- Coverage Requirements
Non-exempt U.S. citizens and legal residents are required to maintain “minimum essential coverage” which includes the following:
- Individual market plans offered within a state
- Eligible employer-sponsored plans including the following: governmental plans, church plans, grandfathered group health plans and other group health plans offered in the small or large group market within a state
- Grandfathered individual or group coverage
- Government sponsored programs including: Medicare, Medicaid, CHIP, Department of Defense health benefit programs including TRICARE and the Nonappropriated Fund Health Benefits Program, VA and Health Care for Peace Corps volunteers
- Other coverage deemed acceptable by HHS in coordination with Treasury
Minimum essential coverage does not include certain HIPAA excepted benefits. (PPACA § 1501; TAA § 2; IRC § 5000A)
- Starting in 2014, annual penalty for not having insurance would be the greater of a flat dollar amount per person or a percentage of the individual’s income.Specifically, the penalty would be equal to the greater of the following amounts:
- Flat Dollar Amount: $695 (in 2016) per person failing to buy coverage (phased in at $95 in 2014; $325 in 2015; $695 in 2016). Total family flat dollar amount capped at 300% of the applicable per person adult amount (e.g., in 2016, $695 x 300% = $2,085); or
- Percentage of Taxable Income: An amount equal to a percentage of a household’s income that is in excess of the applicable tax filing threshold
- (Applicable percentage phased in at 1.0% in 2014; 2.0% in 2015; 2.5% in 2016) (Generally, for 2010, the filing threshold is $9,350 for singles and
- $18,700 for married, filing jointly)
- In any event, the penalty is capped at the national average Bronze premium in the Exchange for the family size involved.
- For any dependent under age 18, per person amount for calculating flat dollar amount is one half the adult individual amount.
- If the individual is a dependent of another taxpayer, the other taxpayer is liable for any penalty payment with respect to the individual.
- Flat dollar penalties are indexed to cost of living (based on CPI-U) after 2016.
- Penalty is calculated on a monthly basis; i.e., penalty is prorated for partial coverage during the year. (PPACA §§ 1501, 10106; HCERA § 1002; IRC § 5000A)
- Exemptions to Individual Mandate
- Affordable coverage not available (cost exceeds 8% of household income).
- In the case of those enrolled in an employer plan, insurance cost is the portion of the premium paid by the individual (including through salary
- reduction). Household income for this purpose is increased by any salary reduction contribution through a cafeteria plan.
- In the case of those only eligible for individual market coverage, insurance cost is the premium for the lowest cost Bronze plan available through the Exchange and reduced by any premium subsidy that is allowable under PPACA.
- 8% of household income threshold is indexed after 2014 by the amount by which premium growth exceeds income growth
- Individuals with a coverage gap of less than 3 months.
- Coverage gap is determined without regard to the calendar years in which gap occurs.
- If coverage gap is 3 months or greater, then no exemption is provided for any months (including the initial period without coverage).
- If there is more than one period with a coverage gap, this exemption only applies to the months in the first period without coverage.
- Hardship situation (as determined by HHS)
- Religious exemption (certain faiths). Those exempt due to religious reasons must be members of a recognized religious sect exempting them from self employment taxes and adhere to tenets of the sect.
- Illegal aliens
- Individuals living outside the U.S. or residents of territories
- Those with incomes below tax filing threshold. (In 2010 the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).
- Members of Indian Tribes
- Incarcerated individuals (PPACA §§ 1501, 10106; HCERA § 1002; IRC § 5000A)
- Enforcement & Verification
- Penalty is assessed through the tax code and counted as an additional amount of federal tax owed.
- Criminal and civil penalties are waived for any failure to pay the tax penalty. In addition, Treasury shall not file notice of lien or levy with respect to any property of a taxpayer. (PPACA § 1501; IRC § 5000A)
- IRS Notice of Nonenrollment. Not later than 6/30, the IRS, in consultation with HHS, is required to send a notification to each individual who files an income tax return and who is not enrolled in minimum essential coverage. Notification will include information on services available through the state Exchange. (PPACA § 1502; IRC § 6055)
Insurer & Employer Reporting (Effective 2014)
- Requires insurers (and employers who self-insure) providing minimum essential coverage to report the following information to Treasury:
- Name, address and taxpayer identification number of each enrolled member.
