The Affordable Care Act: The Basics (Part 1 of 8), by Barbara Halpin

Posted by Attorney Roger L. Pettit / Comments

No matter your feelings on the Affordable Care Act, it’s coming whether you’re ready or not so I’ve decided to write a series on blog entries on the Act.  Compliance will be a work-in-progress as businesses determine how to best implement strategies to ensure that penalties aren’t assessed.

The IRS, the Department of Labor and other agencies have published guidance on how the Act will be implemented, from the penalties accessed to the insurance exchanges slated to open on October 1, 2013.  I’ve read a lot of these (I think I’m one of the few who enjoys reading tax regulations) and hope to peak your interest on a timely topic affecting employers.  This post will offer some basic background information.

The Affordable Care Act (or officially, the Patient Protection and Affordable Care Act) was enacted on March 23, 2010 and is over 900(!) pages long.  Effective on January 1, 2014, the Act requires than an “applicable large employer” is liable for an assessment payment if any of its full-time employees (averaging 30 or more hours per week) is certified to receive an applicable premium tax credit or cost-sharing reduction and either:

(1)       the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan;

(2)        the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that, with respect to a full-time employee who has been certified to receive a tax credit or cost-sharing reduction, is either (i) unaffordable or (ii) does not provide minimum value.

Understanding the key terms used in the Act is obviously important.  While the terms may be described in more detail in the Act, at a basic level, the key terms can be defined as the following:

1.         Affordable – An employee’s share of the health plan premium for “employee only” coverage does not exceed 9.5% of the employee’s W-2 income for the taxable year

2.         Minimum essential coverage – Under § 5000A(f) of the Act, it can mean coverage under a government-sponsored program; coverage under an employer-sponsored plan; plans in the individual market; grandfathered plans and others

3.         Minimum value - the health plan must pay at least 60% of the covered health expenses for an individual

4.         Premium tax credit - A subsidy for people with income up to 400% of the federal poverty level to enroll in insurance through an Affordable Insurance Exchange.

To qualify for a premium tax credit you cannot be eligible for coverage through a government-sponsored program like Medicaid and you cannot be eligible for coverage offered by an employer (or are eligible only for employer coverage that is unaffordable or that does not provide minimum value.)

5.         Cost-Sharing - Defined as any contribution consumers make towards the cost of their healthcare as defined in their health insurance policy.  (An insurer can reduce the cost-sharing (under certain plans defined in § 1402 of the Act) of an eligible insured enrolled in a qualified health plan.)  An “eligible insured” is an individual who enrolls in a qualified health plan in the silver level of coverage (I’ll explain in a future blog entry) in the individual market offered through an Exchange AND whose household income exceeds 100 percent but does not exceed 400 percent of the poverty line for a family of the size involved.

6.         Assessment payment – “shared responsibility payment” or penalty

7.         Insurance exchange – An online marketplace where insurers offer individuals and small businesses health care plans with varying coverage.

8.         Qualified health plan - A health plan certified to be offered through an Exchange.

If a business, by 2014, does not provide full-time employees with affordable, minimum essential health coverage and at least one employee receives a premium tax credit for a federal or state insurance exchange, the employer may be liable for a penalty.

In future posts I will explain the affordability safe-harbors that employers may use to determine if the coverage is “affordable” under the Act; how to determine if you’re an “applicable large employer” and the safe harbor that businesses can apply; the potential penalties under the Act; other provisions applicable to large employers under the Act; the Act and its effect on small businesses; the excise tax on “Cadillac plans” and the insurance exchanges set to open in October.