Your entire employee population — even those part-time, seasonal and currently not eligible for benefits — will be increasingly impacted by health care reform. Beginning in 2014, a key provision of the Affordable Care Act (ACA) known as the “individual mandate” will require most individuals to purchase health insurance or pay a penalty. The requirement to maintain coverage applies to all ages, even children.
What are the penalties for not following the individual mandate?
The penalty for not obtaining acceptable health insurance coverage will be phased in over three years and will be the greater of either a flat dollar amount or a percentage of income. In 2014, the penalty will start at $95 per person or up to 1 percent of income. In 2015, the penalty increases to $325 per person or up to 2 percent of income. For 2016 and after, the penalty goes up to $695 per person or up to 2.5 percent of income.
For penalty calculation purposes, ‘income’ will be defined as the taxpayer’s household income minus the taxpayer’s exemption (or exemptions for a married couple) and standard deductions. The penalty will be calculated on a monthly basis and will be assessed for each month in which an individual goes without coverage. There will be no penalty for a single lapse in coverage lasting less than three months in a year.
Those covered under an employer-sponsored group health plan or a government-sponsored program such as Medicare or Medicaid can continue to be covered and will not be subject to a penalty.
Who is exempt from penalty?
Individuals may be exempt if they:
- Cannot afford coverage. Those for whom a required contribution for coverage would cost more than 8 percent of their household income.
- Experience a gap in coverage for less than three consecutive months.
- Have income below the tax-filing threshold.
- Receive a hardship exemption from the Department of Health and Human Services.
- Are incarcerated.
- Are members of a Native American tribe.
According to the Internal Revenue Service (IRS), if they are eligible for an exemption for a single day of a month, they will be treated as exempt for the entire month.
How will the IRS enforce the penalties?
Beginning in 2015, everyone who files a federal income tax return for the previous year will be required to report which family members are exempt from the individual mandate and whether each person not exempt had insurance coverage. A penalty will be owed for each nonexempt family member without coverage. Married couples filing a joint return will be jointly liable for the penalties that apply to either or both of them. Anyone claiming a dependent will be responsible for reporting and paying the penalty for that dependent.
The IRS will assess and collect penalties in the same manner as taxes. However, the ACA imposes certain limitations on the IRS’s ability to collect. It’s anticipated that assessable penalties will be subtracted from individual tax refunds, if applicable.
How will tax credits help people comply with the individual mandate?
The ACA created a premium tax credit to help eligible individuals and families purchase health insurance through an affordable insurance exchange, making coverage more affordable.
Taxpayers may qualify for a premium tax credit if their annual household income is between 100 and 400 percent of the federal poverty level for their family size; if they cannot be claimed as a dependent by another taxpayer; or if they are not eligible for minimum essential coverage, which is coverage under an employer-sponsored group health plan or Medicare or Medicaid plans.
The health insurance arena is changing, and individuals have a responsibility to comply with new legislation or pay a penalty. Understanding the legislation is challenging, to say the least. It’s good to work with an advisor who has the resources to help employees sort through the confusion, understand options and responsibilities, and find the best solution to fit their needs.
Craig Pritts is a sales executive at JRG Advisors, the management arm of ChamberChoice. Reach him at (412) 456-7253 or [email protected]
Learn more about the individual mandate and other ACA provisions, visit www.chamberchoice.com and click on ‘Health Care Reform.
Insights Employee Benefits is brought to you by ChamberChoice