Implications of the Affordable Care Act on Employers

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Passed by Congress in 2010, the Affordable Care Act is easily the most significant piece of health care reform put into law in the United States in the last half-century. The legislation deals with everything from individual and business health care coverage mandates to public programs expansion and a laser focus on greater efficiency. When combined, the goal of the Affordable Care Act is relatively simple: Make health care more affordable by managing risk, boosting productivity and efficiency, and making coverage nearly universal among Americans at all levels of income and with all types of income. This 36-page report will give you a full understanding of the Affordable Care Act and its implications on employers.

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Implications of the Affordable Care Act on Employers

  1. 1. June 2013Implications of the Affordable Care Act on Employers
  2. 2. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 1A Look at the Affordable Care Acts Provisions and RequirementsPassed by Congress in 2010, the Affordable Care Act is easily the most significant pieceof health care reform put into law in the United States in the last half-century. Thelegislation deals with everything from individual and business health care coveragemandates to public programs expansion and a laser focus on greater efficiency. Whencombined, the goal of the Affordable Care Act is relatively simple: Make health caremore affordable by managing risk, boosting productivity and efficiency, and makingcoverage nearly universal among Americans at all levels of income and with all types ofincome.The legislation can be broken down into some key components that affect bothindividuals and business. In some cases, these components overlap. Thats especiallytrue for coverage mandates and other reforms that are designed to cover more peopleat a cost that will steadily decline for insurance companies, patients, and theiremployers. For those who are getting acquainted with the Affordable Care Act for thefirst time, these components are pretty stark and simple to understand.
  3. 3. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 2The Individual MandatePerhaps the most controversial portion of the legislation, the individual mandaterequires Americans to either purchase insurance coverage independently, use a publicplan or an employer plan, or pay an annual penalty not less than $695. The penaltyassessed will be based on income, and could be as much as three times the initial $695amount. In cases of very high earners opting out of health care coverage, the penaltywould be 2.5 percent of all annual income. This penalty is determined annually when anindividual or family files their tax return. Based on income and other expenses, thegovernments own formula will determine the scope of the penalty and its impact on taxrefunds, payments, and deductions.The Employer MandateThe second crucial component of the Affordable Care Act is the one most likely to affecthuman resources departments. The mandate placed on businesses is essentiallytwofold. All companies with 200 or more full-time employees are required to enrolltheir full-time workforce in the companys subsidized health insurance plan. Employeesare free to opt out and choose another coverage option, or forego it altogether, and anypenalties for doing so will be charged to the employee rather than their employer.For smaller organizations, health care coverage must be offered when the organizationemploys 50 or more full-time employees. If an employer of this size does not offerhealth care coverage, theyll be assessed a $2,000 fee against their tax credits peremployee after the first 30 employees are counted. Employers with between 1 and 49employees are exempt from these penalties and are not mandated to offer coverage orenroll their employees in a subsidized plan at the outset.
  4. 4. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 3Expansion of Public Health CoverageUnder the Affordable Care Act, Medicaid coverage is expanding quite significantlynationwide. The legislation calls for Medicaid to be expanded to everyone under the ageof 65 who is eligible for the program based on their income. According to the Actsprovisions, workers making up to 133 percent of the federal poverty level wage will beeligible to opt for Medicaid over private health insurance options, subsidized plans, orthe annual penalty fee assessed as part of the tax filing process. Medicaid will also beretooled and expanded for those with lower incomes, and the Childrens HealthInsurance Program (CHIP) will receive added funding through 2015. States are requiredto maintain at least equal funding for CHIP through 2019 as part of the bill.Premium Tax Credits for IndividualsIndividuals who purchase health care coverage on their own, without the backing of acorporate or subsidized health insurance plan, will be eligible for an annual tax credit tohelp offset the cost of that plan. The tax credit will be based on the individuals or thefamilys adjusted gross income as reported on their annual tax return and filed with thegovernment. Those employees who opt for their employers coverage options will notbe eligible for this credit at all, and those individuals who are part of the expandedMedicaid coverage program will also be ineligible to reimburse health care coveragecosts through any sort of premium tax credit during tax season. The governmentrequires verification of legal resident status, or citizenship, as well as employment,before issuing this credit.
