News : Health Reform

What you need to know about PPACA Fee’s as an Employer

The goal of health care reform is health care for all… but at what cost? By 2015, businesses with 100 or more full-time or full-time equivalent (FTE) employees will be at risk for financial penalties (the so-called “employer shared responsibility assessments”) if they do not offer health coverage to full-time employees. The same fate follows in 2016 for large employers with 50 to 99 FTEs. We are all well aware of the “no offer” and “insufficient offer” assessments that could be applied to employers that do not offer affordable, minimum value coverage to full-time employees, and most of us have already been advising clients on penalty avoidance strategies for many months. Meanwhile, business owners nationwide struggle with weighing the financial aspects of providing such coverage or paying the penalties. A recent survey suggests that only 28 percent of companies that employ a large number of low-income workers offer health benefits.

There are other costs to consider as well. In addition to the employer shared responsibility assessments, various other fees are being felt by employers. These fees are expected to ultimately result in higher premiums and could undermine the core principle of affordability in the Patient Protection and Affordable Care Act (PPACA) that is meant to provide basic health protections for all Americans. Over the next several years, group health plans may be required to absorb the costs of up to four new fees. These fees imposed by PPACA on insurers will inevitably trickle down to increase rates in the coming years. In a recent meeting presented by a major national health insurance carrier, regarding “State and Federal Reform Impact,” it became clear that at least three new assessments/fees imposed on carriers will affect employers’ renewal rates in the future and ultimately their bottom line.

Reinsurance Assessment – This per capita fee on medical plans will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals in the individual health insurance market. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016. The estimated fee is approximately $63 per year ($5.25 per month) per covered individual in the first year; however, fees are expected to decrease in subsequent years. The assessment applies to both insured and self-funded plans. Insurance providers will pay the fee for insured plans while third-party administrators may pay the fee on behalf of self-funded plans. The fee is collected each year from 2014-2016 and the first payment is due January 15, 2015, for the 2014 benefit year. Membership counts for 2014 must be submitted to HHS by Nov. 15, 2014, based on the first nine months of the year. We expect this same schedule in 2015 and 2016.

Comparative Effectiveness Research Fee (CERF) – This is an annual fee imposed on all insured and self-insured plans. The goal of the research is to determine which of two or more treatments works best when applied to patients, thereby comparing different types of therapy against each other. CERF will be charged to health plans to help fund the research that will be conducted by the Patient Centered Outcomes Research Institute, a nonprofit organization established by PPACA. The initial annual fee is $1 per year per health plan member (includes dependents). The annual charge increases to $2 per member the following year and then increases annually with inflation after that until it ends in 2019. Insurance providers will pay the fee on behalf of insured plans, while employers with self-funded plans will need to determine their liability and account for this fee in their own reporting. For many plans, the first payments were due in July 2013.

Health Insurance Industry Fee – This annual fee impacts fully insured plans. The estimated cost of this tax will be $8 billion for 2014 and eventually increase to $14.3 billion by 2018. The tax is divided among health insurers and will likely be passed on to plan sponsors as an addition to premium. The Health Insurance Industry Fee has a much greater potential financial impact than either of the other two taxes because it is intended to help fund the cost-generating provisions of the PPACA. The fee will be divided among health insurance carriers based on each carrier’s share of the overall premium base and will only be assessed relative to insured health plans, inclusive of medical, dental, and vision plans. Self-funded health plans and associated stop loss premium will not be included in the premium base. The cost impact of the fee is expected to be in the range of 2 percent to 2.5 percent of premium in 2014, increasing to 3 percent to 4 percent of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 and/or 2014. Importantly, this fee does not sunset.

Cadillac Tax – A 40 percent excise tax will be assessed on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for other than individual coverage) beginning in 2018. Under the current regulations, the cost of health coverage includes employer contributions to HRAs, as well as employer plus employee pre-tax contributions to FSAs and HSAs. Health insurance issuers and sponsors of self-funded group health plans must pay the tax on any dollar amount beyond the caps that is considered “excess” health spending. Note: There are certain adjustments built into the thresholds that may apply by 2018. Also, the thresholds may increase for certain plans pursuant to age and gender adjustments.

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Final Regulations on the Individual Mandate

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Vice President of Benefits

In late August, the IRS issued final regulations on the individual mandate and Health Insurance Marketplace premium subsidies, both of which take effect in 2014.

The final regulations largely adopt the proposed regulations issued on February 1, 2013. Recall that while employers received a one-year delay from the shared responsibility penalty, individuals have received no similar delay. Starting in 2014, individuals who do not qualify for an exemption and have no health coverage will be subject to a $95 penalty for the year (half that amount for family members under age 18). The penalty increases significantly in 2015 and beyond.

Here are some highlights of the final regulations:

• Former employees who were once eligible for COBRA/state continuation or retiree coverage, but did not enroll in it and are not eligible for other employer-sponsored coverage, do not have minimum essential coverage (MEC) and can potentially qualify for a premium subsidy.
• For MEC purposes, a plan offered to an employee by an employer through a professional employer organization (PEO) or leasing company constitutes a plan offered to an employee on behalf of an employer.
• For purposes of determining subsidy eligibility, the characteristics used to identify the applicable plan include tobacco use, if relevant.
• The Nonappropriated Fund Health Benefits Program, provided to Department of Defense employees, is considered MEC.

The guidance on COBRA should be welcome news to many employers and COBRA qualified beneficiaries. People on COBRA often use group health plan benefits more than similarly situated active employees, resulting in adverse selection. Many who are offered COBRA may qualify for a premium subsidy in the Marketplace and thus be able to obtain coverage at a lower price tag than COBRA’s 102 percent of total cost. Keep in mind that the core employer COBRA requirements remain in force and will not go away in 2014 or any later year, absent additional legislation.


