Group insurance as a rule is divided into two groups. Those under 50 employees that we consider “small group” and those in the “large group” market of 50 or more employees. The rules vary based on the size of the employer group.
The Affordable Care Act has not made health care any cheaper. With all the mandates for minimum essential coverage and first dollar benefits for preventive care, coverage is more expensive. The industry standard premium for a family of 4 is $1300 a month of premiums. That is a burden for any family budget, as well as placing that burden on a business that is trying to be profitable.
If you already have affordable health insurance (paying less than 9.5% of your household income toward insurance premiums) through your employer or if you are on Medicare, then you won’t be eligible for tax subsidies.
In order to make insurance less of a burden to a family, we look to the Federal Poverty Level (FPL) to see where your income indicates you are. If your income falls between zero and 138% of the FLP, then you should take advantage of the new and improved Medi-Cal system (the Federal Medicaid system).
Medicaid Expansion for Adults
In the ACA, Congress required states to expand Medicaid to all adults, including parents and adults without children, up to 138 percent of the federal poverty line. To ease the fiscal impact on states, the federal government is covering 100 percent of the cost of the newly-eligible adults in the first years of implementation.
Over time, the federal government’s share of the cost of covering newly-eligible adults will taper down, but it never falls below 90 percent. As a result of the Supreme Court decision on the ACA, states can decide that they do not want to expand Medicaid. California has opted to implement the expansion to 138 percent of the federal poverty line for adults (previously the ceiling was up to 133 percent).
The ACA makes other notable changes to Medi-Cal including:
• Requiring use of a simple, streamlined application for Medi-Cal and other insurance affordability programs
• Eliminating asset tests for children, parents, pregnant women and non-disabled adults
• Adopting new ways of defining income when evaluating eligibility in order to allow for better coordination with other insurance affordability programs
• Creating a new requirement to cover former foster care children up to age 26
The above graphics and article below are from Garrett Viggers article August 2013 California Broker Magazine.
What is the Health Tax Credit?
In a nutshell, the health tax credit is premium assistance from the federal government offered through state-based public exchanges to help middle and lower-income families (U.S. citizens) purchase affordable coverage. The Consumers Union refers to the tax credit as, “helping to reduce the total amount of tax one owes to the IRS.” There are three ways to apply the tax credit:
1. Take it now: Pay less monthly premium (aka the advance premium tax credit)
2. Take it later: Pay full monthly premium (get a refund when filing 2014 taxes)
3. Take it partial: Split the difference monthly premium (if income/family fluctuate)
To more and more ACA stakeholders, it seems clear that most applicants will choose the advance premium tax credit. Just over 50% of the population would select the advance premium tax credit option, according to Consumers Union studies.
If it’s designed to cut the cost of health insurance for Middle America, most people won’t choose to take it later and pay the full $800 per month premium. They can take the entire monthly amount as an advance credit payment and apply it to reduce the amount they pay for coverage each month. For example, they can apply the full credit toward their premium if their monthly premium is $1,000 and they qualify for $800 per month in advance credits. Each month, the federal government will pay $800 directly to their insurance company, and they will pay the remaining $200 directly to the insurer.
Cash flow is king. Take, Healthy Families, for example. We know the actual gross monthly premium is not shown to the member, rather the member sees the net monthly cost after applying the Healthy Families premium subsidy. This advance premium tax credit approach keeps it simple for applicants to understand. On the other hand, people don’t really know how much the health plan truly costs when a parent with kids on Healthy Families or an employee doesn’t know how much their employer contributes every month toward the health plan.
Calculating the Health Tax Credit Amount
To arrive at a net monthly cost to purchase the Silver Metal Tier Plan, It’s important to understand the advance premium tax credit calculation along with the federal poverty level (FPL) guidelines on how many are included on the household tax return and household income (i.e. Modified Adjusted Gross Income). If your client is eligible for advance premium tax credit, the net monthly cost is the most they pay for a 20-year old as well as a 55-year old. This is because the net monthly cost calculation is based on income and family size, not age. Of course, the applicant can also buy-up or down to another Metal Tier Plan. One may qualify for the advance premium tax credit if household income is less than the numbers here:
• 1 person – $46,680
• 2 person – $62,920
• 3 person – $79,160
• 4 person – $95,400
• 5 person – $111,640
• 6 person– $127,000
Furthermore, any income and family size changes that occur in 2014 that lead to under-projecting or over-projecting 2014 household income will effect the advance premium tax credit calculation. How many people know their household income for 2014? Nobody. The bottom line is that they have to project 2014 income using their 2012 income, or project otherwise and take any future changes into account. And, if changes do occur mid-year in 2014, they can always call Covered California and communicate the change, which would re-calculate the advance premium tax credit. Or they can wait until filing 2014 taxes and see where they stand with a refund if their income went down and/or family size went up or a repayment if their income went up and/or family size went down.