  5. 5. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 4Premium Tax Credits for BusinessesThe primary goal of the Affordable Care Act is to make sure that small businesses canafford to provide subsidized health care coverage to their employees, and this is wherethe premium tax credit system comes in for smaller organizations. The tax credit is onlyavailable to those businesses with 25 or fewer full-time employees who are enrolled inthe employers health care coverage option. If that condition is met, a premium taxcredit will reimburse a significant portion of the employers contribution to coveragecosts. Through the end of the 2013 calendar year, this reimbursement can go as high as35 percent for some employers. As of the 2014 tax year, that threshold will increase to afull 50 percent reimbursement of the costs of health care coverage paid by smallbusinesses. Eligibility will be determined during tax season, with the companys otherexpenses and deductions factored in to determine how large a percentage will berefunded as part of the program.Tax Changes Across the Health Care IndustryNumerous tax increases and new programs have been created for medical researchers,pharmaceutical companies, and health care insurance companies, requiring them to paya bit more in taxes. Incentives have also been created, with many of these programsdesigned to encourage health care providers and insurers to develop more efficient andsustainable methods of delivering care to patients. The goal is to increase efficiency inan effort to reduce costs, making it more affordable to buy and provide health carecoverage as time goes on.
  6. 6. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 5Health Care Market ExchangesBetween 2014 and 2017, states will open a health care exchange that allows privateindividuals and small businesses to "shop" for the health care insurance plan that offersthe best combination of price and overall coverage. These exchanges can also be formedon a regional basis with multiple cooperating states, and consumers will be able tobrowse coverage options within an exchange from every state nationwide, choosing theone that works for them regardless of their location.Changes to Private Insurance PlansAs should now be well-known, consumers cannot be denied health care coverage due toa pre-existing condition as was the case before the Affordable Care Act was passed byCongress. Further, dollar limits on coverage and premiums cannot be enforced goingforward, making coverage more flexible and able to more readily meet the needs ofunexpected medical treatments and catastrophic conditions. Overall, more than twentyregulations exist to make private health insurance more widely available, moreaffordable, and less restrictive in terms of what is covered, how much of a procedure iscovered, and how reimbursement is performed after treatment.
  7. 7. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 6Comprehensive Reform of Coverage from End to EndThe goal of the Affordable Care Act is to implement greater standards of efficiency atthe provider level while making it easier to provide and afford health insurancecoverage for people of all ages. With the oncoming individual and business mandatesthat go into effect in 2014, these efficiency improvements will combine with a series oftax credits and incentive programs to make the goal of universal coverage moreaffordable and more attainable, as long as businesses make sure their offerings are inline with new regulations placed into the law.
  8. 8. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 7Pay or Play: How Financial Considerations Will Drive the Affordable Care ActTo make sure that the largest number of businesses and individuals comply with theregulations and mandates set forth in the Affordable Care Act, Congress built in anumber of benefits and fines that apply to those who either provide exceptionalcoverage or those who simply dodge the mandated insurance requirement altogether.This system has, over the past few years, become known as the "pay or play" system ofmotivating universal coverage. Simply put, businesses and consumers can either "play"and comply with the legislation, or they can "pay" for running afoul of governmentrequirements and the coverage mandate. There are a number of different programs inplace to encourage everyone to go along with the law and adhere to its requirements.Pay or Play for Businesses: Who is Eligible?The "pay or play" aspect of the Affordable Care Act was among its most controversialchanges when the law was still being shaped and debated by legislators. Generally, itwas hard for those in charge to determine when an organization became large enoughthat health care should be offered to all employees. After months of debate, it waseventually decided that "pay or play" should apply to all organizations that have at least50 full-time employees. Organizations smaller than this are actually not subject to thelaws, and they currently face no penalties for failing to offer or enroll their employees ina subsidized health care program.