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Health Insurance Marketplace

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Vice President of Benefits

In a little over 49 days the Health Insurance Marketplace will be open.  Millions of people that have struggled to find affordable health insurance without pre-existing conditions, riders, or exclusions will now have new options to choose from.

I have had several people ask me if their doctors would take the Government Insurance (Obama-care…if you will).  Many do not realize that Blue Cross Blue Shield of TN, Cigna, Humana, Coventry, and a new COOP called Community Health Alliance will be the insurance companies offering policies.

Open enrollment begins on October 1st and will run though March 31st.  If you apply for a policy before the middle of December, you can get a January 1st effective date.  This is the earliest effective date you will be able to get.

Many also do not realize that depending on their Household Income (HHI), they may qualify for subsidies that will reduce the amount of premium they will need to pay on a monthly or annual basis.  For example, a family with a HHI less than $94,200 may qualify for a subsidy.  I feel that the hardest thing for individuals to understand it their eligibility for the subsidy.  Many do not know that they may be disqualified from the subsidy if their employer offers them affordable coverage.  This simply means that you would not qualify for a subsidy if your portion of the “Employee Only” premium is less than 9.5% of your income.

In 2014, most small employers will be forced to change their plan designs due to Healthcare Reform.  Employers with less than 50 employees will not be able to have an individual deductible higher than $2,000.  Many employers renew at different times of the year.  That said, it may be the middle of the year before you find yourself in a situation where the employer had to make the health plan more rich, and consequently has to raise your contributions to help pay the additional premiums.  This may either take you past the 9.5% of income, or force the employer to drop the health plan entirely.

One thing is for sure; Full Service Insurance is certified and ready to help you and your employer navigate through this changing landscape.  The government has their website ready to assist those that want to go at this alone.  We suggest you work with certified specialists here at Full Service Insurance.

Make sure you check out our dedicated Health Insurance site by going to




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How can I get an estimate of costs and savings on Marketplace health insurance?

Vice President of Benefits

Vice President of Benefits

Until the Marketplace opens, you can use tools like the Kaiser Family Foundation calculator to get a rough estimate of how much health insurance may cost in 2014.

The Kaiser Family Foundation health insurance cost and savings calculator

The health insurance costs and savings calculator we link to below provides only an estimate. Your final premiums and costs may differ from the estimates, perhaps significantly, depending on where you live and the coverage you select. You’ll learn your final costs for specific plans when you apply in the Health Insurance Marketplace as soon as October 1, 2013.

Before you use the Kaiser Family Foundation calculator, there are a few important things to know:

  • The calculator provides a rough estimate of costs for insurance, based on national averages and factors that may not apply to you. It will give you an idea of what someone with circumstances like yours could pay for Marketplace insurance in 2014.
  • The calculator accounts for some factors that may determine plan costs in the Marketplace: age, family size, and tobacco use. Individual plans will weigh these factors differently to determine final prices.
  • The estimate doesn’t account for differences based on where you live, which will significantly affect Marketplace prices and offerings.
  • The prices are based on a plan in the Silver category. Plans in different categorieswill likely have higher or lower premiums.
  • You won’t be able to get your exact costs for a specific plan until you fill out a Marketplace application after October 1, 2013. Then you’ll see all of the plans available to you, compare features and prices side-by-side, choose a plan, and enroll. You should expect that your final cost will be different from the rough estimate provided here.

Background on the calculator

The calculator was created by the Kaiser Family Foundation, a non-profit research organization, for use by the general public. The Kaiser Family Foundation is solely responsible for the tool. The Kaiser Family Foundation has no connection with Kaiser Permanente or any health care provider.

The Centers for Medicare & Medicaid Services did not participate in the creation of this calculator. The Centers for Medicare & Medicaid Services does not warrant or guarantee the accuracy of estimates provided by the calculator.

Use the health insurance costs and savings calculator

If you’re ready to see the estimates, visit the Kaiser Family Foundation website and use the Kaiser Family Foundation’s health insurance costs and savings calculator.

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Obama Administration Announces Delay Of ACA’s Employer Mandate.

Major news out of the White House was covered widely last night through Wednesday morning: the delay of the Affordable Care Act’s employer mandate saw three minutes of coverage across all network broadcasts, and is on the front-page of several national papers.

The political implications of the delay, and the suggestion that it was intended to help Congressional Democrats grappling with criticism of the ACA ahead of next year’s elections, are covered by inside-the-beltway publications. But the midterms angle is not the focus of much of this morning’s print coverage, nor was it mentioned during the network newscasts. These outlets report mainly on the criticism that led to the delay, and what it means for the Affordable Care Act at such a critical time in its implementation. Notably, it was not HHS, but the Treasury Department, that announced the delay. As such, no major HHS officials are quoted regarding the news.

NBC Nightly News Share to FacebookShare to Twitter (7/2, Story 2, 1:20, Williams) reported that Tuesday night, the Obama Administration announced it was postponing a major Affordable Care Act provision, “delaying penalties for large employers who don’t provide health insurance coverage to their workers for a full year.” NBC’s Peter Alexander added, “The White House insists this will be its opportunity to help simplify the process.”

The CBS Evening News Share to FacebookShare to Twitter (7/2, Story 2, 1:10, O’Donnell) reported on the “late word from the White House,” that “a central component of President Obama’s healthcare overhaul will be delayed for a year.” Wyatt Andrews noted that the move comes “after months of complaints and backlash.” He added that with the extra time, the Administration is “promising to reduce” the burdens of the employer mandate on smaller companies, and to ensure that they do not follow through on threats of layoffs or reduced hours. According to Andrews, “Workers will still be allowed to buy their own health insurance on a state exchange. … The only thing that changes here is that their employers won’t be penalized next year if they do.”

