The IRS recently issued final regs involving the penalty individuals must pay if they don't maintain minimum health insurance coverage under the Affordable Care Act (ACA). Meanwhile, employers are facing a major ACA deadline. By October 1, they must provide employees with an explanation of their health insurance options. Are you confused about the ACA? Don't feel bad. A new survey shows that about half of Americans don't understand basic health insurance terms or the law.
We're getting closer to the implementation dates for some key provisions in the Affordable Care Act (ACA). However, as we learned in early July when the federal government delayed the start of the employer "play or pay" mandate for a year (from January 1, 2014 to January 1, 2015), deadlines might be postponed. So stay tuned. Below are a few recent healthcare law developments.
Final Regs Issued on the "Shared Responsibility Payment"
The IRS recently released final regulations on the "shared responsibility" payment under the ACA. This is the way the federal government will enforce the law's mandate that most individuals must have health insurance coverage.
Healthcare law basics: The ACA involves major changes in healthcare and insurance coverage. It requires individuals to have "minimum essential" health insurance coverage next year or pay a penalty.
Coverage, which must be maintained by non-exempt U.S. citizens and legal residents, can come from:
The penalty, under Section 5000A of the tax code, must be paid on a federal tax return. A taxpayer is liable for the penalty for him or herself, and non-exempt dependents claimed on a tax return who don't have minimum essential coverage. Married joint filers are both liable for any penalty imposed.
The final regulations include the categories of people who are exempt from the requirements and the penalty:
1. Individuals who cannot afford insurance;
2. Members of recognized religious sects of divisions who are eligible for a conscience exemption;
3. Individuals eligible for a short gap in coverage;
4. Those with household income below the tax return filing threshold;
5. Members of healthcare sharing ministries;
6. Exempt non-citizens;
7. Incarcerated individuals;
8. Members of Indian tribes; and
9. Others with hardship situations.
Who Really Understands
Under the Affordable Care Act, Americans are being asked to make decisions about health insurance. Yet a new survey finds that about half don't even understand basic health insurance terms.
The American Institute of CPAs conducted a telephone survey of 1,008 U.S. adults and found that 51% could not accurately describe at least one of these health insurance terms:
A third of the respondents thought a premium was an expense at the time a patient received a medical service or prescription, and 27% thought a copay was the cost of obtaining insurance.
In addition, 12% didn't know a deductible is the amount a patient pays before an insurance company starts making payments.
The AICPA noted in a press release that "half of Americans would fail health insurance 101," at a time when "consumers prepare to make important decisions with implications for both their physical and fiscal well-being."
The ACA requires individuals to buy health insurance or pay a penalty beginning next year, with open enrollment starting in October. Despite the upcoming deadlines, the survey found 41% of respondents are not at all knowledgeable about the healthcare law and another 48% said they were only somewhat knowledgeable. Those aged 18 to 34 were the least informed, with 48% saying they had no knowledge.
For 11%, the upcoming requirement to buy health insurance is their biggest financial concern. For half of the small minority who don't have health insurance (14%), according to the survey, figuring out how to pay for it is their biggest concern about the mandate.
The National CPA Financial Literacy Commission recommended that consumers who are considering health insurance should:
Employers Must Provide Healthcare Law Notice by October 1
Many employers are facing a healthcare deadline that imposes a major paperwork burden. Under the Affordable Care Act, most employers are required to provide a notice to each employee by October 1, 2013 explaining their options available under the law.
According to the Department of Labor, "the notice must be provided in writing in a manner calculated to be understood by the average employee." It can be provided by first-class mail or electronically if the certain requirements are met.
The written notice must:
1. Inform employees of the existence of the "Health Insurance Marketplace," and include a description of the services it provides and how employees can contact the Marketplace to request assistance.
3. Inform the employee that if he or she purchases a qualified health plan through the Marketplace, he or she may lose the employer contribution (if any) to any health benefits plan offered by the employer. In addition, all or a portion of such contribution may be excludable from income for Federal income tax purposes.
The DOL has provided model notices that employers can fill out. They can be accessed by clicking here (employers with plans) and here (employers without plans). The DOL stated on its website that an employer can satisfy its obligation to provide notices if another party, such as a third-party administrator or multi-employer plan, sends out notices on its behalf.
Which employers must send the notices? The new responsibility must be met by employers that must comply with the Fair Labor Standards Act (FLSA). In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies.
The FLSA also specifically covers the following: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; as well as federal, state and local government agencies.
For more information about tax codes that need to be filed on your federal tax return and the penalties if not filed correctly, please contact David Echelbarger, CPA/CGMA.
For more information about your responsibilities to send out the written notices, consult with your HR adviser, employee benefits professional, or attorney.