Big changes in health insurance are taking place now as a result of the Patient Protection and Affordable Care Act, or “ACA”. I’ve had a lot of questions about the ACA and how it affects me, as a tax preparer and small business owner, and the clients I serve. Here is a compilation of the questions I’ve researched and the information I’ve found. If you have other questions, please send them to me and I will answer them in another post.
- Am I required to carry health insurance for my employees? ACA has an employer mandate that was originally set to kick in January 1, 2014 but has been delayed until January 1, 2015. Technically, ACA allows the government to assess penalties on certain employers who do not offer health insurance to their employees. Penalties apply to employers with 50 or more full-time (or full-time equivalent) employees who do not offer health insurance. Qualifying health insurance under ACA must cover “essential benefits” and pay for at least 60 percent of the cost of services offered. Yet the cost of the insurance to the employee must not exceed 9.5% of their modified adjusted gross income.
- How do I know what modified adjusted gross income will be for my employees? This is a good question. If your employees are married or have variable income from commissions, investments, a small business, rental property, etc., it’s almost impossible to determine. Right now the IRS is preparing more information on how to put this requirement into practice. We should know how to calculate this in 2014, well before the employer mandate is effective.
- I only offer health insurance to full-time employees now. Will I have to offer it to my part-timers as well under ACA? ACA requires you to offer health insurance to your full-time employees, defined as working 30 hours or more per week. That may be a different definition of full-time than you were using before. If you want to offer health insurance to employees working 20-29 hours per week, you can, but you have to offer it to all employees working that number of hours.
- What is covered by a qualified health insurance plan under ACA? Qualified health insurance must cover “essential benefits”, explained generally as doctor visits, chronic disease management, emergency services, hospitalization, maternity and
newborn care, mental health, substance abuse, prescription drugs, preventive wellness, rehabilitation, and pediatric oral and vision care. Details of what is covered under these broad categories were not included in ACA but are included in the insurance plans offered.
- If I have fewer than 50 employees, am I off the hook then? Yes, as an employer, you are not required to have health insurance for your company. However, everybody is required to have health insurance under ACA. This is known as the individual mandate. Make sure that you really do have fewer than 50 full-time employees. If your company is part of a consolidated company or group of companies, the employee count will probably include the entire group, not just your subsidiary or location.
- What exactly is the individual mandate? The individual mandate requires you to either obtain health insurance or pay a tax for you and your dependents. The tax is assessed on your personal income tax return beginning in 2014. If you had health insurance coverage for part of the year, the tax is reduced. If you do not make enough money to require filing a tax return, you are not subject to this tax.
- Do I have to get different health insurance? Your health insurance coverage will probably change due to the essential benefit requirements (described above) and standardization of the plans. Your current plan probably does not cover the same things that the ACA plans are covering. Health insurance plans under ACA are classified as bronze, silver, gold or platinum. The major differences between these are the degree of cost sharing based on actuarial value. Actuarial value is defined as the share of health care expenses the plan covers for a typical group of participants. Bronze plans are the lowest cost and cover 60 percent of the plan’s actuarial value, while the platinum plan covers 90 percent.
- Can I still have an HSA or is this option not available anymore? You may have had a high-deductible health insurance plan which qualified you to invest in a Health Savings Account (HSA). This combination lowered your premiums and provided you with some tax benefits and flexibility. Under ACA, it appears that if you choose the bronze plan, it will qualify as a high deductible health insurance plan allowing you to also have an HSA and pay lower premiums.
- How much more am I going to have to pay for health insurance? Another great question with no clear answer yet. So far, the results have been better than expected. A recent study of 11 state plans (none are Wisconsin) being offered in 2014 indicate that rates are lower by 18% than comparable plans prior to 2014. It remains to be seen whether these other states are representative of what the rest of the states will experience, or how rates will change in future years. In theory, the rate decrease makes some sense. Beginning in 2012, insurance companies have been limited in how much profit they can make. They have to spend 80-85% of premiums on health care costs and services, leaving 20% for administrative costs and profit. You may have received a rebate from your health insurance provider if they ended up with excess profit last year. Also, health insurance rates increased pretty sharply after ACA was passed, so maybe this decrease is just getting the rates back to earth. There are so many variables that affect health insurance rates that we should wait a while to judge whether ACA is good or bad for decreasing costs.
- What the heck are health care insurance exchanges and do we have one in Wisconsin? Wisconsin did not set up their own state exchange, but 13 Wisconsin insurers are expected to participate in a health care exchange, operated by the federal government. The exchange is supposed to provide coverage options that are in compliance with ACA at rates competitive with each other and with plans that used to be available only to large companies. In theory, you can, as a small business person, sole proprietor, family or individual, obtain competitively-priced health insurance through this on-line exchange. We don’t have much information on the options available in Wisconsin yet but the national exchange will open on October 1, 2013 and be fully operational by January 1, 2014.
- Aren’t there some tax credits I can get to help offset these costs? Yes, there is the Small Employer Health Insurance Credit which has been available for the past few years. If you qualify, you can get up to 35% of the cost of health insurance premiums back in 2013, and 50% back in 2014 if you use the exchange to obtain coverage. Low to middle-income individuals may qualify for the Premium Assistance Credit in 2014. Please consult with your CPA or tax preparer before filing your 2013 personal and business returns to ensure that you take full advantage of these credits.
As a CPA tax preparation is my business but tax planning and business planning are my passion.