[T]he Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act... (collectively, the "PPACA" or the "Act")... will provide... new mandates on what needs to be included in health plans, new reporting and disclosure requirements, new subsidies and tax credits, and new excise tax penalties.
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Employer "Play-or-Pay" Mandates and Excise Tax Penalties
The PPACA will require "applicable large employers" to "play-or-pay." They must either "play" by making coverage available to "full-time employees" (those who work 30 hours or more on average per week), or "pay" by paying an excise tax penalty. The "pay-or-play" mandate is sometimes referred to as a "free rider surcharge" or a "free rider penalty." An "applicable large employer" is one that employs an average of at least 50 employees on business days during the preceding calendar year. Effective January 1, 2014, employers with at least 50 employees who do not offer their employees and dependents certain specified minimum levels of health coverage, and have at least one employee receiving premium assistance from the federal government, will have to pay a monthly excise tax penalty of $166.67 (namely, one-twelfth of $2,000) per full-time employee (but ignoring the first 30 full-time employees). The excise tax penalty is not tax-deductible.
A different excise tax penalty is imposed if the employer offers coverage but the coverage does not satisfy specified minimum levels. Generally, the specified minimums require: (i) the employee's cost for the coverage to be less than or equal to 9.5% of the employee's household income, and (ii) the actuarial value of the benefits covered under the plan to equal or exceed 60% of the cost of the covered services. Employers who offer coverage that does not satisfy these specified minimums must pay a monthly excise tax penalty of $250 (namely, one twelfth of $3,000) for each full-time employee who receives federal premium assistance for coverage (with a cap on such penalty equal to $166.67 times the number of the employer's full-time employees but ignoring the first 30 full-time employees).
The "play-or-pay" excise tax penalties are indexed for inflation...
Employer and Employee Subsidies
...For 2010 through 2013, the law also provides qualified small employers a special tax credit for employer contributions to purchase health insurance for their employees. (Employer contributions do not include employee pre-tax contributions). ...[A]n eligible small employer is one with 25 or fewer full-time employees whose employees have annual full-time equivalent wages averaging $50,000 or less, an amount that is indexed for inflation after 2013. For tax years 2010 through 2013, the credit is up to 35% (25% for a tax-exempt qualifying employer) of the lesser of (1) the amount of the eligible small employer's nonelective contributions for premiums paid for health insurance coverage; or (2) the average premium for the small group market in the area in which the employer is offering health insurance coverage (determined by the Secretary of HSS). For tax years 2014 and beyond, the credit will be up to 50% (35% for a tax-exempt qualifying employer) of the lesser of: (1) the amount of contributions the employer made on behalf of the employees during the tax year for premiums for health coverage purchased through an exchange; or (2) the amount of contributions that the employer would have made during the tax year if each employee had enrolled in coverage with a premium equal to the average premium for the small group market in the rating area in which the employee enrolls for coverage. In each instance, the full tax credit is available only to employers with 10 or fewer full-time equivalent employees and average annual wages of less than $25,000 (indexed for inflation after 2013)...
Health Care Exchanges
Under the PPACA, effective in 2014, states will be required to establish and administer health care exchanges where certain individuals can purchase "qualified health plans."... Employers with fewer than 50 employees are not required to pay a fee for each employee who receives a tax credit for health insurance through a state exchange...
New Mandates for Health Care Plans
...Plans that extend coverage to dependent children must allow such coverage to continue until age 26 for dependents (irrespective of the dependent's marital status)... The cost of this coverage is not taxable to the employee. (Effective for plan years beginning on or after September 23, 2010.)...
Limitations on Health-Related Pre-Tax Contributions and Deductions
The PPACA imposes several new limitations on health-related pre-tax contributions and deductions that will be of particular interest to both employers and employees, including...:
The cost of over-the-counter medicines can no longer be reimbursed through a health FSA or HRA. (Effective for expenses incurred with respect to tax years beginning after December 31, 2010).
Employees will be permitted to contribute a maximum of $2,500 by salary reduction to a health FSA. (Effective for tax years beginning after December 31, 2012, and adjusted for inflation beginning after 2013).
The new law reduces an employer deduction for retiree prescription drug expenses...
A Constellation of New Excise Taxes and Fees
Health care reform will be extraordinarily expensive. To help offset the cost of the new health care reform laws, the PPACA and new Internal Revenue Code provisions impose a constellation of new taxes and fees on a variety of constituencies... [effective in many, but not all, instances for tax years beginning on or after December 31, 2010]...
Individual Mandates
...[T]he PPACA imposes individual mandates on American citizens and legal residents to purchase "qualified health insurance coverage," with exceptions for those who cannot afford coverage, religious objectors, and incarcerated individuals. The law requires that individuals report on their federal income tax returns the months of the year in which they had such coverage. In addition, health plans must provide documentation of coverage both to individuals and the Internal Revenue Service. The excise tax penalty on individuals for not meeting the mandate is...: $325 per year in 2015, rising to $695 in 2016 and indexed thereafter...
Federal Preemption
...[T]he relatively small size of the "pay-or-play" excise tax penalty in comparison to the cost of purchasing group health insurance may provide an incentive to some employers to stop offering group health insurance coverage...
Similarly, the relatively small size of the excise tax penalty imposed on American citizens and legal residents who decline to purchase "qualified health insurance coverage" compared to the high cost of such insurance, may serve as a compelling incentive for individuals who are in good health not to buy the insurance until they become sick or injured...
LEXIS users can access the complete commentary here. Additional fees may be incurred. (Approx. 18 pages)
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