And in a brief segment, ABC World News (7/2, story 7, 0:30, Sawyer) called the delay “surprising,” noting that the Obama Administration “says it wants to simplify the requirements to make it less confusing.”

On its front page, the New York Times Share to FacebookShare to Twitter (7/3, A1, Calmes, Subscription Publication) reports that in announcing the delay of the employer mandate, the Obama Administration was both “responding to business complaints and postponing the effective date beyond next year’s midterm elections.” The article adds that while “the change does not affect other central provisions of the law,” it may complicate efforts of “officials running the exchanges to know who is entitled to subsidies if they are not able to confirm whether employers are offering insurance to their employees.”

On its front page, the Washington Post Share to FacebookShare to Twitter (7/2, A1, Goldfarb, Somashekhar) calls the news “a fresh setback for President Obama’s landmark health-care overhaul as it enters a critical phase.” And while the White House “portrayed the delay as a common-sense step that would reduce financial and regulatory burdens on small businesses,” Republicans, “who are planning to target ‘Obamacare’ in the 2014 midterm campaigns, said the delay is an acknowledgment that the health-care overhaul is flawed.”

Also on its front page, the Wall Street Journal Share to FacebookShare to Twitter (7/3, A1, Radnofsky, Subscription Publication) notes that the mandate, which was to levy penalties on all companies with 50 or more full-time workers not providing them with insurance, had faced a torrent of criticism from restaurant and retail industries, who had threatened to cut workers or hours to avoid the penalties. As such, the mandate had received significant negative media attention for threatening the wages or employment of low-wage workers in an already weak economy.

To that point, on its front page, USA Today Share to FacebookShare to Twitter (7/3, A1, Kennedy) reports that “business groups had argued for months that the law created an administrative burden for businesses as they tried to update technology and plan to offer health coverage to their employees without knowing how much the coverage would cost.”

On its front page, the Los Angeles Times Share to FacebookShare to Twitter (7/2, A1, Levey) reports that the announcement was made “late Tuesday” in a post to the Treasury Department’s website. Assistant Secretary for tax policy Mark J. Mazur wrote, “We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively. We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.”

Another representative of the White House spoke out Tuesday, as CNN Share to FacebookShare to Twitter (7/3, Liptak) reports “Obama’s senior adviser Valerie Jarrett – who acts as the White House’s liaison to big business – wrote the new delay was indicative of the administration’s determination to implement the health care law effectively and fairly, and that it wouldn’t affect other aspects of Obamacare.” She wrote, “While major portions of the law have yet to be implemented, it’s already a little more affordable for businesses to offer quality health coverage to their employees. As we implement this law, we have and will continue to make changes as needed. In our ongoing discussions with businesses we have heard that you need the time to get this right.”

Larry Kudlow began Tuesday’s CNBC Kudlow Report (7/3) with news of the delay. CNBC’s Bertha Coombs said that businesses were “applauding the decisions,” calling it a “wise move.” At one point, Kudlow said, “I wonder whether they shouldn’t delay the entire program.”

Other sources reporting on the announcement include Reuters Share to FacebookShare to Twitter (7/3, Morgan), McClatchy Share to FacebookShare to Twitter (7/3, Pugh), the Huffington Post Share to FacebookShare to Twitter (7/2, Young), the ABC News Share to FacebookShare to Twitter (7/3, Good) “The Note” blog, the NPR Share to FacebookShare to Twitter (7/3, Chapell) “The Two-Way” blog, The Hill Share to FacebookShare to Twitter (7/3, Sink) “Healthwatch” blog, the FOX News Share to FacebookShare to Twitter (7/3) website, the Atlantic Share to FacebookShare to Twitter (7/3, Graham), the Atlantic Wire Share to FacebookShare to Twitter (7/3, Olheiser), Politico Share to FacebookShare to Twitter (7/3, Cheney), Modern Healthcare Share to FacebookShare to Twitter (7/3, Daly, Block, Subscription Publication), Kaiser Health News Share to FacebookShare to Twitter (7/3, Carey), New York Daily News Share to FacebookShare to Twitter (7/3, Warren), the Tulsa (OK) World Share to FacebookShare to Twitter (7/3, Greene), the Tennessean Share to FacebookShare to Twitter (7/3, Wilemon), Alabama Live Share to FacebookShare to Twitter (7/3, Gore), the Washington Business Journal Share to FacebookShare to Twitter (7/3, Fischer, Subscription Publication) “WBJ BizBeat” blog, the Portland (OR) Business Journal Share to FacebookShare to Twitter (7/3, Hayes, Subscription Publication) “Healthcare Inc. Northwest” blog, the Birmingham (AL) Business Journal Share to FacebookShare to Twitter (7/3, Ranaivo, Subscription Publication) “BizTalk Birmingham” blog, BBC News Share to FacebookShare to Twitter (7/3), and the Daily Mail (UK) Share to FacebookShare to Twitter (7/3, Martosko).

Political Angle Of Delay Considered. Emphasizing the political angle, The Hill Share to FacebookShare to Twitter (7/3, Viebeck, Baker, Parnes) titles its report on the delay, “ObamaCare Employer Mandate Delayed Until After 2014 Midterms.” According to The Hill, Republicans “seized on the news, arguing that the delays suggested the law was a ‘train wreck,’” a term used in April by Sen. Max Baucus, a Democrat and “one of the primary architects” of the ACA, in his warning about potential problems with the implementation of the law. The Hill reports that in contrast to Congressional Republicans, “the offices of Democratic leaders fell notably silent Tuesday evening” as reporters sought comment about the delay.

