insurance to at least 95percent of employees and one employee obtains insurance from an exchange using an assistance credit, there is a $3,000 annual penalty for each such employee that is deemed to being provided unaffordable insurance. This penalty is capped at the penalty that would apply if coverage were not offered (see the minimum essential penalty discussed above).

     With the changing environment for health care in the United States, employers need to evaluate how the new provisions affect them and when. Any changes, of course, will need time for implementation and communication to the workforce.

     The regulations implementing the law are voluminous, complex, and contain many provisions not mentioned above. In order to make sure your company is in compliance, it is recommended that you include your employee benefits consultants and certified public accountants in the evaluation and planning process.

John Kapelar is a CPA at Partner at Potter & Company
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