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The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010. A companion package of "fixes" to PPACA, the Health Care and Education Reconciliation Act (HCERA), was signed on March 30, 2010. Taken together, these two bills make the most profound changes to our country's private-market health care system in 50 years.

Many provisions of the new health reform law will impact American employers and private health consumers very soon, while others take effect over the course of the next eight years. For a number of provisions, the actual application and operation of the new law will remain hazy until the federal government creates and issues detailed regulations.

Highlights of Interest to Individuals

Beginning in 2014, federal law requires that most U.S. citizens and legal resident aliens, and their dependents, be covered by health insurance, what the law calls "minimum essential coverage." Failure to maintain such coverage will generally result in a monetary penalty, sometimes referred to as a "shared responsibility payment."

• Minimum Essential Coverage: Includes government-sponsored programs such as Medicare, Medicaid, Children's Health Insurance Program (CHIP), Tricare for Life, military and veterans' health care, and health care for Peace Corps volunteers. The term embraces employer-sponsored plans such as certain governmental plans, church plans, "grandfathered" plans, and other group health plans offered in the small or large group market within a state. It also includes individual market plans and other plans or programs recognized by the Secretary of Health and Human Services.

 

• Exempt individuals: Certain individuals are exempt from the requirement to maintain health insurance coverage. These include prisoners, undocumented aliens, members of a health care sharing ministry, and members of certain recognized religious sects. Individuals living outside the U.S. are deemed to maintain minimum essential coverage.

 

• Penalty exemptions: Some individuals are exempt from any penalty that might apply, including those whose required contribution for employer-sponsored coverage exceeds eight percent of household income, those whose household income is below the threshold for filing a federal income tax return, certain Native Americans, individuals with a "short" (up to three months) lapse in coverage, and those whom the Secretary of Health and Human Services determines have suffered a hardship with regard to maintaining health insurance coverage. By definition, dependents are exempt as the penalty is levied on the taxpayer claiming the income tax exemption for the dependent.

Highlights of Interest to Business

• Shared responsibility for employers: Federal law currently does not require that an employer offer health insurance coverage to employees and dependents. However, beginning in 2014, an applicable large employer (generally defined by having an average of at least 50 full-time employees in the preceding calendar year) who does not offer minimum essential coverage under an employer-sponsored plan for all its full-time employees, offers minimum essential coverage that is unaffordable (with a premium more than 9.5% of an employee's household income), or that offers minimum essential coverage through a plan under which the plan's share of total allowed costs of benefits is less than 60%, may be subject to a non-deductible excise penalty tax.

  The penalty is payable if at least one full-time employee is certified to the employer as having enrolled in health insurance coverage purchased through an AHBE and with respect to which a premium assistance credit or cost-sharing subsidy applies. A similar excise penalty tax also applies to an employer who offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan and any full-time employee is certified as having enrolled in health insurance coverage purchased through an AHBE and with respect to which a premium assistance credit or cost-sharing subsidy applies.

  Most employers providing minimum essential coverage will be required to report certain health insurance coverage information to both its full-time employees and the IRS. If these reporting requirements are not met, failure to file penalties will apply.

 

• Small business tax credit: Under this provision, which is applicable to premiums paid after December 31, 2009, a tax credit is available to a qualified small employer for non elective contributions to purchase health insurance for its employees. For this purpose, a qualified small employer is, generally, an employer with no more than 25 full-time equivalent employees (FTEs) during the year, and whose annual full-time equivalent wages average no more than $50,000. Certain employees (2% S Corp. shareholders and more than 5% owners, spouses, and children) are not included in the definition of "full-time" employee. Neither are seasonal employees who work 120 days or less during the year.

  The credit is equal to an "applicable tax credit amount" times the lesser of: (1) the amount of contributions the employer made on behalf of employees for qualifying health coverage, or (2) the amount of premiums the employer would have paid had each employee enrolled in coverage with a small business benchmark premium.

  The credit is available in two phases. For any taxable year beginning in 2010 — 2013, the applicable tax credit amount is 35% and generally applies to health coverage purchased from an insurance company licensed under local state law. For taxable years beginning after 2013, the applicable tax credit amount is 50% and applies only to health insurance coverage purchased through an AHBE. Additionally, during the second phase, the credit is only available for a maximum period of two consecutive years.

  The credit is reduced for employers with more than 10 FTEs. It is also reduced for an employer for whom average wages per employee is between $25,000 and $50,000. Certain tax-exempt organizations are also eligible to receive the credit. However, for these tax-exempt employers, the applicable credit percentage in the first phase (2010—2013) is limited to 25% and the applicable credit percentage in the second phase (after 2013) is limited to 35%.

 

• Simple cafeteria plans for small business: A "cafeteria" plan is an employer sponsored plan under which participating employees may choose from two or more options, consisting of cash or certain "qualified" benefits, such as health insurance, dependent care, or health flexible spending accounts. If an employer is unable to pay for these fringe benefits, the employee can enter into a salary-reduction agreement with the employer. The employer then uses these funds to pay for the employee's benefits, effectively allowing the employee to pay for his or her own benefits with pre-tax dollars.

  Cafeteria plans are, however, subject to complex nondiscrimination requirements to prevent discrimination in favor of highly compensated individuals. Beginning in 2011, the new law provides eligible small employers (generally with less than 100 employees during any of the two preceding years) with a simplified "safe harbor" method of meeting these nondiscrimination requirements.

 

• Early retiree health benefits: Effective in 2010, one provision of the law establishes a temporary reinsurance program for employers that provide retiree health coverage for employees over age 55 and less than age 65. If a plan spends more than $15,000 a year on medical or prescription drug benefits for an early retiree or a dependent, the plan can be reimbursed 80% of the excess, up to a maximum reimbursement of $60,000. Employers may use the reimbursements to reduce retiree cost-sharing. The program will end in 2014 or when $5 billion has been reimbursed, whichever comes first.

For a more complete review of this topic, please e-mailinfo@atgtrust.comand we will send you additional information.

THE TRUSTED ADVISER is published by Attorneys’ Title Guaranty Fund, Inc., P.O. Box 9136, Champaign, IL 61826-9136. Inquiries may be made directly to Mary Beth McCarthy, Corporate Communications Manager. ATG®, ATG® plus logo, are marks of Attorneys’ Title Guaranty Fund, Inc. and are registered in the U.S. Patent and Trademark Office. The contents of the The Trusted Adviser © Attorneys' Title Guaranty Fund, Inc.

[Last update: 10-8-10]