- Dates of coverage for such individual(s) during the calendar year.
- Whether coverage is a qualified health plan offered through an Exchange; if yes, the amount, if any, of advance payment for premium credits and costsharing subsidies.
- Treasury may prescribe additional reporting requirements.
- In the case of health insurance through an employer-sponsored group health plan, the insurer is also required to report the following information toTreasury:
- Name, address and employer identification number of the employer maintaining the plan.
- Portion of the premium, if any, required to be paid by the employer.
- If coverage is a qualified health plan in the small group market and offered through the Exchange, such information as Treasury may require for administering the small employer tax credit.
- Requires insurers (and employers that provide minimum essential coverage) to provide written statements with similar information to each covered individual. Statements are to be given to individuals on or before 1/31 for the previous calendar year. Required information includes:
- Information required by the above bullets with respect to each individual listed in return.
- Name, address and contact information of the insurer (or others that provide acceptable coverage).
In case of coverage provided by any governmental unit or agency, the officer or employee who enters into agreement to provide such coverage shall make the returns and statements. (PPACA § 1502; IRC § 6055)
- Coverage Requirments ("Play")
- Starting in 2014, employer must offer minimum essential coverage that satisfies the individual mandate.
- No minimum contribution requirement.
- Mandate only applies to employers with an average of at least 50 full-time employees for the prior year.
- Full-time employee defined as any employee working, on average, at least 30 hours per week with respect to any month.
- Seasonal workers. Employer is not considered to exceed 50 full-time employees if the workforce exceeds 50 full-time employees due to seasonal employees working for 120 days or fewer during the calendar year. “Seasonal worker” means a worker who performs labor or service on a seasonal basis as defined by DOL. This includes retail workers employed exclusively during the holiday seasons.
- In situations where the employer did not exist in the preceding year, employer size is determined based on the average number of employees that it is reasonably expected to employ in the current calendar year. (PPACA §§ 1513, 10106; HCERA § 1003; IRC § 4980H)
- Free Rider Penalty ("Pay")
Large Employers Not Offering Coverage
- Defined as employers that fail to offer “minimum essential coverage” under an employer-sponsored plan to its full-time employees and their dependents.
- If employer does NOT offer coverage and at least one full-time employee receives a tax credit or cost-sharing subsidy through the Exchange, penalty is:
- Annual fee of $2,000 per full-time worker.
- Employer subtracts the first 30 full-time workers from payment calculation (e.g., firm with 51 full-time workers pays $2,000 x 21 = $42,000)
- Fee is calculated on a monthly basis, i.e., based on whether coverage is provided, whether one full-time employee receives a credit or subsidy
- through Exchange and on number of full-time employees for the month.
- Large Employers Offering Coverage
- If employer offers coverage, and at least one full-time employee receives a tax credit or cost-sharing subsidy through the Exchange, then the employer pays the lesser of:
- $3,000 for each full-time employee receiving a tax credit or subsidy, or
- $2,000 per full-time worker (Employer subtracts the first 30 full-time workers from this payment calculation).
- Calculated on a monthly basis. (PPACA § 1513; HCERA § 1003; IRC § 4980H)
- Employee Eligibility for Exchange premium tax credit or cost-sharing subsidy. Employees may apply for premium credits when offered employer coverage that is below 60% actuarial value or if employee premiums exceed 9.5% of household income. (PPACA §§ 1401, 10105; IRC § 36B)
- Indexing of Penalty Amounts. Penalty amounts are indexed annually to average per capita premium increases measured after 2013 (as determined by HHS).
- Timing of Payments. Treasury may make this payment due annually, monthly or on any other periodic basis. (PPACA § 1513; HCERA § 1003; IRC § 4980H)
- Treatment of Part-time Employees
Part-time employees are considered solely for the purpose of determining if an employer has average of 50 or more full-time employees and is therefore subject to the employer responsibility and penalty provisions.
- Employers are required to add number of hours worked by part-time employees in the month and divide by 120. This number is added to the number of full-time employees.
- However, any penalties would be assessed only on behalf of full-time employees who work, on average, 30 or more hours per week with respect to the month. (PPACA § 1003)
- "Free Choice Vouchers"
Starting in 2014, employers that offer coverage and provide any contribution are required to give “vouchers” to “qualified employees,” which can be used to purchase coverage through an Exchange.