According to Politico Share to FacebookShare to Twitter (7/3, Norman, Haberkorn), the delay is “at least partial proof of what Republicans have been predicting for months: that the health law is way too complex to be ready to go live in 2014.” The Washington Times Share to FacebookShare to Twitter (7/3, Howell) says Republicans “are sure to do a victory lap over the delay in an integral part of Mr. Obama’s signature domestic achievement.”

CQ Roll Call Share to FacebookShare to Twitter (7/3, Dennis, Subscription Publication) reports that “the decision is embarrassing for the administration,” and, to Republicans, it is “simply more evidence that the law should be repealed.” Sen. Orrin Hatch said, “That the Obama Administration is putting off this job-killing requirement on employers, but not individuals and families, shows how deeply flawed the President’s signature domestic policy achievement is.”

On the other hand, the AP Share to FacebookShare to Twitter (7/3, Alonso-Zaldivar) is reporting that the delay may help Democrats “by blunting a line of attack Republicans were planning to use.”

Similarly, Zeke Miller, in a post for Time Share to FacebookShare to Twitter (7/2, Miller), reported that former CBO director Douglas Holtz-Eakin contended that the delay is “deviously brilliant” because Congressional Democrats “no longer face the immediate specter of running against the fallout from a heavy regulatory imposition on employers.”

Other politically focused reports come from sources including CQ Share to FacebookShare to Twitter (7/3, Reichard, Attias, Subscription Publication), Kaiser Health News Share to FacebookShare to Twitter (7/3, Hancock, Appleby), and the National Journal Share to FacebookShare to Twitter (7/3, Sanger-Katz, Subscription Publication).

Stakeholders React To Employer Mandate Delay. Reporting some of the initial reaction to the announcement, Bloomberg News Share to FacebookShare to Twitter (7/3, Dorning, Wayne) reports that Senate Minority Leader Mitch McConnell said the delay is more evidence that “Obamacare costs too much and it isn’t working the way the administration promised.” And Randy Johnson, a senior VP at the US Chamber of Commerce, wrote, “The administration has finally recognized the obvious – employers need more time and clarification of the rules of the road before implementing the employer mandate.”

Several other outlets report on reactions, including USA Today Share to FacebookShare to Twitter (7/2, Kennedy), which reports that “businesses reacted with relief.” Politico Share to
FacebookShare to Twitter (7/3, Cunningham) also notes that businesses “applauded” the delay, “but warned that the yearlong delay doesn’t fix some of the law’s other messy issues.” Meanwhile, another piece in Politico Share to FacebookShare to Twitter (7/3, Millman) reports that the GOP “gloat[ed],” while The Hill Share to FacebookShare to Twitter (7/3, Sink) “Healthwatch” blog demonstrates this by publishing tweets and statements out of several key Republicans, including Speaker of the House John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA).

Commentators Offer Analysis Of Employer Mandate Delay. Beyond just reporting the facts of the announcement, several outlets offer analysis of the delay. As Sarah Kliff puts it on the front page of the Washington Post Share to FacebookShare to Twitter (7/3, A1, Kliff), the Obama Administration “just swapped one political headache for another.” First, by delaying the mandate, “the Obama administration heads off the unseemly spectacle of companies vowing to cut jobs or workers’ hours to avoid the costly mandate.” However, the action “is not a free pass,” as it “contributes to critics’ claims that the White House does not have the ability to launch its biggest legislative accomplishment on schedule.”

Politico Share to FacebookShare to Twitter (7/3, Haberkorn, Millman, Norman) considers the “bombshell announcement,” and answers “six questions about what it all means.” One question asks, “Does this derail Obamacare?” The article responds, “It doesn’t derail it. But it hurts, at least in how the public sees it and how the critics can talk about it.”

Evan Soltas writes on the Bloomberg News Share to FacebookShare to Twitter (7/3) ‘“The Ticker” blog about the “side effects” of the delay, noting that by keeping the individual mandate in place, many employees will be “forced into individual exchanges,” adding “additional volume” to a system already predicted to be over-burdened.

Also on the Bloomberg News Share to FacebookShare to Twitter (7/3) “The Ticker” blog, Christopher Flavelle writes that the delay “raises two immediate questions.” First, “can the White House protect other components of the law from renewed attack?” And second, “what does this say about the broader problems facing implementation?” He concludes that while the law itself may not be “in danger,” this “latest concession raises the question of what will be the next thing to go – and how many more battles the administration can afford to lose before the law is in real trouble.”

CQ Share to FacebookShare to Twitter (7/3, Reichard, Subscription Publication) reports that this change came about not by the “highly charged political rhetoric” that so often marks debate on the ACA, but a different approach, one “intensely engaged with the Obama administration on implementation, and pragmatic.” The piece profiles Neil Trautwein of the National Retail Federation, who “earned credibility with the administration” by focusing not on the demise of the law but rather on how employers could “come to terms with it as best they could.”

Jennifer Rubin, in her Washington Post Share to FacebookShare to Twitter (7/3) “Right Turn” blog lists seven reasons this delay is a “huge setback” to the Affordable Care Act. First among these is that “it proves the president’s assurances that everything was 100 percent on track to be false.” Another is that “it will open the floodgates to arguments that the rest of the law should be delayed as well.”

Ezra Klein, in his Washington Post Share to FacebookShare to Twitter (7/3) “Wonkblog” says that rather than just delay the employer mandate, it should be eliminated, or “at least utterly overhaul[ed].” On top of criticizing the mandate, Klein criticizes the way the Administration went about delaying it, with “a regulatory end-run around Congress.”

Avik Roy writes in the Forbes Share to FacebookShare to Twitter (7/3) “Apothecary” blog about the “significant impact” the delay will have “on the rollout of Obamacare, the private health insurance market, and the nation’s economy.” After significant analysis of each of these, Roy concludes, “If the employer mandate were to ultimately be repealed, or never implemented, today’s news may turn out to be one of the most significant developments in health care policy in recent memory.”

