You Asked, We Answered.

You asked, we answered. Following our recent webinars we received a few questions, see below and please let us know if we can answer more for you.

Q: I remember first hearing about a penalty for employees who didn’t have a good enough (hard to define again) plan and when the employees choose to go into the state program or risk pool that we (employer) could have a monthly penalty because of this, do you remember anything on that?

A: I think you’re first referring to the individual mandate and then to potential employer penalties. Some comments that might be helpful:

Individual mandate: All US citizens and legal residents will be required to have insurance coverage starting 1/1/14. Being enrolled in either an employer plan, a plan offered in the state exchange, Medicare or Medicaid will satisfy this requirement. If a person chooses to not get coverage through one of these programs, they’ll be assessed a penalty. Many folks familiar with the current costs for insurance feel the 2014 penalty and maybe even the 2015 penalty aren’t large enough to encourage enrollment. It could be difficult to find an insurance plan that costs a person only $95 a month, so it’s suspected some folks will simply pay the penalty instead of the higher insurance premium. After all, if they do get sick, they can simply join a plan at that time with no consequences since there will no longer be any pre-existing condition exclusion. While it’s tough to argue with the concept from a financing perspective, we suspect the numbers will be tweaked upward as we get closer to 2014.

Employer penalties: First off, note that these penalties apply only to employers with more than 50 FTEs. Also, the penalties are assessed on a monthly basis, since each employee (and perhaps each dependent) can jump from any available employer or exchange plan to another each month.

If an employer chooses to not provide a health insurance program and any employee gets coverage through a state exchange, the employer will pay an annual, non-deductible penalty of $167 per month for each employee (not counting the first 30 FTEs). The likelihood of an employee getting coverage through an exchange is enhanced by tax credits for individuals and families with incomes less than 400% of the Federal Poverty Level (FPL). 400% of the 2010 FPL for a family of 4 is about $88,000, so it’s likely that many folks will qualify for some level of that tax credit.

If an employer does choose to offer their own medical plan, they may still be subject to penalties if any employee elects to purchase their coverage through the exchange rather than through the employer’s plan. Tax credits are available to employees with family incomes less than 400% of FPL or if the employee must contribute more than 9.5% of their family income toward the employer’s insurance plan, increasing the likelihood of an employee opting for coverage through the exchange. The monthly employer penalty is the lesser of $250 for each employee receiving a tax credit or $167 for each FTE (again, not counting the first 30).

Lots of numbers and possibilities here and unfortunately there’s no straightforward, simple explanation of how it’s supposed to work. All of this is still more than 3 years (and a national election) away, so I wouldn’t count on things staying the way the current law is written. Still, I hope I’ve been able to give you a sense of what could happen. If you have any other questions on this, please don’t hesitate to let us know.

Q: Starting in 2011—next year— will the W-2 tax form sent by your employer be
increased to show the value of whatever health insurance you are provided? Will you be required to pay taxes on a larger sum of money than you actually received?

A: I’ve seen this before and it falls into the urban myth category. While there was some discussion early on in the reform debate about removing the tax-exempt status of employer-sponsored benefits in order to generate revenue, it was quickly squashed by many interests (most notably unions). I’m not sure the best way to counter bad information other than to ask the author to show me where in the law it says what they claim – if nothing else, it sends the author away while they look for something that doesn’t exist! Provided you’re not much of a conspiracy theorist, you can go to http://www.whitehouse.gov/blog/2010/05/25/health-reform-your-taxes-and-rumor-mill and see the official administration response. Hope this helps!

Q: Have you heard anything on the small group tax credit for wellness that is part of the health reform bill?

A: This one I’ve dealt with before. There’s no such “tax credit for wellness” in federal law, but there’s some states that provide for it (I know Indiana does it). I’d bet the confusion comes from trying to combine different elements from the law:

1. Small employer tax credit for premium payments that start in 2010 tax year;
2. Small employer wellness grants: start in 2011; $200 million in grants over 5 years; employers w/ fewer than 100 employees; available only for new wellness programs launched after 3/23/10; grant applications yet to be published;
3. Starting in 2014, premium differentials can increase to 30% for members who participate in wellness programs (applies to all employer plans). HHS Sec is given discretionary authority to increase this to a 50% differential.
   

Hope this helps and please don't hesitate to keep the questions coming.