Contributed by: Steve Butler
It’s massive, and it’s complicated. At more than 2,000 pages, the Affordable Care Act (ACA for short) has left businesses and individuals confused about what the law contains and how it affects them.
The aim of the law is to provide affordable, quality health care for all Americans. To reach that goal, the law requires large companies to provide health insurance for their employees starting in 2015. Medium-sized companies have until 2016 to provide health insurance to employees. Uninsured individuals must generally get their own health insurance starting in 2014. Those who fail to do so face penalties.
Insurance companies must also deal with new requirements. For example, they cannot refuse coverage due to pre-existing conditions, preventive services must be covered with no out-of-pocket costs, young adults can stay on parents’ policies until age 26, and lifetime dollar limits on health benefits are not permitted.
The law mandates health insurance coverage, but not every business or individual will be affected by this requirement. Here’s an overview of who will be affected.
FOR BUSINESSES – It’s all in the numbers
● Fewer than 50 employees
Companies with fewer than 50 employees are encouraged to provide insurance for their employees, but there are no penalties for failing to do so. A special marketplace will be available for businesses with 50 or fewer employees, allowing them to buy health insurance through the Small Business Health Options Program (SHOP).
● Fewer than 25 employees
For 2010 through 2013, small companies that paid at least 50% of the health insurance premiums for their employees could be eligible for a tax credit for as much as 35% of the cost of the premiums. To qualify, the business must employ fewer than 25 full-time people with average wages of less than $50,000 ($50,800 in 2014, as adjusted for inflation). For 2014, the maximum credit increases to 50% of the premiums the company pays, though to qualify for the credit, the insurance must be purchased through SHOP. Special rules apply where SHOP is not available.
● 50 to 99 employees
Businesses with 50 to 99 employees have until January 1, 2016, to meet the requirement of providing minimum, affordable health insurance to workers or face penalties. To qualify for this transitional relief, employers must certify that they have not laid off workers in order to come under the 100 employee threshold.
● 100 or more employees
For companies with 100 or more full-time employees, the requirement to provide “affordable, minimum essential coverage” to employees is scheduled to become effective January 1, 2015. The IRS is encouraging large companies to comply with the ACA requirements in 2014 even though there are no penalties for failure to do so.
● The business play or pay penalty
Starting in 2015, companies with 100 or more employees that don’t offer minimum essential health insurance face an annual penalty of $2,000 times the number of full-time employees over a 30-employee threshold. If the insurance that is offered is considered unaffordable (it exceeds 9.5% of family income), the company may be assessed a $3,000 per-employee penalty. These penalties apply only if one or more of the company’s employees buy insurance from an exchange and qualify for a federal credit to offset the cost of the premiums.
FOR INDIVIDUALS – It’s all about coverage
A great deal of attention has been focused on the health insurance exchanges or “Marketplace” that opened for business on October 1, 2013. Confusion about the Affordable Care Act left many people thinking everyone has to deal with the exchanges. The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don’t need to do anything.
Also, if you buy your health insurance on your own, you can keep your coverage if your plan is still offered by the insurance company. You can keep insurance that doesn’t meet the law’s minimum coverage requirements through October 2017 if your state permits it. However, the only way to get any premium-lowering tax credits based on your income is to buy a plan through the Marketplace.
● The exchanges (Marketplace)
Each state will either develop an insurance exchange (Marketplace) or use one provided by the federal government. The Marketplace will allow those seeking coverage to comparison shop for health plans from private insurance companies.
There are four types of insurance plans to choose from: Bronze, Silver, Gold, and Platinum. The more expensive the plan, the greater the portion of medical costs that will be covered. The price of each plan will depend on several factors including your age, whether you smoke, and where you live.
Many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each state’s Marketplace has a calculator to assist individuals in determining the amount, if any, of their federal tax credit.
● The individual play or pay penalty
Individuals will generally need to have coverage for 2014 or pay a penalty of $95 or 1% of your income, whichever is greater. Under certain circumstances, you may qualify for an exemption from the 2014 requirement to have health insurance. Low-income individuals may qualify for subsidies and/or tax credits to help pay the cost of insurance.
The penalty increases to $325 or 2% of income for 2015 and to $695 or 2.5% of income for 2016. For 2017 and later years, the penalty is inflation-adjusted. Those who choose not to be insured and to pay the penalty instead will still be liable for 100% of their medical bills.