- Qualified employee is one whose required contribution for minimum essential coverage is between 8.0% and 9.8% of household income, whose household income is not greater than 400% of the Federal Poverty Level (FPL), and who does not participate in the employer-sponsored plan.
- Amount of voucher is equal to the employer contribution for the plan where the employer pays the largest portion of the premium.
- For self-insured plans, the cost is based on past experience or a reasonable estimate for the cost of providing coverage for beneficiaries. Costs shall be adjusted for age and category of enrollment in accordance to regulations established by Treasury.
- Amount is equal to the premium for self-only coverage unless the employee elects family coverage. In the latter case, the voucher amount is equal to the employer contribution to family coverage.
- If the voucher exceeds the cost of the Exchange-based qualified health plan, any excess amount is paid to the employee (and is includable in employee's income).
- An individual receiving a voucher for a month may not receive a premium credit or cost-sharing subsidy for that month.
- No employer mandate penalty will be assessed with respect to any employee that purchases Exchange-based coverage using this voucher. (PPACA § 10108)
- Automatic Enrollment for Employees
- Employers with more than 200 full-time employees and that offer employees one or more health benefit plans must automatically enroll full-time employees into one of the health plans, in accordance with DOL regulations.
- Employees must be provided with adequate opportunity and notice to opt-out of any automatic enrollment.
- Effective once DOL regulations are issued. (PPACA § 1511; FLSA § 18A)
- Employee Notice Requirement
- Requires employers to inform employees of their coverage options through a written notice that includes the following information:
- Description of Exchange services and contact information for requesting assistance
- That the employee may be eligible for a premium tax credit through the Exchange, if the employer plan is less than 60% actuarial value and the employee purchases a qualified plan through the Exchange.
- That if the employee purchases a qualified plan through the Exchange, the employee may lose any employer contribution toward health benefits and such contributions may be excludable from income.
- Requires employers to provide such notices at the time of hiring (or, with respect to current employees, not later than 3/1/13). (PPACA § 1512; FLSA § 18B)
- Employer Reporting Requirements
- Starting in 2014, requires large employers (those subject to the employer responsibility requirements) and “offering employers” (those required to offer a “Free Choice Voucher” to at least one employee) to report the following information to Treasury:
- Name, address and employer identification number of the employer maintaining the plan
- Certification as to whether the employer offers minimum essential coverage to its employees (and their dependents)
- Length of any waiting period
- The months during the calendar year coverage was made available to employees
- Monthly premium for the lowest cost option for each enrollment category within the plan
- Employer’s share of the total allowed costs of benefits provided under the plan
- For offering employers, the option for which employer pays the largest portion of the cost of the plan, and the portion of the cost paid by employer in each enrollment category under that option
- Number of full-time employees for each month during the calendar year
- Name, address and taxpayer identification number for each full-time employee during the calendar year
- The months each full-time employee (and any dependents) were covered under any health benefits plan
- Any other information Treasury may require (PPACA §§ 1514, 10108; IRC § 6056)
- Starting in 2014, requires employers to provide each full-time employee with a written statement with the following information:
- Information required by the above bullets with respect to the individual
- Name, address and contact information of the employer submitting the above information to Treasury
- Statements are to be provided to individuals on or before 1/31 for the previous calendar year
- Provides for coordination of these requirements with the return and statement requirements in IRC § 6055 and the new W-2 requirements. See Individual Mandate section for more details on reporting requirements. Employer may enter into agreement with a health insurance carrier to coordinate information required to be reported under IRC §§ 6055 and 6056. (PPACA § 1514; IRC § 6056)
- Waiting Periods. Employers permitted to have waiting periods up to 90 days without being subject to penalties. (HCERA § 1003)
- W-2 Reporting. Employers must disclose the aggregate cost of benefits provided by employers for each employee’s health insurance coverage on the employee’s annual Form W-2. (See Revenue Provisions below for more information.)
- Treatment of Hawaii’s Prepaid Health Care Act. Provides a rule of construction to clarify that the existing ERISA exemption for Hawaii’s Prepaid Health Care Act is not affected by this bill. (PPACA § 1560)
- Study on Effect of Tax on Workers’ Wages. DOL will conduct a study to determine whether employee wages are adversely affected by the employer mandate penalties. (PPACA § 1513; IRC § 4980H)