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr, downplays the delay in the New York Times Economix Blog Share to FacebookShare to Twitter (7/3), while acknowledging that the media and the right will not. He concludes, “I think it’s an unfortunate delay of an important but relatively small piece of the bill, more growing pains of the type I’m sure Medicare had when it got going than anything existential. But that’s not how it will play in the hurly-burly of the next few days of Washington politics.”

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Questions and Answers on the Individual Shared Responsibility Provision

Basic Information

1. What is the individual shared responsibility provision?

Under the Affordable Care Act, the federal government, state governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

2. Who is subject to the individual shared responsibility provision?

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

3. When does the individual shared responsibility provision go into effect?

The provision goes into effect on Jan. 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without coverage or an exemption.

4. What counts as minimum essential coverage?

Minimum essential coverage includes at a minimum all of the following:

  • Employer-sponsored coverage (including COBRA coverage and retiree coverage)
  • Coverage purchased in the individual market
  • Medicare coverage (including Medicare Advantage)
  • Medicaid coverage
  • Children’s Health Insurance Program (CHIP) coverage
  • Certain types of Veterans health coverage

Minimum essential coverage does not include specialized coverage, such as coverage only for vision care or dental care, workers’ compensation, disability policies, or coverage only for a specific disease or condition.

The Department of Health and Human Services (HHS) has authority to designate additional types of coverage as minimum essential coverage. Information on additional coverage that HHS has proposed to designate as minimum essential coverage, including student health plans and coverage provided by foreign governments, is available.

5. What are the statutory exemptions from the requirement to obtain minimum essential coverage?

  1. Religious conscience: You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  2. Health care sharing ministry: You are a member of a recognized health care sharing ministry.
  3. Indian tribes: You are a member of a federally recognized Indian tribe.
  4. No filing requirement: Your household income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age, and types and amounts of income. To find out if you are required to file a federal tax return, use the IRSInteractive Tax Assistant (ITA).
  5. Short coverage gap: You went without coverage for less than three consecutive months during the year. For more information see question 21.
  6. Hardship: A Health Insurance Marketplace, also known as an Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage.
  7. Unaffordable coverage options: You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
  8. Incarceration: You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
  9. Not lawfully present: You are neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S.

6. What do I need to do if I want to be sure I have minimum essential coverage or an exemption for 2014?

Most individuals in the United States have health coverage today that will count as minimum essential coverage and will not need to do anything more than continue the coverage that they have. For those who do not have coverage, who anticipate discontinuing the coverage they have currently, or who want to explore whether more affordable options are available, Health Insurance Marketplaces (also know as Affordable Insurance Exchanges) will open for every state and the District of Columbia in October of 2013. These Health Insurance Marketplaces will help qualified individuals find minimum essential coverage that fits their budget and potentially financial assistance to help with the costs of coverage beginning in 2014. The Health Insurance Marketplace will also be able to assess whether applicants are eligible for Medicaid or the Children’s Health Insurance Program (CHIP). For those who will become eligible for Medicare during 2013, enrolling for Medicare will also ensure that you have minimum essential coverage for 2014.

For those seeking an exemption, a Health Insurance Marketplace will be able to provide certificates of exemption for many of the exemption categories. HHS has proposed regulations on how a Health Insurance Marketplace will go about granting these exemptions. Individuals will also be able to claim exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return are automatically exempt and do not need to take any further action to secure an exemption. See question 20 for further information on exemptions.

For more information about the Health Insurance Marketplace, including how to sign up for email updates and tips on how to prepare for open enrollment in October 2013, visit the Health Insurance Marketplace website.

7. Is more detailed information available about the individual shared responsibility provision?

Yes. Treasury and the IRS have proposed regulations on the new individual shared responsibility provision. Comments on the proposed regulations may be submitted by mail, electronically, or by hand-delivery, and are due by May 2, 2013.

Who is Affected?

8. Are children subject to the individual shared responsibility provision?

Yes. Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will owe a payment.

9. Are senior citizens subject to the individual shared responsibility provision?

Yes. Senior citizens must have minimum essential coverage or qualify for an exemption for each month in a calendar year. Senior citizens will have minimum essential coverage for every month they are enrolled in Medicare.

10. Are all individuals living in the United States subject to the individual shared responsibility provision?

All citizens are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a US income tax return. The IRS has more information available on when a foreign national becomes a resident alien for federal income tax purposes.

11. Are US citizens living abroad subject to the individual shared responsibility provision?

Yes. However, US citizens who live abroad for a calendar year (or at least 330 days within a 12 month period) are treated as having minimum essential coverage for the year (or period). These are individuals who qualify for an exclusion from income under section 911 of the Code. See Publication 54 for further information on the section 911 exclusion. They need take no further action to comply with the individual shared responsibility provision.

12. Are residents of the territories subject to the individual shared responsibility provision?

All bona fide residents of the United States territories are treated by law as having minimum essential coverage. They are not required to take any action to comply with the individual shared responsibility provision.

Minimum Essential Coverage

13. If I receive my coverage from my spouse’s employer, will I have minimum essential coverage?

Yes. Employer-sponsored coverage is generally minimum essential coverage. (See question 4 for information on specialized types of coverage that are not minimum essential coverage.) If an employee enrolls in employer-sponsored coverage for himself and his family, the employee and all of the covered family members have minimum essential coverage.

14. Do my spouse and dependent children have to be covered under the same policy or plan that covers me?

No. You, your spouse and your dependent children do not have to be covered under the same policy or plan. However, you, your spouse and each dependent child for whom you may claim a personal exemption on your federal income tax return must have minimum essential coverage or qualify for an exemption, or you will owe a payment when you file.

