SEMA News—September 2013
Confused About the New Health Care Law?
SEMA members need to know…
The “Affordable Care Act” continues to sow confusion for many SEMA members. To follow is a concise summary of the law’s key provisions and timetables for implementation.
When did “Obamacare” take effect?
It is being phased-in over 10 years beginning in 2010, with new requirements and benefits being added each year. The most consequential change occurs on January 1, 2014, when individuals are required to obtain minimum levels of insurance, on their own or through their employer or the government (Medicare/Medicaid).
Is my company required to offer health insurance?
How the law impacts companies and their workers can be summarized in two questions.
No, for “small” companies (49 or fewer employees). A qualified ‘yes’ for “large” companies (50 or more employees) as of 2014. There is no requirement to offer insurance. However, a large company that chooses not to offer insurance will incur a non-deductible $2,000 penalty for every full-time worker when at least one full-time worker obtains a subsidy from the federal government to purchase an individual plan.
My company already offers insurance. Is that enough?
As of 2014, most plans offered by insurance companies will cover 10 categories of “minimum essential health benefits,” from hospitalization to prescription drugs. For large companies, check with your insurance professional to confirm that your plan meets the law’s requirements or is otherwise exempted. For small companies, there is no obligation to provide coverage, although the government encourages it.
Can the worker pay a portion of the premium?
Yes, but the worker’s portion must be “affordable.” It is not affordable if it exceeds 9.5% of the worker’s household income. A company that is required to offer insurance faces a $3,000 penalty for each full-time worker that obtains a federal health care subsidy because their portion was deemed “unaffordable.”
Most Policies to Cover “Essential Health Benefits”
As of 2014, most policies offered through the exchanges and in the individual and small group market must include minimum levels of coverage in 10 categories deemed to be essential. Service categories include doctor/outpatient, emergency, hospitalization, maternity/newborn, pediatric, mental health, substance abuse, rehabilitation, laboratory, preventive and wellness, along with coverage for prescription drugs, oral and vision care.
For years, SEMA lobbied in favor of legislation that would allow small companies to purchase nationwide insurance or bargain collectively across state lines, thereby infusing competition into the marketplace. The Affordable Care Act provides a variation on that approach through “exchanges.”
The exchanges are set to be operational by October 1, 2013, in order to voluntarily enroll people in coverage that will take effect on January 1, 2014. Under the exchange, small businesses and individuals will be offered a menu of private-sector health plans that have been established under common rules regarding the offering and pricing of insurance. The exchange has the ability to pool a large number of potential consumers and help organize a more competitive marketplace.
Exchanges will be state-based. Each state has the option of opening the exchange to businesses with 50 or fewer workers, or 100 or fewer workers. There will be four benefit categories of exchange plans, plus a separate catastrophic plan. All of the plans will provide essential health benefits with an initial out-of-pocket limit of $6,250 per individual or $12,500 per family. The plans will differ in the amount of covered costs: 60% (bronze), 70% (silver), 80% (gold) and 90% (platinum).
Individuals will be required to obtain “essential minimum coverage” for themselves and their dependents, beginning in 2014, to ensure that everyone participates in the system. This “universal coverage” will increase the risk pool and potentially reduce overall costs. If individuals do not obtain coverage, a penalty will be assessed in 2014 in the amount of $95 or 1% of annual income, whichever is greater. This penalty will increase in 2015 to $325 or 2% of annual income and again in 2016 to $695 or 2.5% of annual income. Penalties for family coverage will be higher, but will not exceed the annual income percentage caps listed above. After 2016, the penalties increase by a cost-of-living adjustment. The government will provide subsidies for lower-income and unemployed individuals.
The law imposes significant requirements on mid- and large-sized companies but is less restrictive on small businesses. Employers with 49 or fewer employees are not required to offer health insurance. Very small companies (25 or fewer employees) are provided tax credits as an incentive to voluntarily offer coverage.
Companies with 50 or more full-time (working 130+ hours per month) or “full-time equivalent” employees must offer health insurance by 2014 or be penalized as soon as any full-time employee receives a government subsidy under the individual mandate. If the penalty is triggered, the government will impose a fee of $2,000 for all full-time employees, minus the first 30 full-time employees. For example, a company with 51 full-time employees would be assessed a fine of $42,000 annually.
Even when offering insurance, a company is exposed to one other potential penalty based on “affordability.” If the worker is picking up a portion of the premium cost, it must be affordable. It is not affordable if it exceeds 9.5% of the worker’s household income or if the plan does not cover at least 60% of medical costs. Also, deductibles for fully insured small group plans are limited to $2,000 for employee-only coverage and $4,000 for family coverage, and then indexed to inflation. Verifying affordability may require a complex computation but there is a safe-harbor option based solely on the worker’s income. The issue of affordability is generally associated with lower-wage workers. It is consequential since the company will face a $3,000 penalty for each individual full-time worker that obtains a health care subsidy from the federal government.
