Employers Must Make Changes Soon to Avoid O'care

[Yagents]

I'm not good at reading legalease, so forgive me in advance, but here are some excerpts from the document link below.

It states that an employer will not get penalized if dependents get tax credits and meets affordability testing for the employee only. I deduce that means subsidies will be available to other family members on the exchange.

http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf

In 3rd column / 1st page:

In contrast, an employee's
receipt of a premium tax credit or cost
sharing reduction with respect to
coverage for a dependent will not result
in liability for the employer under
section 4980H. Under section 4980H(b),
liability is contingent on whether the
employer offers minimum essential
coverage under an eligible employer sponsored
plan, and whether that
coverage is affordable and provides
minimum value, as determined by
reference to the cost and characteristics
of employee-only coverage offered to the
employee.

In 2nd column / 2nd page:

Notice 2011–73 addressed the
requirement that, in order to avoid a
potential assessable payment under
section 4980H(b), the coverage offered
be affordable, generally meaning that
the employee portion of the self-only
premium for the employer's lowest cost
coverage that provides minimum value
not exceed 9.5 percent of the employee's
household income. Recognizing the
inability of employers to ascertain their
employees' total household incomes,
Notice 2011–73 described a potential
safe harbor under which coverage
offered by an employer to an employee
would be treated as affordable for
section 4980H liability purposes if the
employee's required contribution for
that coverage was no more than 9.5
percent of the employee's wages from
the employer reported in Box 1 of the
Form W–2 (Form W–2 wages) instead of
household income. This potential
affordability safe harbor would apply in
determining whether an employer is
subject to the assessable payment under
section 4980H(b), but would not affect
an employee's eligibility for a premium
tax credit under section 36B.

Then it picks up again on Page 15:

B. Offer of Coverage to the Employee
and the Employee's Dependents
Under section 4980H(a), an applicable
large employer member is subject to an
assessable payment if the member fails
to offer its full-time employees (and
their dependents) the opportunity to
enroll in MEC under an eligible
employer-sponsored plan and any fulltime
employee receives a premium tax
credit or cost-sharing reduction.
Commenters have asked whether
coverage must be offered to the
employee's dependents, and if so, to
which individuals the term
''dependents'' refers. Some commenters
argued that an offer of dependent
coverage is not required under section
4980H because the statutory reference to
dependents is in parentheses, and
others noted that the liability under
section 4980H is triggered only by a fulltime
employee receiving a premium tax
credit (regardless of whether any
dependents are eligible for, or receive, a
premium tax credit).
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here is more to muck things up:

How exactly might play-or-pay work? | LifeHealthPro
In addition, the IRS is proposing a definition of "dependent" that would include only children, including step children and foster children, up to age 26, and does not include spouses, Fensholt said.
Under the proposed regulations, employers need not offer coverage for spouses, and they need not subsidize coverage for children or offer coverage for children that meets a PPACA minimum value requirement, Fensholt said.

 

[Ann H]

Thanks, Bill. Those all still apply to the Employer's safe harbor from penalties, but they don't alter the rule that no family member is eligible for a subsidy if either parent has a group plan where the dependents are eligible, and the employee's portion of the self-only premium is less than 9.5% of family AGI. In fact, reading the IRS article about the safe harbor, I see the "9.5% of self-only" premium reiterized.

I had read a Forbes article earlier that talked about the last portion of your post above (the part that is on page 15). I guess that some employers thought that they would get around the problem of dependents all together by saying that only employees were eligible for the group plan, price that group plan to keep those employees under 9.5%, then allow those dependents to go to the exchange and still get their subsidies because they weren't "eligible for" a group plan. That thereby circumvented the "9.5% of self-only premium" affordability test. Since the IRS is now saying you can't do that, it seems to confirm that the affordability tests relates to 9.5% of the self-only (i.e. employee-only) premium without regard to how much it costs to add dependents.
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I just found the IRS document that states this:

B. Affordability of employer-sponsored coverage

Section 36B(c)(2)(C)(i) prescribes the standards for determining whether employer-sponsored coverage is affordable for an employee as well as for other individuals. In the case of an employee, under section 36B(c)(2)(C)(i), an employer-sponsored plan is not affordable if "the employee's required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer's household income" for the taxable year. This percentage may be adjusted after 2014.[1]

In the case of an individual other than an employee, section 36B(c)(2)(C)(i) provides that "this clause shall also apply to an individual who is eligible to enroll in the plan by reason of a relationship the individual bears to the employee." The cross-referenced section 5000A(e)(1)(B) defines the term "required contribution" for this purpose as "the portion of the annual premium which would be paid by the individual... for self-only coverage."