  9. 9. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 8To comply with the pay or play clause in the bill, employers with 50 or more full-timeemployees must offer "minimum essential coverage" to all of their full-time employeesas well as their spouses and dependents. If this condition is met, then the governmentsrather large per-person fines are avoided and the organization escapes the "pay" aspectof the legislation. Under other conditions, though, fines can be assessed.Employers who simply do not offer minimum essential coverage to their employees willbe forced to pay a per-employee fine levied by the government. This fine starts after thefirst 30 employees who are not covered by a subsidized health insurance plan and, whencoverage is simply not offered, the fine comes in at $2,000 per full-time employee, butonly when at least one of those employees has opted for a health care insuranceprogram through a state-based exchange or a regional health care exchange network.This is known as the "No Offer Penalty," because it deals exclusively with thosecompanies that defy the law and offer no coverage at all to those who work for them.If employers do make a move to offer "minimum essential coverage" as defined in theAffordable Care Act, but one of their employees opts to seek a more affordablecoverage option through a state-based exchange or a regional health care exchangeprogram, then that organization will be assessed a significant fine as well. In this case,the fine can vary between $2,000 and $3,000 per employee after the first 30 employees.Because most employees will opt for an exchange if they cannot afford their employersrates for minimum essential coverage, this penalty is known as the "Affordable OfferPenalty." Essentially, this penalty has been designed to keep employers accountable fornot only offering coverage, but for making it affordable relative to each employeeswages as well.
  10. 10. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 9Assessment of Penalties: Month-by-MonthThough tax credits and rebates are offered by the federal government to employers andindividuals on a yearly basis when a tax return is filed, this same structure is not appliedto the fines that will be assessed to organizations for running afoul of the AffordableCare Act. Those employers that offer no coverage at all, or those who offer unaffordablecoverage to their employees, will be assessed a penalty fee by the government on amonth-by-month basis. At first glance, this actually seems pretty dramatic. For thoseemployers who dont change their ways, it certainly can be.For other businesses, however, the monthly assessment of penalty fees is actually agood thing. Many businesses are still working out how to offer coverage and make surethat they fully comply with the new law. As they do so, some problems may beencountered and some penalty fees may be assessed during a given month or two. Byquickly fixing problems and falling into line with the law, though, penalties will stop andthe business will enjoy the benefits that come from offering affordable, legal coverageto their full-time workforce without the prospect of fines and penalties hanging overoperations and quarterly reports. These fees are designed to encourage compliancemore than theyre designed to penalize businesses, and so this monthly fee structuremakes a great deal of sense.
  11. 11. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 10Bringing the Law Into Effect: When to Expect Pay or Play to StartAt the current time, pay or play regulations are merely looming on the horizon. TheAffordable Care Act was passed in 2010, but the full scope of the law was not designedto go into effect until 2014. The goal of legislators was to make sure that states hadenough time to create an exchange, and that Medicaid had enough time to expand itsofferings to a far larger segment of the population. Additionally, the goal of legislatorswas to ensure that both businesses and consumers had enough time to either seekcoverage independently or offer an affordable minimum coverage tier to avoid stiffgovernment penalties.As of January 2014, the pay or play regulations will go into full effect. Companies thatoffer either no coverage or overly expensive coverage will be forced to start paying anynecessary fines and penalties shortly thereafter. For those employers looking to avoidthe worst case scenario under the Affordable Care Act, the window for full compliance iscertainly getting shorter by the day.
  12. 12. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 11Avoiding "Pay" and Angling for "Play:" Strategies for ComplianceEmployers looking to avoid the stiff monthly penalties for failing to comply with theAffordable Care Act should do a few things over the next several months to make surethat plans are in line with the governments requirements:Assess the number of full-time employees currently working for the organizationLook at current health care offerings and determine if theyre consideredaffordable by new regulationsIf no health care coverage is offered, seek a coverage plan offered by one of thenations insurance agenciesSchedule a meeting with employees to discuss any changes to health carecoverage options, requirements, and prices, explaining how these changes affectthem going forwardWith an internal review of health care insurance policies, costs, and coverage limits, itspossible for employers to fully prepare for the onset of the Affordable Care Acts "pay orplay" structure in a relatively short amount of time. With insurance companies now onboard with the provisions set forth in the law, compliance should be even easier nowthan it might have been just a year or two ago.
  13. 13. Implications of the Affordable Care Act on Employers, Copyright ©, All Rights Reserved. 12Want to read the rest?Get the full report!

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