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Health Care Reform Resources

You may know it as the Patient Protection and Affordable Act, or PPACA. You may know it as the Affordable Care Act, or ACA. You may know it as Obamacare.

Whatever name you know it by – this law will impact your business and your employees. At Henderson Insurance Agency, we can help you navigate through all of the aspects of the law that will affect your business.

Let’s start by explaining 7 aspects of this law:

  1. Affordable Coverage
  2. Path to Compliance
  3. Individual Mandate Provision
  4. Small Business Tax Credits
  5. Essential Health Benefits
  6. Rights & Protections
  7. Employer Notification of Exchanges

Need more answers? See the top 10 Questions & Answers about Health Care Reform.

Affordable Coverage Back to top

Employer-sponsored insurance is considered affordable if an employee’s share of the employee-only premium is less than 9.5 percent of the employee’s household income. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement. Because employers generally will not know their employees’ household incomes, employers can take advantage of one of the affordability safe harbors in the proposed regulations.

Affordability Safe Harbors:

Recognizing that employers will generally not know an employee’s household income, the IRS provides three safe harbors for determining affordability of coverage:

W-2 Safe Harbor – An employer will not be subject to an assessable payment if the required employee contribution toward the self-only premium for the employer’s lowest cost coverage that provides minimum value does not exceed 9.5 % of the employee’s W–2 wages.

Rate of Pay Safe Harbor – An employer can take the hourly rate of pay for each hourly employee and multiply that rate by 130 hours per month to determine a monthly “rate of pay.” The employee’s monthly contribution amount (for the self-only premium of the employer’s lowest cost coverage that provides minimum value) is affordable if it is equal to or lower than 9.5% of the computed monthly wage estimate. For salaried employees, monthly salary would be used instead of hourly salary, multiplied by 130.

Federal Poverty Line Safe Harbor – An employer may also rely on a design-based safe harbor using the Federal Poverty Level (FPL) for a single individual. Coverage offered to an employee is affordable if the employee’s cost for self-only coverage does not exceed 9.5% of the FPL for a single individual. In 2012, for example, affordable coverage under this method would have been set at a monthly contribution in the lower 48 states of $88.43 for self-only coverage.

Potential Penalties:

Under the ACA, Large Group employers will face financial penalties if the coverage they offer is unaffordable to employees with household income between 100% and 400% of the federal poverty level AND at least one employee receives a subsidy for coverage in the Exchange.
The penalty would be the lesser of $3,000 for each of those certain full-time employees or $2,000 for each full-time employee in excess of 30 employees.

Path to Compliance Back to top

On October 1, 2013 each state’s health insurance exchange began enrolling individuals and small employers with less than 50 employees.

On December 31, 2013 each group health plan must have certified that they are in compliance with the U.S. Department of Health & Human Services (HHS) electronic transaction rules around these types of transactions between health providers and health plans.

On January 1, 2014:

Individuals – Are required to purchase minimum essential health coverage. If they don’t, they’ll be required to pay an annual individual responsibility tax.

Employers – With more than 50 full-time equivalent employees (FTEs) must offer minimum essential health coverage to 95% of its FTEs and eligible dependents. Those who do not comply will pay an excise tax.

In 2015:

Employers have until this time to comply with the expanded definition of dependent children, which includes foster children.

“Applicable large employers” will be subject to new reporting requirements.

In 2016:

Purchase of individual health insurance across state lines will be allowed for states that form Health Care Choice Compacts.

In 2017:

Employers with more than 100 employees will be able to purchase coverage through the health insurance exchange.

In 2018:

“Cadillac Plans” will be levied by a 40% excise tax.

Individual Mandate Provision Back to top

The Individual Mandate provision of the ACA requires U.S. citizens and legal residents to have qualifying health coverage, beginning January 1, 2014. Qualifying coverage, which must include an “essential health benefits” (EHB) package, is equivalent to the bronze plan, the lowest-end health plan in the state insurance exchanges.

Those without coverage will pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family or 2.5% of household income. The penalty will be phased in according to the following schedule:

  • $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or
  • 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016

Beginning after 2016, the penalty will be increased annually by the cost-of-living adjustment.

