"Affordable Care Act"
The U.S. Supreme Court ruled in a 5-4 decision that the president’s health care law entitled the "Affordable Care Act" is constitutional. While Congressman Gregg Harper believes that the policies and regulations in this act are among the most overreaching added to the United States Code in modern history, the fact is federal agencies are working to implement many of the law's provisions. In an effort to help inform Mississippians about the impact of the law, Congressman Harper has provided a variety of health care resources below.
For each month beginning in 2014, individuals must maintain health coverage for themselves and their dependents. Minimum essential coverage is defined by the law as coverage under government-sponsored plans, employer-sponsored plans or plans offered in the individual market. These plans must cover comprehensive services. Therefore, plans such as dental-only coverage would not meet minimum standards.
Any individual who fails to meet this standard must pay a penalty. As defined by section 5000A of the act, the annual fee for noncompliance is the greater of either a percentage of the applicable income or a flat dollar amount assessed on each taxpayer and any dependents. The penalty will be 1 percent or $95 in 2014, 2 percent or $325 in 2015, and 2.5 percent or $695 thereafter. The assessment is indexed for inflation beginning in 2017. Finally, the Internal Revenue Service (IRS) can attempt to collect unpaid penalties from noncompliant individuals by reducing the amount of future tax returns.
Some individuals may be exempt from this requirement, including individuals whose household income is less than the filing threshold for federal income taxes as well as those whose required contribution for self-only coverage for a calendar year exceeds 8 percent of household income. The Secretary of HHS may also excuse individuals from this obligation if they are deemed to have a financial hardship in obtaining coverage. Other exceptions include religious exemptions, those in health care sharing ministries, illegal immigrants, members of Indian tribes, and imprisoned individuals.
Compliance is to be monitored by the IRS through documentation supplied by health coverage providers. Tax returns must contain personal information, including the name, address, and tax identification number of the insured, the period for which the individual was provided with coverage, the type of plan, and whether or not the insurance was offered through an exchange.
Likewise, exempt individuals must confirm their immunity from the mandate through a certificate transmitted from the exchange to the U.S. Department of the Treasury.
Under section 9002, employers must now report the aggregate cost of the employer-sponsored coverage on employees W-2 form. While this provision has raised concern among citizens who fear this will result in a greater tax liability, this dollar amount is not taxed. This is simply a new reporting requirement to monitor compliance and track health spending trends.
The Congressional Research Service (CRS) has produced several analyses of the “Affordable Care Act” and the impact the law will have on employers, employees and small businesses. According to excerpts from these reports, beginning in 2014 all employers with more than 50 full-time employees (defined as employees working on average at least 30 hours per week and excluding seasonal workers) who do not provide coverage would be required to pay a penalty for certain employees, as well as employers who did provide access to coverage but fail to meet certain requirements. Applicable employers who (1) did not offer coverage and (2) had a full-time employee receive a premium credit for enrollment in an exchange plan, such employers would be assessed a penalty.
As defined by the law, minimum coverage standards will be set by the federal government for insurance providers and the state exchanges, which must be created by states before or by 2014. The employers are responsible for providing adequate coverage for their employees or they will be penalized.
For an employer who does not offer health coverage and who has at least one employee eligible for premium tax credits or cost sharing reductions in the individual market, a penalty is imposed. The penalty is $2,000 per full-time employee per year – not counting part-time employees – with an exclusion for the first 30 workers.
The monthly employer penalty in 2014 for an applicable employer who does not offer coverage with at least one full-time employee who received a premium credit would be the product of the number of full-time employees (minus 30 as described above) times one-twelfth of $2,000. The monthly penalty in 2014 for an applicable employer who offers coverage with at least one full-time employee who received a premium credit would be the product of the number of full-time employees who received such credits times one-twelfth of $3,000.
For the purpose of determining the firm size, part-time employees are aggregated to full-time equivalents by dividing total monthly part-time hours by 120. A firm with no more than 30 full-time workers would not pay a penalty even if part-time workers caused them to be classified as large.
The dollar amounts described in this section will be indexed after 2014.
Small Business Tax Credit
A recent analysis by the House Republican Whip’s office of the “Affordable Care Act” reveals that only employers with 10 employees or less will qualify for the full 35 percent temporary tax credit. For employers with 11 – 25 employees, the credit is reduced per additional employee, which is a disincentive for hiring new workers.
Only firms with an average wage per employee of $25,000 or less will qualify for the full credit. The credit is reduced as the average wage increases with complete phase-out at $50,000, which is a disincentive to raising wages.
The National Federation of Independent Business(NFIB) notes that the factors that affect eligibility for the credit – wages and number of employees – operate simultaneously.
Beginning in 2010, the small business tax credit provides a 35 percent credit for employers who meet the requirements. In 2014, once the health exchanges begin, the credit is increased to 50 percent. However, an employer can only use the credit for a two consecutive taxable year period and must purchase health care coverage through the exchanges to be eligible, which vastly limits who can receive the credit.
Additionally, business owners, extended family members working in the owners’ business and individuals who are self-employed do not qualify for the tax credit, although it appears they will be counted in the total number of employees for other purposes.
A report by the Small Business & Entrepreneurship Council (SBE Council) found that four million employees “may” qualify for the small business tax credit. However, an analysis by the NFIB notes that “less than two million small businesses will actually meet all the criteria to receive some portion of the tax credit.”
American Health Benefit Exchange
Beginning in 2014, each state must establish at least one American Health Benefit Exchange, referred to as an exchange, to facilitate the purchase of qualified health plans for groups or individuals. A state may elect to provide one exchange for both individuals and small employers, but only if the exchange has adequate financial and technological resources.
Plans sold through this platform must meet the essential health benefits standards as defined under section 1302 of the “Affordable Care Act.” On December 16, 2011, the Center for Consumer Information and Insurance Oversight issued a bulletin that provided information and solicited comments (through January 31, 2012) on the agency’s proposed covered services.
The law stipulates that exchanges may be either a state governmental agency or a nonprofit entity and must facilitate the purchase of qualified health plans. If a state fails to launch a federally-approved exchange by January 2014, the secretary of HHS will oversee that state’s exchange.
The White House has published an implementation timeline online to track the numerous federal and state health standards for governments, individuals and employers.