All You Need to Know About Health Reform

All You Need to Know About Health Reform

Following is the most up-to-date information on many of the items in the Patient Protection and Affordable Care Act. We at George Petersen Insurance Agency hope that this document will help you understand your role as an employer, and those of your employees, in this new law.

New waiting period.

Under the PPACA and with AB 1083 in California, waiting periods when offering coverage to new hires are limited to 60 days (that’s less than the 90 days prescribed by federal law). For plan years beginning on or after Jan. 1, 2014, the PPACA prohibits group health plans and group health insurance issuers from imposing a waiting period that exceeds 60 days. A “waiting period” is any period of time that must pass before coverage becomes effective for an employee or dependent who otherwise meets plan eligibility requirements. The

PPACA limits the lapse of time-based health care waiting periods to no more than 60 days. Other eligibility conditions are generally valid, unless designed to avoid compliance with the 60-day waiting period limit. A requirement based on cumulative hours of service (i.e. eligibility to enroll based on a certain number of hours of service) is permissible so long as it does not exceed 1,200 hours and is a one-time eligibility condition. An employer must offer coverage to an eligible employee by the 61st calendar day, including weekends and holidays. If an employee takes longer than 60 days to accept the offered coverage, the employer is not in violation of the 60-day limit, under current regulations.

Notice to all employees regarding the marketplace (exchange)

The PPACA requires that employers provide notices to all employees (whether covered by a health plan or not) regarding the existence of an electronic marketplace for the purchase of health care insurance coverage. Employers must distribute the marketplace notice to all employees before October 1, 2013.

Transitional reinsurance program tax

This program, designed to help stabilize premiums in the individual health insurance market for those with pre-existing conditions, will be effective from 2014 through 2016. Health insurance issuers and third party administrators will pay the assessment to fund state nonprofit

reinsurance entities, which will establish high-risk pools for the individual market. This tax amounts to about $63 per enrolled member annually.

Health insurer tax

Health insurers will have to pay an annual tax, beginning 2014, to help fund premium subsidies and tax credits to be made available to qualifying individuals purchasing health insurance coverage on the exchanges – and has no end date. This tax will be passed on to employers

through the premiums – increasing premiums from 2% to 3%. 

Small group tax credit 

Under the PPACA, certain small employers will be eligible for a tax credit, provided they contribute a uniform percentage of at least 50% toward their employees’ health insurance. For nonprofit (tax-exempt) organizations, the credit will be in the form of a reduction in income and Medicare tax that the employer withholds from employees’ wages and the employer share of Medicare tax on employees’ wages (with the credit thus limited by these amounts).

For all other qualifying employers, it will be in the form of a general business credit. This type of credit is not refundable, but is limited by the for-profit employer’s actual tax liability. In other words, if a for-profit company had a year in which it ended up paying no taxes (i.e., it had no taxable income, after accounting for all its other deductions and credits), then the small business tax credit could not be used for that year; there would be no income tax for this credit to reduce.

However, as a general business credit, an unused credit amount can generally be carried forward up to 20 years. For for-profit employers, the credit can be reflected in determining estimated tax payments for the year to which the credit applies in accordance with regular estimated tax rules. Beginning in 2014, for for-profit employers, the maximum credit is 50% of the employer’s contribution toward premiums, and 35% of employer contributions for nonprofit organizations.

The small business tax credit that is available beginning in 2014 is only available to an employer for two consecutive tax years. Thus, the small business tax credit is potentially available for a total of six years—the initial credit availability from 2010 through 2013, plus the two-year credit period beginning in 2014. Small employers will be able to claim the full tax credit amount if they meet the following two criteria:  

  • The employer has 10 or fewer full-time equivalent employees (FTEs). FTEs are calculated by dividing the total hours worked by all employees during the tax year by 2,080 (with a maximum of 2,080 hours for any one employee).
  • The employer’s average taxable wages are $25,000 or less. This is calculated by dividing aggregate wages paid to the “employees” during the year by the number of FTEs (and rounding to the nearest $1,000).

For calculating the number of FTEs and their wages, the term “employees” excludes seasonal workers (working no more than 120 days in a year). Also, the term “employee” excludes the following (as defined in the Internal Revenue Code): a self-employed individual, a 2% shareholder in an S-corporation, a 5% owner of an eligible small business, or someone who is a relation or dependent of these people. In other words, a business will not receive a credit for small business owners or their family members

Summary of Benefits and Coverage

Generally Effective with plan years that started on or after September 23, 2012, insurers and employer groups must provide a Summary of Benefits and Coverage (SBC) to potential applicants, new enrollees, and current policyholders for grandfathered and non-grandfathered medical plans (with some exceptions, such as retiree and dental-only plans).  The SBC summarizes a plan’s benefits and cost sharing in a standardized, easy-to-read format. This allows people who are looking for coverage to compare plans easily.

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