Exemptions will be granted for the following:

  • financial hardship
  • religious objections
  • American Indians
  • those without coverage for less than three months
  • undocumented immigrants
  • incarcerated individuals
  • those for whom the lowest cost plan option exceeds 8% of an individual’s income, and
  • those with incomes below the tax filing threshold (in 2009 the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples)

Individuals with the following coverage will also satisfy the requirement:

  • Medicare
  • Medicaid or the Children’s Health Insurance
  • Program (CHIP)
  • TRICARE (for service members, retirees and their families), and the veteran’s health program.
  • Eligibility process for exemptions

Exchanges are required to use an application established by the U.S. Department of Health and Human Services (HHS) to collect information necessary for determining eligibility for and granting certificates of exemption. In addition, Exchanges are required to provide timely written notice to an applicant of any eligibility determination. In the case of a determination that an applicant is eligible for an exemption, the notification must include the exemption certificate number for the purposes of tax administration.

Verification process related to eligibility for exemptions

Exchanges must undertake a series of steps to determine an applicant’s eligibility for the exemption for which he or she applied. In addition, the rule provides procedures for the Exchange to follow in the event they are unable to verify information necessary to make an eligibility determination for an exemption.

Other coverage that qualifies as minimum essential coverage

The rule provides that the following types of coverage are designated as minimum essential coverage:

  • self-funded student health coverage
  • refugee medical assistance supported by the Administration for Children and Families
  • Medicare advantage plans
  • state high-risk pools

In addition, the HHS may recognize other types of coverage, which are not on the above list, as minimum essential coverage provided that HHS determines the coverage meets certain substantive and procedural requirements.

Small Business Tax Credits Back to top

Businesses that provide health care coverage are eligible for tax credits if, for the tax year, they have fewer than 25 full-time equivalent employees who are paid an average annual salary of less than $50,000. To qualify for tax credits, the employer must also contribute at least 50 percent toward the employee’s premium cost. This contribution requirement also applies to add-on coverage including vision, dental and other limited-scope coverage.

Businesses do not need to offer coverage to their part-time employees or to dependents to qualify for the tax credit.

Employers with 10 or fewer full-time equivalent employees paying an annual wage of $25,000 or less qualify for the maximum credit. (Owners are excluded, and should not be counted in number of employees, wages or premium contribution amount.) The smaller the business, the bigger the credit. The amount of the tax credit, however, cannot exceed the total income and Medicare tax the employer is required to withhold from employees’ annual wages, plus the employer’s share of the Medicare tax.

Nonprofit or tax-exempt employers must meet the same criteria as other small businesses, and their tax credits will be lower.

During the first phase (covering tax years 2010-2013), there is a sliding-scale tax credit of up to 35 percent of the employer’s eligible premium expenses. Employers with 10 or fewer full-time equivalent employees and paying annual average wages of $25,000 or less qualify for the maximum credit. For tax-exempt employers, the same employee and wage requirements apply, but the maximum tax credit is 25 percent of eligible premium expenses during the first phase.
Starting in 2014, the tax credit is worth up to 50% of the employer’s contribution toward employees’ premium costs (up to 35% for tax-exempt employers). The credit is available only if coverage is purchased through the SHOP Marketplace.

Example of how the tax credit works

Example for an employer who qualifies for the maximum credit worth 50% of their premium contribution in 2014:

Affordable Care Act table

Find out if a business qualifies for the small business health care tax credit

Use one of these calculators to determine if a small business is eligible for a tax credit and, if so, how much:

Businesses can also find out about tax credit eligibility by visiting IRS.gov or consulting with their tax adviser or accountant.

Essential Health Benefits Back to top

The Affordable Care Act ensures that health plans offered in the individual and small group markets, both inside and outside of the Exchanges, offer a comprehensive package of items and services known as essential health benefits. Insurance policies must cover these benefits in order to be certified and offered in the Exchanges, and all Medicaid/Medi-Cal state plans must cover these services by 2014.

