ACA Update: Penalty Rules, Deadline Looming and Overall Confusion

We’re getting closer to the implementation dates for some key provisions in the Affordable Care Act (ACA). However, as we learned in early July when the federal government delayed the start of the employer “play or pay” mandate for a year (from January 1, 2014 to January 1, 2015), deadlines might be postponed. So stay tuned. Below are a few recent healthcare law developments.

Final Regs Issued on the “Shared Responsibility Payment”

The IRS recently released final regulations on the “shared responsibility” payment under the ACA. This is the way the federal government will enforce the law’s mandate that most individuals must have health insurance coverage.

Healthcare law basics: The ACA involves major changes in healthcare and insurance coverage. It requires individuals to have “minimum essential” health insurance coverage next year or pay a penalty.

Coverage, which must be maintained by non-exempt U.S. citizens and legal residents, can come from:

  • Employer-sponsored insurance plans;
  • The government-sponsored programs of Medicare, Medicaid and Children’s Health Insurance Program;
  • Plans purchased in the individual insurance market;
  • Certain grandfathered group health plans; and
  • Other coverage recognized by U.S. Department of Health and Human Services.

The penalty, under Section 5000A of the tax code, must be paid on a federal tax return. A taxpayer is liable for the penalty for him or herself, and non-exempt dependents claimed on a tax return who don’t have minimum essential coverage. Married joint filers are both liable for any penalty imposed.

The final regulations include the categories of people who are exempt from the requirements and the penalty:

1. Individuals who cannot afford insurance;

2. Members of recognized religious sects of divisions who are eligible for a conscience exemption;

3. Individuals eligible for a short gap in coverage;

4. Those with household income below the tax return filing threshold;

5. Members of healthcare sharing ministries;

6. Exempt non-citizens;

7. Incarcerated individuals;

8. Members of Indian tribes; and

9. Others with hardship situations.

Who Really Understands
Health Insurance?

Under the Affordable Care Act, Americans are being asked to make decisions about health insurance. Yet a new survey finds that about half don’t even understand basic health insurance terms.

The American Institute of CPAs conducted a telephone survey of 1,008 U.S. adults and found that 51 percent could not accurately describe at least one of these health insurance terms:

  • Premium,
  • Deductible and
  • Copay.

A third of the respondents thought a premium was an expense at the time a patient received a medical service or prescription, and 27 percent thought a copay was the cost of obtaining insurance.

In addition, 12 percent didn’t know a deductible is the amount a patient pays before an insurance company starts making payments.

The AICPA noted in a press release that “half of Americans would fail health insurance 101,” at a time when “consumers prepare to make important decisions with implications for both their physical and fiscal well-being.”

The ACA requires individuals to buy health insurance or pay a penalty beginning next year, with open enrollment starting in October. Despite the upcoming deadlines, the survey found 41 percent of respondents are not at all knowledgeable about the healthcare law and another 48 percent said they were only somewhat knowledgeable. Those aged 18 to 34 were the least informed, with 48 percent saying they had no knowledge.

For 11 percent, the upcoming requirement to buy health insurance is their biggest financial concern. For half of the small minority who don’t have health insurance — 14 percent, according to the survey — figuring out how to pay for it is their biggest concern about the mandate.

The National CPA Financial Literacy Commission recommended that consumers who are considering health insurance should:

  • Review health history and behavior.
  • Compare premiums.
  • Compare fees, such as deductibles, copays and co-insurance.
  • Compare coverage, including limitations and a maximum benefit ceiling.

Employers Must Provide Healthcare Law Notice by October 1

Many employers are facing a healthcare deadline that imposes a major paperwork burden. Under the Affordable Care Act, most employers are required to provide a notice to each employee by October 1, 2013 explaining their options available under the law.

According to the Department of Labor, “the notice must be provided in writing in a manner calculated to be understood by the average employee.” It can be provided by first-class mail or electronically if the certain requirements are met.

The written notice must:

1. Inform employees of the existence of the “Health Insurance Marketplace,” and include a description of the services it provides and how employees can contact the Marketplace to request assistance.

2. If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, inform the employee that he or she may be eligible for a premium federal tax credit if the employee purchases a qualified health plan through the Marketplace.

3. Inform the employee that if he or she purchases a qualified health plan through the Marketplace, he or she may lose the employer contribution (if any) to any health benefits plan offered by the employer. In addition, all or a portion of such contribution may be excludable from income for Federal income tax purposes.

The DOL has provided a model notice that employers can fill out. It can be accessed by clicking here.

Which employers must send the notices? The new responsibility must be met by employers that must comply with the Fair Labor Standards Act (FLSA). In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies.

The FLSA also specifically covers the following: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; as well as federal, state and local government agencies.

For more information about your responsibilities to send out the written notices, consult with your HR adviser, employee benefits professional, or attorney.

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