Your client should not be overly concerned if they project the repayment incorrectly. This may be a good time to highlight the triple-subsidy approach laid out by the federal government:
1. The advance premium tax credit will subsidize the premium cost.
2. Eligible applicants in a specific FPL range will have subsidized out-of-pocket costs (See Silver one to four eligibility categories).
3. Any excess advance premium tax credit amount has a repayment cap based on the applicants FPL. For example, an individual making $21,780 (under 200% FPL) would have a $300 repayment cap.
Getting back to the employee benefits side of things, under the Fair Labor Standards Act 18B, your employer clients are now required to provide a notice to employees, by October 1st, describing the coverage options available in the exchange. Your employer clients must tell all employees about the exchange and the new health tax credit. There may not be much impact for employers who already offer a health plan to their employees unless the health plan is considered unaffordable (more than 9.5% of the employee’s W2 income) or doesn’t meet minimum essential coverage with an actuarial value of 60% (the plan pays for 60% of the out-of-pocket costs).
If your employer clients meet affordability and minimum essential coverage testing neither the employees nor their spouse and children will be eligible for the tax credit. This may be problematic in a few scenarios. Today, most employer-sponsored plans cover little or none of the dependent premium, which means that many of these dependents are not currently covered.
The IRS and Michael Lujan, director of Sales & Marketing for Covered California, have described an option that hasn’t been utilized in structuring employee benefit portfolios: Employers can provide a group plan that only offers coverage to employees. This is a workaround for dependents to be eligible for the advance premium tax credit in the individual exchange. It may not be the best solution, but it is an option for brokers and employers to wrestle with.
Another workaround option is to raise the employee cost to be greater than 9.5% of their W2 income. This would allow all employees and dependents to apply for the advance premium tax credit. This option is a little easier to swallow for groups under 50 lives, but it comes with eventual penalties for large groups in 2015.
At the end of the day, the ACA is multi-faceted with good, bad, and ugly angles. Ultimately, it was designed to help Americans purchase affordable coverage, though it may take us to a single-payer system. The reality is that most of your employer group clients subsidize a large portion of the health insurance premium for full-time employees. Keep in mind that your employer clients that have part-time employees may still be eligible for the advance premium tax credit.
Let’s take a look at the seven eligibility categories to better understand the advance premium tax credit and Covered California individual exchange option.
1. Already Covered: Not eligible for the advance premium tax credit if covered under a group plan, eligible for group coverage through a spouse, or over age 65 on Medicare. This is the first category that contains most all our employer client blocks of business, except for part-time employees who aren’t eligible for coverage on the employer plan.
2. Medi-Cal (0% to 138% FPL): Not eligible for the advance premium tax credit. This can be a problem if an employer cancels their group plan and lower income Medi-Cal eligible employees don’t qualify for the advance premium tax credit.
3. Silver 1 (138% to 150% FPL): This is the least expensive monthly cost plan for applicants with the advance premium tax credit, and the richest plan benefit with subsidized out-of-pocket costs (i.e. $0 deductible). In other words, it’s actually the most expensive plan offered with the highest advance premium tax credit applied to cover most of the premium.
4. Silver 2 (150% to 200% FPL): This is the next jump up in monthly cost and subsidized out-of-pocket with advance premium tax credit. This category plan has a $500 deductible.
5. Silver 3 (200% to 250% FPL): This plan category has a $1,500 deductible plan benefit with a smaller amount subsidizing the out-of-pocket costs.
6. Silver 4 (250% to 400% FPL): This category includes a $2,000 deductible. Applicants in this category would be wise to look at applying the advance premium tax credit to a buy-down Bronze plan option, or even the Catastrophic Plan if under 30 years old.
7. No Subsidy (+400% FPL): This category of applicants should be encouraged to shop for a health plan both inside and outside the exchange. Since there is no advance premium tax credit available, it may not be advantageous to purchase a plan in the exchange.
If you are an employer with a large employee base, how do you know who should be taking advantage of the State and Federal programs which they are entitled? Does every one of your employees belong in your group health insurance program?
BeneStream may be able to help address it. BeneStream's mission is to provide a low-cost, easy to use service to employers that will allow them to deliver a 15-30% annual increase of income and free healthcare coverage to their low wage employees by accessing state and federal programs to which they are entitled. This video may give you more information to help you, and you can contact firstname.lastname@example.org directly with specifics.
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