Essential health benefits must include items and services within at least the following 10 categories:

1. Ambulatory patient services (outpatient services)
2. Emergency services
3. Hospitalization, including medically necessary surgeries and other inpatient procedures
4. Maternity and newborn care
5. Mental health and substance use disorder services, including behavioral health treatment
6. Prescription drug coverage
7. Rehabilitative and habilitative services and devices*
8. Laboratory tests and services
9. Preventive and wellness services and chronic disease management
10. Pediatric services, including oral and vision care

Health plans are allowed to impose cost sharing obligations on plan members for most essential benefits, but those that qualify under a category of preventive health services will be made available at no charge to plan members.

The ACA gives states authority to specify details surrounding the essential benefits. The states must each choose a benchmark plan that will serve as a more detailed definition of benefits within each of the ten Essential Health Benefit categories. Colorado selected the “Kaiser Foundation Health Plan of Colorado – Ded HMO 1200D” as its state benchmark plan.

Rights & Protections Back to top

The Affordable Care Act (ACA) guarantees a number of rights and protections for individual consumers that make coverage fairer and easier to understand. Following is a summary of those rights and protections.

Health Insurance Marketplaces (Exchanges)

The ACA created the Health Insurance Marketplaces (or Exchanges), a new way for individuals, families and small businesses to get health coverage.

No Pre-existing Condition Exclusions

The ACA requires insurance companies to cover people with pre-existing health conditions. For plan years beginning in 2014, health plans can’t turn down applicants or charge more because of sickness or a health condition. They also can’t charge women more than men. The only exception is for grandfathered individual health insurance plans.

Easy-to-understand Coverage

Consumers have the right to get an easy-to-understand summary about a health plan’s benefits and coverage. Insurance companies and group health plans must provide consumers with:

This information allows consumer to make “apples-to-apples” comparisons when looking at different plans.

All individual and group health plans must also use the same standard form to make it easier to compare plans. The SBC also includes details, called coverage examples, which show what the plan would cover in two common medical situations: diabetes care and childbirth. There’s a link to each plan’s SBC in the Marketplace.

Rate Review

Rate Review helps protect consumers from unreasonable rate increases. Insurance companies must now publicly justify any rate increase of 10 percent or more before raising premiums. This does not apply to grandfathered plans.


The ACA prohibits insurance companies from canceling coverage just because of a mistake on an insurance application.

In the past, if an insurance company found a mistake on an insurance application, they could:

  • Take away coverage
  • Declare the policy invalid from the day it started
  • Ask to be paid back any money they had already spent for medical care

It’s now illegal for insurance companies to cancel coverage simply because of an honest mistake or missing information on an application that has little bearing on the applicant’s health. These protections apply to all health plans, including grandfathered plans, whether coverage is employer sponsored or not.

Insurance companies can still cancel coverage if an applicant purposely enters false or incomplete information on an insurance application. They can also cancel coverage if premiums are not paid on time.

Choice of Doctors

The ACA guarantees consumers the right to choose the doctor they want from their health plan’s provider network. It also gives them the right to use an out-of-network emergency room without penalty.

  • Pick any doctor: Consumers can choose any available primary care provider in their insurance plan’s network. They can also choose any available network pediatrician as their child’s primary care doctor.
  • No referrals needed for OB-GYN services: No referrals are needed from a primary care provider to get obstetrical or gynecological (OB-GYN) care from a specialist.
  • Access to out-of-network emergency room services: Insurance plans can’t require higher copayments or coinsurance for emergency care from an out-of-network hospital. They also can’t require prior approval before getting emergency room services from a provider or hospital out of network.

These rights don’t apply to grandfathered plans.

Employer Notification of Exchanges Back to top

The ACA requires employers covered by the Fair Labor Standards Act (FLSA) to provide a notice to employees prior to the beginning date of the Exchange, October 1, 2013. The notice informs employees about the existence of the health benefits Exchange and gives a description of the services provided by the Exchange. The notice also explains how the employee may be eligible for a premium tax credit or a cost-sharing reduction if the employer’s plan does not meet certain requirements.

The notice informs employees that if they purchase a qualified health plan through the exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of the employer contribution to employer-provided coverage may be excludable for federal income tax purposes.

