National Healthcare Update: Frequently Asked Questions – June 2012

By Bonnie Bochniak
Government Relations

The Michigan Business and Professional Association (MBPA), along with its sister group, the Michigan Food and Beverage Association (MFBA), want to keep you up to date on the federal healthcare law and how it will affect you and your clients.

As we are patiently awaiting the Supreme Court’s ruling on whether or not our national healthcare law will be upheld, split up with some pieces staying and some pieces going, or being eliminated all together, we still need to move forward and prepare. This is the law of the land and we need to proceed accordingly. Thus, our team has been compiling a list of frequently asked questions (FAQ’s) that we want to share with you and/or your clients. Feel free to contact our team if you have some FAQ’s of your own.

Will everyone have to buy health insurance?
Starting in 2014, most people will be required to have health insurance or pay a penalty if they don’t. Coverage may include employer-provided insurance, coverage someone buys on their own, or Medicaid.

What happens if they don’t?
Several groups are exempt from the requirement to obtain coverage or pay the penalty, including: people who would have to pay more than 8% of their income for health insurance, people with incomes below the threshold required for filing taxes (in 2009, $9,350 for a single person and $26,000 for a married couple with two children), those who qualify for religious exemptions, undocumented immigrants, people who are incarcerated, and members of Indian tribes.

How will people prove they have health insurance?
Health insurance plans will provide documents to people they insure that will be used to prove that they have the minimum coverage required by law.

The penalty for people who forego insurance is the greatest of two amounts: a specified percentage of income or a specified dollar amount. The percentages of income are phased in over time at 1% in 2014, 2% in 2015, and 2.5% starting in 2016. The dollar amounts are also phased in at $95 in 2014, $325 in 2015, and $695 beginning in 2016 (with annual increases after that). The Congressional Budget Office projects that 3.9 million people will pay the penalty in 2016. The total penalty for the taxable year will not exceed the national average of the annual premiums of a bronze level health insurance plan offered through the health insurance Exchanges.

How are small businesses affected by health reform?
The health reform law includes a number of provisions that reform the insurance market and encourage small businesses to offer health insurance. Coverage offered in the small group market and in the exchanges established for small business to purchase insurance, must meet minimum benefit standards; allow premiums to vary only by age, tobacco use, and geographic location; be subject to reviews of premium increases; and comply with other consumer protections.

The provisions to encourage small firms to offer coverage apply only to firms under a certain size.

Fewer than 25 Employees:
Beginning in 2010, business with fewer than 25 full time equivalents and average annual wages of less than $50,000 that pay at least half of the cost of health insurance for their employees are eligible for a tax credit. The full credit is available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. The credit is capped based on the average health insurance premium in the area where the small business is located.

The tax credit will be introduced in two phases. For tax years 2010 to 2013, eligible employers may receive a tax credit of up to 35% of the employer’s contribution toward the employee’s health insurance premium. For tax years 2014 and later, eligible small businesses that purchase coverage through the state Exchange may receive a tax credit of up to 50% of the employer’s contribution toward the employee’s health insurance premium. Employers are eligible to take the tax credit for two years. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 25% of the employer’s contribution toward the employee’s health insurance premium for tax years 2010 to 2013, and up to 35% for tax years 2014 and later.

Fewer than 50 Employees:
Businesses with fewer than 50 employees are exempt from penalties faced by larger employers that do not offer coverage. The penalties for larger employers (50 or more employees) do not go into effect until 2014.

Fewer than 100 Employees:
Small businesses with fewer than 100 employees will be able to purchase coverage through Small Business Health Options Program (SHOP) Exchanges beginning in 2014. These state-based exchanges are intended to allow employers to shop for qualified coverage and more easily compare prices and benefits. In 2017, states will have the option to allow businesses with more than 100 employees to purchase coverage through the SHOP Exchanges.

How does the new law apply to companies with self-funded plans?
Self-funded plans–those where the employer accepts the risk for the health benefits it providers, rather than buying coverage from an insurance company–are generally exempt from state insurance regulations and are instead regulated by the Employee Retirement Income Security Act (ERISA). The new health reform law contains many provisions that apply nationally to both self-funded plans and fully insured plans. Some of these provisions include the extension of dependent coverage until age 26, no cost sharing for preventive services, the limit on waiting periods to no more than 90 days, and no lifetime or annual limits on coverage. However, it appears that self-funded plans will not be subject to meeting the minimum essential health benefit requirements, such as limits on deductibles.

Will employees be taxed for the portion of the health insurance premium that is paid by the employer?
Starting for the 2012 tax year, W-2 forms provided by employers (in the beginning of 2013) will show employees how much their health insurance costs. However, the reporting is for informational purposes only; employees will not be taxed on this amount. The requirement was originally set to go into effect for the 2011 tax year, but implementation was delayed by the Internal Revenue Service.

A separate provision of the health reform law creates a new tax on so-called “Cadillac” insurance plans provided by employers. Beginning in 2018, plans valued at $10,200 for individual coverage or $27,500 for family policies will be subject to an excise tax of 40% on the value of the plan that exceeds these thresholds. The tax will be levied on insurers and self-insured employers, not directly on employees.

The threshold amounts will be increased for inflation beginning in 2020, and may be adjusted upwards if health care costs rise more than expected prior to implementation of the tax in 2018. The thresholds are also adjusted upwards for retired individuals age 55 and older who are not eligible for Medicare, for employees engaged in high-risk professions, and for firms that may have higher health care costs because of the age or gender of their workers.

MBPA/MFBA will continue to keep you up to date. As always, please contact us with any questions or comments. We enjoy your feedback.

Please visit our website for more and detailed information. Contact our Government Relations Team with questions/comments at: bbochniak@michbusiness.org or by phone at: 517-374-9128.