*The federal government will not enforce any of the employee mandate penalties until 2015.
The law includes a non-discrimination clause for employer-provided plans. Tentatively scheduled to take effect in 2014, a group health benefit plan could no longer discriminate in eligibility, waiting period, benefits or contributions in favor of highly compensated employees. It would overturn current practice which allows executives to receive more generous coverage than other employees as part of a compensation package. The business community is awaiting a final ruling on whether the clause will take effect or be overturned.
Small Business Tax Credits
The law provides an immediate tax credit to small employers that purchase insurance if they have no more than 25 employees with average annual wages of less than $50,000. The credit varies according to size, wages and the amount of employer contribution for the premium. Beginning in 2014, small businesses that purchase through an exchange will be eligible for a two-year tax credit, based on firm size and average annual wages.
In 2013, a new 0.9% surtax was added to the 1.45% Medicare payroll taxes paid by individuals earning more than $200,000 per year or joint filers earning more than $250,000 per year. Another 3.8% Medicare tax was imposed on the same individuals/couples on investment income from capital gains, interest, dividends, annuities, royalties and rent.
In 2013, the threshold for claiming medical expense deductions rose from 7.5% of adjusted gross income to 10%. (The threshold remains at 7.5% for individuals 65 or older until 2016.) Contributions to health care flexible spending arrangements were limited to $2,500, and then indexed to inflation.
As of January 1, 2014, health insurers are forbidden from turning away people with pre-existing conditions. A $25 billion federal fund will help insurance companies cover the costs of previously uninsured people with medical problems. The fund will be financed by a three-year fee imposed on employers for each person insured under a plan. The fee will start at $63 at the end of 2014 but decrease to about $40 in 2015 and $28 in 2016. Some employers are expected to pass along the fee
Health Insurance Premium Costs
Implementation of the new health care law has so many complexities and unknown variables, it is nearly impossible to predict its effect on the cost of health care premiums. For example, the exchanges are intended to stabilize prices through marketplace competition but it is unclear whether companies and individuals will fully participate in the exchanges. SEMA will continue to advocate for meaningful reforms intended to reduce premium costs.
Employer Mandate Delayed: The employer mandate penalty has been put on hold for one year. The requirement that companies with 50 or more full-time workers offer health care insurance or pay a $2,000 fine per employee above the first 30 full-time workers will still take effect on January 1, 2014, but not be enforced until 2015. The delay gives the business community more time to understand and comply with the law.
- Children permitted to stay on parents’ policies until 26th birthday
- Lifetime limits on coverage prohibited
- Insurers must justify rate hikes more than 10% to the state
- Insurers must spend at least 80% of profits on health care or provide rebates
- Very large employers (250 or more workers) must begin reporting the value of health care benefits on employees’ W-2 statements
- 0.9% surtax is added to the1.45% Medicare payroll taxes paid by those earning more than $200,000 per year or joint filers earning more than $250,000 per year
- 3.8% Medicare tax is imposed on investment income from capital gains, interest, dividends, annuities, royalties and rent
- Health care flexible spending account contributions limited to $2,500
- Exchanges for small businesses take effect
- Individuals must have minimum insurance or pay a penalty
- Large companies (50 or more full-time workers) must offer affordable coverage or risk a fine of $2,000 per employee, excluding the first 30 employees [penalties delayed until 2015]
- Insurance companies barred from denying coverage or charging significantly higher premiums for individuals with a pre-existing illness
- Three-year fee will be imposed on employers to create a $25 billion fund to cover associated insurance costs
- Penalty for individuals without insurance rises to $325, capped at greater of $975 per family or 2% of family income
- Doctor’s income to be based on quality rather than quantity of care provided
- Penalty for individuals without insurance rises to $695, capped at the greater of $2,085 perfamily or 2.5% of family income and then tied to inflation
- Businesses with more than 100 workers may buy coverage through exchanges, if state permits
- States have the authority to implement their own plans
- 40% excise tax on insurers takes effect for high-cost health insurance plans
For additional information: www.sema.org/healthcare
SEMA Government Affairs Office: 202-783-6007
SEMA recommends that member companies review their current situation, consult with health care insurance professionals and determine how best to proceed.
What if I still have questions?
Please take the time to review the information contained in this booklet. For specific inquiries regarding your company, please consult with a qualified insurance professional. SEMA is maintaining additional information at www.sema.org/healthcare