15. My employer tells me that our company’s health plan is “grandfathered.” Does my employer’s plan provide minimum essential coverage?

Yes. Grandfathered group health plans provide minimum essential coverage.

16. I am a retiree, and I am too young to be eligible for Medicare. I receive my health coverage through a retiree plan made available by my former employer. Is the retiree plan minimum essential coverage?

Yes.  Retiree health plans are generally minimum essential coverage.

17. I work for a local government that provides me with health coverage. Is my coverage minimum essential coverage?

Yes. Employer-sponsored coverage is minimum essential coverage regardless of whether the employer is a governmental, nonprofit, or for-profit entity.

18. Do I have to be covered for an entire calendar month in order to get credit for having minimum essential coverage for that month?

No. You will be treated as having minimum essential coverage for a month as long as you have coverage for at least one day during that month.

19. If I change health coverage during the year and end up with a gap when I am not covered, will I owe a payment?

Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Additionally, as long as the gap in coverage is less than three months, you may qualify for an exemption and not owe a payment. See question 21 for more information on the exemption for short coverage gaps.


20. If I think I qualify for an exemption, how do I claim it?

It depends upon which exemption it is.

  • The religious conscience exemption and the hardship exemption are available only by going to a Health Insurance Marketplace, also known as an Affordable Insurance Exchange, and applying for an exemption certificate. Information on proposed rules for obtaining this exemption is available.
  • The exemptions for members of Indian tribes, members of health care sharing ministries, and individuals who are incarcerated are available either by going to a Marketplace or Exchange and applying for an exemption certificate or by claiming the exemption as part of filing a federal income tax return.
  • The exemptions for unaffordable coverage, short coverage gaps, and individuals who are not lawfully present in the United States can be claimed only as part of filing a federal income tax return. The exemption for those under the federal income tax return filing threshold is available automatically. No special action is needed.

21. What qualifies as a short coverage gap?

In general, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has two short coverage gaps during a year, the short coverage gap exemption only applies to the first or earlier gap.

22. If my income is so low that I am not required to file a federal income tax return, do I need to do anything special to claim an exemption from the individual shared responsibility provision?

No. Individuals who are not required to file a tax return for a year are automatically exempt from owing a shared responsibility payment for that year and do not need to take any further action to secure an exemption.

Reporting Coverage or Exemptions or Making Payments

23. Will I have to do something on my federal income tax return to show that I had coverage or an exemption?

The individual shared responsibility provision goes into effect in 2014. You will not have to account for coverage or exemptions or to make any payments until you file your 2014 federal income tax return in 2015. Information will be made available later about how the income tax return will take account of coverage and exemptions. Insurers will be required to provide everyone that they cover each year with information that will help them demonstrate they had coverage.

24. What happens if I do not have minimum essential coverage, and I cannot afford to make the payment with my tax return?

The IRS routinely works with taxpayers who owe amounts they cannot afford to pay. The law prohibits the IRS from using liens or levies to collect any payment you owe related to the individual responsibility provision, if you, your spouse or a dependent included on your tax return does not have minimum essential coverage.

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How to determine if you are a small employer, or a large employer

The Patient Protection and Affordable Care Act (Affordable Care Act) has several requirements that apply for small employers and others that apply for large employers.  However, the way employees are counted to determine group size is not always the same among the various provisions.  Also, the number of employees that determines whether an employer is small or large is also not always the same.

The information provided in this article is general in nature.  If you have questions about employment practices, Internal Revenue Service (IRS) requirements, or compliance with the Affordable Care Act, please contact your legal counsel or tax professional.

At a Glance

The following chart provides a high-level summary of counting methods and size parameters for the Affordable Care Act provisions listed.  Additional information and details about the chart follow.


ACA Provision:

Counting Method

Small Employer

Large Employer

2014 -2015

2016 +

2014 -2015

2016 +

Medical Loss Ratio (MLR)

Average Employee



101 +

101 +

Market Reforms and EHB

Average Employee



51 +

101 +

Employer Responsibility Payment (Play or Pay)




50 +

50 +

SHOP Eligibility






Counting Methods

Counting method refers to the way employees are counted in order to calculate group size.  The examples provided are generalized to demonstrate the mechanics of the counting method.

Average Employee Method

In the average employee method, the number of employees is determined by taking the average of the number of employees employed on business days in the prior calendar year including full-time, part-time, and seasonal employees.  For each business day, each employee is counted as one employee – even if the employee does not work full-time.  All employees are counted regardless of their eligibility for – or enrollment in – the group health plan.

For example, assume an employer has a business that is open 250 days a year.  On all business days, the employer has 40 full-time employees.  For 200 business days during the year, there are an additional 15 part-time employees.  To determine group size based on the average employee method, the calculation is:

40 x 250 + 15 x 200 = 13,000

13,000 ÷ 250 = 52.0 (average number of employees each day)

For this method, only employees should be counted.  To the extent that sole proprietors, owners, or partners are not considered employees of the business, they should not be included in the calculation.  Contract workers should be counted if they meet the IRS standard for common-law employees.

Some employers own multiple businesses.  If the businesses are treated as a single employer under Internal Revenue Code (IRC) section 414(b), (c), (m), or (o), they should be combined for the purposes of counting employees.  This is commonly referred to as aggregation rules.


If you have specific questions about employment status or the aggregation rules, please contact your legal counsel or tax professional.


FTE Method

The method described in this section is outlined in proposed IRS regulations, section 4980H, found in the employer responsibilities proposed rule that was issued Jan. 2, 2013.  The IRS also published a Q&A on their website regarding this rule.  This rule is very complex and employers are urged to read the rule and contact their legal counsel or tax professional with specific questions.  Requirements may change when the rule is finalized.