Thus, the statutory language specifies that for both employees and others (such as spouses or dependents) who are eligible to enroll in employer-sponsored coverage by reason of their relationship to an employee (related individuals), the coverage is unaffordable if the required contribution for "self-only" coverage (as opposed to family coverage or other coverage applicable to multiple individuals) exceeds 9.5 percent of household income. See Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 111th Congress, JCS-2-11 (March 2011) at 265 (stating that, for purposes of the premium tax credit provisions of the Act, "naffordable is defined as coverage with a premium required to be paid by the employee that is more than 9.5 percent of the employee's household income, based on the self-only coverage").

Consistent with these statutory provisions, the proposed regulations provide that an employer-sponsored plan also is affordable for a related individual for purposes of section 36B if the employee's required contribution for self-only coverage under the plan does not exceed 9.5 percent of the applicable taxpayer's household income for the taxable year, even if the employee's required contribution for the family coverage does exceed 9.5 percent of the applicable taxpayer's household income for the year.​

This is found at Internal Revenue Bulletin - September 6, 2011 - REG-131491-10


The IRS document also says:

Although the affordability test for related individuals for purposes of the premium tax credit is based on the cost of self-only coverage, future proposed regulations under section 5000A are expected to provide that the affordability test for purposes of applying the individual responsibility requirement to related individuals is based on the employee's required contribution for employer-sponsored family coverage. Section 5000A addresses affordability for employees in section 5000A(e)(1)(B) and, separately, for related individuals in section 5000A(e)(1)(C).​

What that means is that the IRS is expected to exempt from the Individual Mandate Penalty/Tax those people who don't get subsidies and therefore don't buy qualified insurance, because one of the parents in the family has "affordable" coverage where the "self-only" premium costs less than 9.5% of family household AGI (or rather MAGI).

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And, my last post for the night.... !!!! How is all this affordable? For an $80,000 AGI income, an 9.5% affordable self-only premium is $633.33 monthly. For $60,000 of AGI, an affordable self-only premium is $475. That's not affordable to most folks!

 

[djs]

If I understand correctly, the 9.5% is not required, just should not be exceeded. It only has to do with subsidy calculations.

At 40, the healthcare insurance cost would be $4500, if not on a group plan. I have no idea for a group plan, but I figure probably about the same. If that is over 9.5% of AGI, then you become subsidy eligible (again, if not a group plan). You do not need to pay 9.5% of your income to health insurance, unless I've totally misunderstood something somewhere.

Dan

 

[Ann H]

If I understand correctly, the 9.5% is not required, just should not be exceeded. It only has to do with subsidy calculations.

At 40, the healthcare insurance cost would be $4500, if not on a group plan. I have no idea for a group plan, but I figure probably about the same. If that is over 9.5% of AGI, then you become subsidy eligible (again, if not a group plan). You do not need to pay 9.5% of your income to health insurance, unless I've totally misunderstood something somewhere.

Dan

You have not misunderstood, Dan. You are correct. The premium must be less than 9.5% on a group plan.

On a group plan, so long the premium for the employer's lowest cost plan that has EHBs and minimum values is LESS THAN 9.5% of the employee's family's AGI the group plan is deemed affordable.

The only time you have to pay 9.5% is on an exchange plan. On an exchange plan, to have a subsidy, the premium for the entire family must be LESS THAN 9.5% (based on the premium for the 2nd lowest cost silver plan). The subsidy that you get is meant to keep the premium that your family pays at the 9.5% level.

That 9.5% is graded. It starts out at 2% for lower income levels and reaches 9.5% at 300% of FPL.

