Plan Sponsorship Provisions

Many of the Health Care Reform provisions may influence what kind of health coverage an employer will offer in the future. A combination of incentives and penalties are designed to encourage employers to continue sponsoring a major medical coverage. Several of the Health Care Reform provisions could directly or indirectly increase an employer’s costs. New coverage options and premium assistance for certain individuals become available in 2014. Finally, the individual mandate for employees to obtain minimum essential coverage may influence decisions about eligibility.  This section provides an overview of a few key provisions likely to influence what kind of health coverage an employer will offer in the future (or not), particularly after 2014 and 2015.

Click on any of the following to learn more.

Health Insurance Exchanges

By January 1, 2014, states are required to establish Health Insurance Exchanges to offer private insurance choices to individuals and small employers (generally with 100 or fewer employees).  The federal government will provide a default Exchange in states that chose no to establish their own.

Individual Mandate

Beginning January 1, 2014, all individuals must obtain minimum essential coverage or pay a tax.  There are exceptions if the coverage is unaffordable (the lowest-cost option available costs more than 8% of the individual's household income), for low-income taxpayers, and for coverage gaps up to three months.

 

Premium Tax Credit

Federal premium assistance to purchase Exchange coverage is available for certain individuals with household income up to 400% of the Federal Poverty Level.

Small Employer Tax Credit

Employers with 25 or fewer full-time equivalent employees who earn $50,000 or less on average may earn a tax credit if the employer provides health coverage and pays at least 50% of the premium cost.

 

Free Rider Penalty (Employer Mandate)

Beginning in 2015, a large employer that does not offer full-time employees health coverage or offers coverage that is either unaffordable or inadequate, will owe a penalty if at least one employee qualifies to receive a premium tax credit to purchase Exchange coverage

Free Choice Vouchers

The Free Choice Voucher provision was repealed as part of Department of Defense and Full-Year Continuing Appropriations Act, 2011.

 

Cadillac Tax

Beginning January 1, 2018, a 40% nondeductible excise tax will be imposed the extent the aggregate value of specified employer-sponsored health coverage exceeds certain threshold amounts.

PCORI Fee

Plan sponsors of self-funded plans and insurers of insured plans must pay a fee to help fund the Patient-Centered Outcomes Research Institute (PCORI) based on the average number of covered lives participating in the plan.  The fee is $1 per individual for the first plan year ending after September 30, 2012, and $2 for each subsequent year, continuing to increase until expiring after 2019.

 

Exchange Reinsurance Fee

For three years beginning in 2014, health insuruers for fully-insured plans and plan sponsors for self-funded group health plans will be required to pay reinsurance fees to state-established Exchange reinsurance entities.

Indirect Fees

Health Care Reform imposes new fees on brand name prescription drug manufacturers, medical device manufactures, and health insurance companies, which could indirectly raise health plan costs for plan sponsors.

 

Retiree Drug Subsidy Deduction

Employers that provide prescription drug coverage to Medicare-eligible retirees that is at least as valuable as the Medicare Part D benefit are eligible for a subsidy of 28% of allowable prescription drug claims. Beginning with the 2013 tax year, an employer's allowable deduction for retiree prescription drug expenses must be reduced by the amount of the tax-free subsidy payment received.

Medical Loss Ratio

Health Care Reform establishes Medical Loss Ratio (MLR) targets for health insurance coverage offered in the individual, small group, and large group markets.  If a health insurer does not achieve the target MLR, it must provide rebates to enrollees in that market.

 

American Fidelity Assurance Company does not provide tax or legal advice.

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