In this method, full-time employees and full-time equivalents are counted.  Employees who work an average of 30 hours a week for any given month, or those who work 130 hours in a month, are counted as full-time employees for that month.

Employees working less than an average of 30 hours a week for any month are considered part-time employees for that month.  The hours of all part-time employees – up to 120 hours for an individual employee – are added together for the month.  This sum is then divided by 120 to determine the number of full-time equivalents, including fractions.

This calculation is performed for each month of the prior calendar year. In order to determine group size, each month’s result is added together, and the sum divided by 12.

Continuing the previous example, assume that all 40 full-time employees work an average of 30 hours or more a week for the entire calendar year.  The other 15 employees work a common schedule each month, where five work an average of 90 hours per month, another five work an average of 70 hours a month, and the remaining five work an average of 50 hours per month.  To determine the number of full-time equivalents for any month, the calculation is:


(5 x 90 + 5 x 70 + 5 x 50) ÷ 120 = 8.75


Adding the full-time employees and the number of full-time equivalents equals 48.75 employees per month.  Since the same number is employed in every calendar month, the group size on an FTE basis is 48.75.  Had the number of employees fluctuated from month to month, each month’s average would be added together and the resulting sum divided by 12.

Similar to the average employee method, only employees should be counted.  Leased employees as defined in IRC section 414(n)(2), a sole proprietor, a partner in a partnership, or a 2-percent S corporation shareholder should not be counted as employees.  Contract workers that meet the common-law employee standard should be counted.

The aggregation rules defined in IRC section 414(b), (c), (m), or (o) also apply.

Again, if you have specific questions about employment status or the aggregation rules – or about compliance with section 4980H – please contact your legal counsel or tax professional.

Application to Affordable Care Act Provisions

As reflected in the chart, two provisions use the average employee method, and two use the FTE method.  The number of employees that represent the threshold between small and large group is also different.

Medical Loss Ratio

The Affordable Care Act defines small group as 1-100 employees, but gives states the option to define small group as 1-50 prior to 2016.  In Tennessee, the State did not elect to exercise this option for MLR purposes and small group is defined as 1-100 employees.  Large group is 101 or more employees.  The average employee method is used to count employees to determine group size.

In the prior example, the group with an average of 52 employees would be classified as small group for MLR purposes.

Market Reforms and Essential Health Benefits

Market reforms[1] is a broad term used when discussing various Affordable Care Act changes that will be implemented in 2014.  These include changes to small group rating where only age, location, and tobacco use – in addition to plan design and network – may be used to differentiate premiums for members of small groups.  This is known as modified community rating.   In addition, the market reforms include guaranteed availability and renewability provisions.  Future update articles will provide more information about market reforms.

The Affordable Care Act Essential Health Benefits (EHB) provision also includes significant changes that will be implemented in 2014.  Coverage in the small group market will be required to cover 10 categories of benefits, and plans must have an actuarial value within certain ranges, known as metal level plans.  All plans – including large group and self-funded plans – will have limitations on cost-sharing parameters like out-of-pocket maximums.[2]

For market reform provisions and the EHB provisions, group size will be determined based on the average employee calculation method – the same method used for MLR purposes.  However, for market reforms and EHB provisions, the State of Tennessee exercised its option to define small group as 1-50 employees for 2014 and 2015.  Absent additional regulations or guidance to the contrary, the small group definition will change to 1-100 employees in 2016.

In the previous example, the group of 52 average employees would be classified as large group based on the 2014 and 2015 size thresholds.  If the size of the group is the same in 2016, it will be classified as small group due to the change in small group definition that will occur in that year.

Employer Shared Responsibility Payments

These payments – also known as play or pay penalties – are penalties imposed on applicable large employers who either do not offer coverage to their full-time employees, or offer coverage that is not affordable or does not meet the minimum value standard of 60%.  The counting method for determining if an employer is an applicable large employer is the FTE method.  Applicable large employers are those with 50 or more full-time employees plus full-time equivalents.  The 50 FTE threshold that defines an applicable large employer does not change in 2016.[3]

SHOP Eligibility

The SHOP – or Small Business Health Options Program – is the Marketplace (formerly, Exchange) that will be available in 2014 for eligible employers who wish to purchase coverage for their employees through this channel.

Only small employers may purchase coverage on the SHOP.  For SHOP eligibility purposes, the counting method used is the same FTE method used for the employer shared responsibility provision.  However, the size threshold matches the thresholds for market reforms and EHB provisions.  Therefore, in 2014 and 2015, a small employer for SHOP eligibility is one with 1-50 employees.  In 2016, the size will change to 1-100 employees.

In the previous example, the employer with 48.75 FTEs would be eligible to enroll on the SHOP in all years, assuming employment patterns do not change.

Other Provisions Where Size is a Consideration

There are still other Affordable Care Act provisions where the number of employees is an important trigger.

Small Business Health Care Tax Credit

This tax credit – which has been in place since 2010 – is available to small employers who meet various criteria, one of which is based on size.  An employer with 25 or fewer FTEs may be eligible.  However, the counting method used to determine FTEs and the size threshold is not the same as those used for SHOP eligibility.  For this tax credit, a full-time employee is one that works 40 hours per week, and full-time equivalents are determined by dividing annual hours by 2,080.

Beginning in 2014, small employers that qualify for the small business health care tax credit will only be eligible to receive it if they enroll on the SHOP.  The tax credit rate will also increase from 35 to 50 percent in 2014 for many eligible employers.

For more information, please refer to the IRS website, or contact your tax professional.

Automatic Enrollment

This provision applies to large employers, defined as those with 200 or more full-time employees.  It requires such an employer to automatically enroll new employees – and continue enrollment of current employees – into an available plan that is offered by the employer. Employees will have the opportunity to opt out of coverage.