Lastly, the notice includes contact information for customer service resources within the exchange, and an explanation of appeal rights. The regulations clarified that the notice must meet certain accessibility and readability requirements, as well as be in writing.

Employers are required to provide notice of the Exchanges to current employees by October 1, 2013. New employees who start after October 1, 2013, must be provided notice within 14 days of their start date.

Our agency can help you stay in compliance with the law. Please call 303-706-1000 so we can discuss how our agency can help you stay in compliance.

10 Questions & Answers about Health Care Reform

1. Will there be small group and/or individual plans outside of the Exchange?

Yes. A number of carriers will offer small group and/or individual plans outside of the Exchange.

2. Will an employer with fewer than 50 employees have to provide health insurance for their employees beginning January 1, 2014, or risk a penalty?

No. Small group employers with fewer than 50 full-time equivalent employees are not required to offer health care coverage to their employees.

3. If you are a self-employed business owner and a W-2 employee, and have no other employees working for you, do you qualify to purchase in the SHOP?

No. There must be at least one employee other than the owner or sole proprietor to be eligible for the SHOP plans.

4. If an employer who has 100 total employees reduces the hours of his employees so that the total number of full-time employees is below 50, does the employer have to offer health insurance?

It depends. If the number of full-time equivalent employees (FTEs) is under 50, the employer is not required to offer coverage. If the number of FTEs is 50 or more, however, the employer is required to offer coverage or face penalties.

5. How do you determine the number of FTEs?

This is what you do:

  • Count the number of employees (including seasonal employees) who work on average 30 or more hours per week per month. Do this for each of the 12 months in the preceding calendar year.
  • Add up the number of hours worked by part-time employees for the month (including seasonal workers) and divide the total by 120. (Example: 3 employees working 20 hours per week = 60 hours x 4 weeks = 240 hours divided by 120 = 2 FTEs.) Do this for each of the 12 months in the preceding calendar year.
  • Add the numbers calculated in steps (1) and (2) and divide by 12. This is your total number of FTEs.

6. If employer-sponsored dependent coverage is too expensive, can dependents get subsidized coverage through an Exchange?

No. If the employee-only coverage is deemed affordable (i.e., the portion of the employee’s required contribution for self-only coverage does not exceed 9.5% of the employee’s income), then premium subsidies and cost-sharing assistance will not be available to the employee’s dependents. This will be true even if the employer-sponsored dependent coverage is considered unaffordable (the premium exceeds 9.5 percent of the employee’s income). In other words, if the employee’s coverage is affordable, even if the dependent coverage is not, no subsidies for dependents.

7. If an employer offers multiple health care coverage options, do all of the offered options need to fit the “affordable” status?

No. Just one plan has to be deemed “affordable.” And that plan must be affordable for the lowest-paid full-time employee and also meet the minimum value requirement.

8. Will a small employer be able to buy a health plan for their employees that do not meet the Essential Benefits or Minimum Value requirements?

No. Effective with the health benefits renewal in 2014, all non-grandfathered individual and small group plans must cover the state’s “Essential Health Benefits,” limit deductibles to $2,000 for self-only coverage or $4,000 for family coverage, provide minimum value (cover 60% of the actuarial value), eliminate annual and lifetime benefit limits, include people with pre-existing conditions, have guaranteed issue and renewability, and may change premiums based only on a specified list of factors.

9. If an employer owns multiple companies with different Tax IDs, do they have to combine these groups of employees or are they considered all separate companies?

If an owner or family is involved with several different businesses – related or unrelated – they may be treated as a “controlled group” or “affiliated services group.” If so, the full-time employees and the FTEs in the group will be added together and treated as if they were one business in determining whether the employee count is 50 or more.

10. Could a large group drop coverage, pay the penalties and then apply for a small group carve-out to cover management employees?

No. For non-grandfathered management carve-out groups, a management carve-out would violate the nondiscrimination rules, resulting in very high excise tax penalties. Under the ACA, fully insured plans that do not comply with the new 105(h) requirements will be subject to a fine of $100/day per employee subject to discrimination.

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