 

[SportsNut]

That 9.5% is graded. It starts out at 2% for lower income levels and reaches 9.5% at 300% of FPL.

As soon as I think I get a grip on some of this then there is new confusing twists...

The FPL... is this case lets say 300% of FPL chgs depending upon family size, correct? For instance, 300% of FPL for family of 1 is $ 33,510, and $ 69,150 for family of 4, and increases by appx $ 12K per each addt'l family member. So if the FPL used in ppaca for 1 person sized family, or what? Geesh.

Again, the more that I delve into this I come back to a statement that I made several days ago... it appears to me that the new law may have some unintended circumstances and moving insured people today (AGI of 50K to 100K today) into the ranks of the uninsured (potentially). Secondly, even for those non-subsidized folks that remain insured, their discretionary income may be reduced by higher health ins costs oop. Hence lower discretionary income equates to more troubles for the economy going fwd... but one consolation is, we will have insured appz 15mil of those 47mil uninsureds... oh wait, you mean we gained 15mil, but lost 14 mil... oh great, we really dove off the stupid cliff here.

I'm sure that I am over-reacting here and do not really have a grasp on how this will really sort out, but it appears that we are upsetting the apple cart completely for the benefit of a few and we may not fully have comprehended the outcome moving forward... yet. Am I fully off bases here?

 

[Ann H]

So is the FPL used in ppaca for 1 person sized family, or what? Geesh.

The FPL used in PPACA is based on the family size. You are correct that the income amount goes up as the family size goes up, in determining what percentage of FPL the family falls into. Only those at 400% of FPL or less will get a subsidy.

The next test for the subsidy is the "affordability" test. That's the test that starts out at 2% and grades up to 9.5%. In the exchange, it's based on family premium. For employer groups, it's based on self-only (employee) premium. The 2% graded to 9.5% amounts are based on family MAGI (modified adjusted gross income) whether it's exchange or group.
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it appears to me that the new law may have some unintended circumstances and moving insured people today (AGI of 50K to 100K today) into the ranks of the uninsured (potentially).

Yes, the middle class may well become the new "uninsured class".

---------------------------

I'm sure that I am over-reacting here and do not really have a grasp on how this will really sort out, but it appears that we are upsetting the apple cart completely for the benefit of a few and we may not fully have comprehended the outcome moving forward... yet. Am I fully off bases here?

You're not overreacting. PPACA is so complex that every time a provision is ready to be implemented, it appears like it's "news" and the community reacts. But it's been in the law all the time (except all these HHS and IRS changes!). When the true costs strike the community the first time (around September 2013 when premiums are revealed) there will be a big uproar. When claims hit, and people find out how much their out-of-pocket costs really are another wave of unhappiness will hit. And in the end, it won't control costs, and I doubt that we will be covering more people.

 

[Yagents]

Sportsnut, you are not off base, check out this blog post:

Higher health care premiums could cause Obamacare to death spiral | WashingtonExaminer.com

The Times story notes that, "Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own." This is precisely the population that the federal government hopes to induce to purchase insurance through the mandate. But as the Obama administration argued before the Supreme Court, those who choose not to purchase insurance would still be in compliance with the law so long as they paid the tax penalty for not purchasing insurance. Should premiums continue to rise, more and more uninsured Americans are going to choose to pay the penalty rather than purchase expensive insurance. And those who go without insurance are more likely to be the ones who can afford to do so — young and healthy Americans with limited medical expenses. Should this occur, insurers would have to raise premiums even more to subsidize the expenses of the sicker beneficiaries they must cover under the law. This, in turn, would cause additional people to forgo insurance and pay the fine. And so on. This is known in the health care policy community as the "death spiral" and it's one of the biggest threats to the structure of Obamacare.

 

[djs]

...The only time you have to pay 9.5% is on an exchange plan. On an exchange plan, to have a subsidy, the premium for the entire family must be LESS THAN 9.5% (based on the premium for the 2nd lowest cost silver plan). The subsidy that you get is meant to keep the premium that your family pays at the 9.5% level.

Ann, I know I'm delving into semantics here, but I think your statement is slightly incorrect, on a semantic level, but, its important.