The Affordable Care Act does not provide a specific effective date for this provision. The Internal Revenue Service issued Notice 2012-17 in February 2012, and it indicated that groups will not have to comply with the automatic enrollment provision until after regulations are issued.  It is not anticipated that regulations will be issued for a 2014 effective date.  However, the notice did not elaborate on how full-time employees will be defined, or what measurement period will be used to determine if the employer meets the 200 full-time employee threshold.

This is not intended to be an exhaustive list, but highlights some of the more prominent provisions of the Affordable Care Act.  For more information, please contact your sales or account executive.

[1] Grandfathered plans are not required to comply with the market reforms or EHB provisions listed in this section.

[2] For more information about EHB provisions, please refer to the Mar. 18 and June 3, 2013 Health Care Reform Updates.

[3] For general information about the employer shared responsibility provision, please refer to the Jan. 14, 2013 Health Care Reform Update.  Specific questions should be directed to your legal counsel or tax professional.



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Individual Mandate FAQ


Beginning in 2014, the Affordable Care Act includes a mandate for most individuals to have health insurance or potentially pay a penalty for noncompliance. Individuals will be required to maintain minimum essential coverage for themselves and their dependents. Some individuals will be exempt from the mandate or the penalty, while others may be given financial assistance to help them pay for the cost of health insurance.

What type of coverage satisfies the individual mandate?

“Minimum essential coverage”

What is minimum essential coverage?

Minimum essential coverage is defined as:

  • Coverage under certain government-sponsored plans
  • Employer-sponsored plans, with respect to any employee
  • Plans in the individual market,
  • Grandfathered health plans; and
  • Any other health benefits coverage, such as a state health benefits risk pool, as
    recognized by the HHS Secretary.

Minimum essential coverage does not include health insurance coverage consisting of excepted
benefits, such as dental-only coverage.

How does “Minimum Essential Coverage” differ from “Essential Health Benefits”?

Essential health benefits are required to be offered by certain plans starting in 2014 as a component of the essential health benefit package.  They are also the benefits that are subject to the annual and lifetime dollar limit requirements.

This is different than minimum essential coverage, which refers to the coverage needed to avoid the individual mandate penalty.  Coverage does not have to include essential benefits to be minimum essential coverage.

What is the penalty for noncompliance?

The penalty is the greater of:

  • For 2014, $95 per uninsured person or 1 percent of household income over the filing threshold,
  • For 2015, $325 per uninsured person or 2 percent of household income over the filing threshold, and
  • For 2016 and beyond, $695 per uninsured person or 2.5 percent of household income over the filing threshold.

There is a family cap on the flat dollar amount (but not the percentage of income test) of 300 percent, and the overall penalty is capped at the national average premium of a bronze level plan purchases through an exchange.  For individuals under 18 years old, the applicable per person penalty is one-half of the amounts listed above.

Beginning in 2017, the penalties will be increased by the cost-of-living adjustment.

Who will be exempt from the mandate?

Individuals who have a religious exemption, those not lawfully present in the United States, and incarcerated individuals are exempt from the minimum essential coverage requirement.

Are there other exceptions to when the penalty may apply?

Yes.  A penalty will not be assessed on individuals who:

  1. cannot afford coverage based on formulas contained in the law,
  2. have income below the federal income tax filing threshold,
  3. are members of Indian tribes,
  4. were uninsured for short coverage gaps of less than three months;
  5. have received a hardship waiver from the Secretary, or are residing outside of the United States, or are bona fide residents of any possession of the United States.
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DOL Issues Guidance on Exchange Notice Requirements


The Patient Protection and Affordable Care Act (Affordable Care Act) includes a provision that requires employers to notify new hires and existing employees of certain information related to the Health Insurance Marketplace (formerly referred to as the Exchange) and subsidy eligibility in the event an employer does not offer coverage that is affordable or that has a 60 percent minimum value. The original effective date of this requirement was March 1, 2013. As reported in the Jan. 28, 2013 Health Care Reform Update, the timing of this requirement was delayed until late summer or early fall of 2013 based on guidance issued in FAQ Part XI.

On May 8, 2013, the Department of Labor (DOL) issued Technical Release 2013-02. The technical release provides temporary guidance regarding the new notice that employers are required to provide to employees, called the Notice to Inform Employees of Coverage Options. The release also addresses changes to the Model COBRA Election Notice.

Notice to Inform Employees of Coverage Options

The temporary guidance states that employers who are subject to the Fair Labor Standards Act (FLSA) are required to provide the notice beginning Oct. 1, 2013 to new employees within 14 days of an employee’s start date. The notice must also be provided to all existing employees no later than Oct. 1, 2013.

This requirement applies to all employees regardless of their eligibility for or enrollment in the medical plan. It’s also required if the employer doesn’t offer a health plan. The guidance provides various alternatives for delivering the notice.

Model language that may be used to satisfy the notice requirement is also included in the guidance. Two versions are provided based on the availability of an employer-sponsored health plan.

The temporary guidance will remain in effect until regulations or other guidance is issued.

The information contained in this article is for general use. Employers with questions regarding how to comply with the new notice requirement are urged to contact their legal counsel. The DOL provides guidance relating to the applicability of the FLSA, including an internet compliance assistance tool that is available at

Model COBRA Election Notice

The technical release also addresses changes to the model COBRA election notice. The notice is being revised to help make individuals who are eligible for COBRA aware of other coverage options available in the Marketplace.

No date was specified for implementing the revised COBRA notice. Absent regulations or guidance to the contrary, plan to implement the changes by Oct. 1, 2013. This date coincides with the beginning of the Marketplace open enrollment period.

To view all notices click on the link below


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