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The True Impact of Health Care Reform
On March 23, 2010, U.S. President Barack Obama signed into law the Patient Protection and Affordable Care Act that, along with the Health Care and Education Reconciliation Act of 2010 signed into law on March 30, 2010, overhauls the U.S. health-care system. Comprised of more than 2,600 pages of text, the landmark legislation will have some effect on every American and most U.S. businesses
ISSA has prepared the following summary to help the industry anticipate and understand how the major provisions of the health-care reform will impact their businesses and employees. Please be aware, however, that the legislation is unwieldy and even experts who have lived and breathed health-care reform for the last year are unsure of all of the details and their implications at this relatively early stage. Moreover, many of the particulars associated with the health care reform measure will be worked out in the coming months through the regulatory process.
Employer Penalties
Effective January 1, 2014, an employer with 50 or more full-time employees (on who works on average 30 or more hours a week) must pay a penalty if at least one full-time employee requires a public subsidy for insurance, subject to an exemption for the first 30 workers.
Employers will be penalized US$2,000 for each full-time employee over the 30-employee exemption who must find his/her own health coverage because the company offers none. When an employer offers coverage but an employee turns it down because it is "unaffordable" (defined by the law as costing more than 9.5 percent of the 2 employee's household income), the penalty is $3,000 per employee who buys insurance on the exchange with a subsidy.
Under the legislation, employers are required to monthly convert their part-time employees (excluding seasonal workers) into full-time equivalents (by dividing their part-timers' total hours by 120, the equivalent of 30 hours a week) for the purpose of determining whether they have 50 or more full-time employees and are subject to the penalty.
However, part-timers do not count for calculating the penalty, so realistically, only employers with at least 31 full-time workers will have to engage in this exercise.
Small Businesses Tax Credits
From 2010 to 2013, the law provides employers with a tax credit of up to 35 percent of their contribution to health insurance if they have 25 full-time workers or fewer and average annual wages of less than $50,000 if the employer contributes at least 50 percent of the premium cost. Starting in 2014, eligible small businesses that purchase coverage through the state-based exchanges can receive a tax credit of up to 50 percent of their contribution to health insurance for two consecutive years if they contribute 50 percent of the premium cost. The full credit is available to businesses with the equivalent of 10 or fewer full-time workers paid, on average, less than $25,000.
Health Insurance Exchanges
Effective January 1, 2014, state governments must establish health-insurance exchanges for individuals and small businesses for the uninsured and self-employed to be able to purchase, with subsidies available to individuals and families with income between the 133 percent and 400 percent of the poverty level.
In addition, states must set up "small business health options programs," also known as "SHOP exchanges", through which small employers can purchase insurance. Plans offered on the exchange will have to be standardized for easy comparison and offer minimum levels of benefits established by the legislation. In 2017, a state may allow large employers (with at least 101 employees) to participate in the exchange.
Individual Health-Care Mandates
Effective January 1, 2014, there will be an annual penalty of $95, or up to 1 percent of income, whichever is greater on individuals who do not have health insurance. This penalty will increase to $695 or 2.5 percent of income by 2016. These limits are for individuals. Families will have a limit of $2,085.
In addition, the health-care legislation has prompted a host of insurance and tax changes to help pay for the new programs. To read more about these changes and their effect on you, visit www.issa.com/hcaresum.
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