Even on an exchange plan, I don't think you HAVE to pay 9.5%, just that if it exceeds this, then you are subsidy eligible. Heck, you can even pay more, if you want, I think.

Couple of examples, short and sweet.
Single guy, 35, makes $100K. He buys on the exchange, clearly not subsidy eligible, premium is $4500 (I think) which is 4.5%, not 9.5%. He does not have to 'pay-up' to get to 9.5%.

Single guy, making $35,000 a year, the $4500 exceeds 9.5% so he gets some subsidy. He wants a higher level plan though, not real sure how this works, but I assume the subsidy is based on the silver plan, he buys the platinum, he pays the difference (probably not going to happen very often), meaning he pays more than 9.5%, even though he is subsidy eligible.

Its a moving target right now. I could give you a list of things that I doubt they have good solutions for, a few examples:
- Significant change in pay for the year
- Loss/gain of employment midyear
- Death
- Drops out for 3 months, back on plan
- Self employed to employed
- Employed to self employed

I figure by the middle of this year, there will be enough structure to sort of know what will happen. The real rules won't be done till the middle of next year, after the first round of 'oopses' are figured out.

Dan

 

[SportsNut]

, more and more uninsured Americans are going to choose to pay the penalty rather than purchase expensive insurance. And those who go without insurance are more likely to be the ones who can afford to do so — young and healthy Americans with limited medical expenses. Should this occur, insurers would have to raise premiums even more to subsidize the expenses of the sicker beneficiaries they must cover under the law. This, in turn, would cause additional people to forgo insurance and pay the fine. And so on. This is known in the health care policy community as the "death spiral" and it's one of the biggest threats to the structure of Obamacare.

Interesting... and the thought that I have had regarding 2014 and beyond... compared to today.

Today, an unisured indiv has an ache or pain they go to the emerg rm for care... get treatment, walk out the door, pay 0, hosp receives butkus.

2014: an indiv who has chosen to pay the fine/tax rather be insured, gets an ache and pain and goes to the emerg rm... Hmmm, what happens then? Wouldn't the hosp be within their rights to say SORRY Charlie!!! no treatment here.???

Will be interesting to see how that pans out. There are going to be some po'd folks when they realize just how this is going to unfold. Sort of like the folks back in Nov 2007 on election nite, in elation that their finacial whoas were over since BO was elected... No more $$$ worries, he is going to handle it... Well as much as he has tried, those folks are still struggling, except they can now make a free call on their free cell phone. Duh, we are a stupid republic to have allowed this to happen.

 

[Ann H]

Ann, I know I'm delving into semantics here, but I think your statement is slightly incorrect, on a semantic level, but, its important.

Even on an exchange plan, I don't think you HAVE to pay 9.5%, just that if it exceeds this, then you are subsidy eligible. Heck, you can even pay more, if you want, I think.

Couple of examples, short and sweet.
Single guy, 35, makes $100K. He buys on the exchange, clearly not subsidy eligible, premium is $4500 (I think) which is 4.5%, not 9.5%. He does not have to 'pay-up' to get to 9.5%.

Single guy, making $35,000 a year, the $4500 exceeds 9.5% so he gets some subsidy. He wants a higher level plan though, not real sure how this works, but I assume the subsidy is based on the silver plan, he buys the platinum, he pays the difference (probably not going to happen very often), meaning he pays more than 9.5%, even though he is subsidy eligible.

Its a moving target right now. I could give you a list of things that I doubt they have good solutions for, a few examples:
- Significant change in pay for the year
- Loss/gain of employment midyear
- Death
- Drops out for 3 months, back on plan
- Self employed to employed
- Employed to self employed

I figure by the middle of this year, there will be enough structure to sort of know what will happen. The real rules won't be done till the middle of next year, after the first round of 'oopses' are figured out.

Dan

Oh, wow, Dan thanks for catching my miscommunication. You are right. Subsidies just pay the amount above 9.5% (graded). You are correct about semantics. I appreciate you, YAgents, Leevena and others for putting in some clarification on these points. As we delve into the details, we need to remember that people are reading these threads that are not familiar with the basic concepts, and we don't want to lead them wrong. Thanks again.