Features of PPACA (Obamacare)

Learn about Medical PPACA

MAJOR MEDICAL INSURANCE
For Below 65 
 
Major Medical Insurance: Patients Protection Affordable Care Act [PPACA] for Individuals and Families 

This Act, also often referred to as ‘Obamacare’ came into being in March 2012. Under this Act, all individuals and their families below age 65 must maintain minimum essential health insurance coverage called major medical health insurance, by purchasing Qualified Health Plan(s) directly from Insurance Companies, or through Federal/State Exchanges (called Marketplace), or through their Employer through Exchanges using Small Business Health Options Plan [SHOP].
If you, the tax filer as individual or with family, do not have qualified health insurance coverage, you have two choices:

Implementation of the Act

The existing system of covering health risks through insurance by private insurance companies for individuals and families in age range from birth to below 65 continues as before. The government has extended the existing insurance system by subsidizing the insurance premiums through mechanism of tax credits to eligible individuals and their families based on the income level and size of the family to make insurance affordable for those who cannot afford to buy. In addition, the health insurance coverage cannot be denied based on medical condition or pre-existing condition. The ‘affordability’ of health insurance has been related to the Federal Poverty Levels of the size of the family and income level of family to arrive at a number which defines ‘’subsidy’’ by the government for the insurance premiums.

Direct purchase of health insurance by individuals and their families

You, the tax filer, are the responsible person to show to IRS through tax return that you and your family had PPACA qualified health insurance including child up to age 26. The PPACA defines the feature of affordability for individuals and families’ related to the income level and size of the family. Federal Register publishes the Federal Poverty Levels for individual and family size.  You may compute your income as percentage multiple of  Federal Poverty Levels for 2016 as follows:[Your Family Income / {11,880 + (Number of family members – 1) * 4,160}] * 100.
To illustrate, if your family comprises of four members, and your estimated annual income is, say $55,000, your income is [55,000 / 11,880 + {(4-1) * 4,160)}] * 100 = 225% of the Federal Poverty Level.
The eligibility for Premium Cap to purchase health insurance as set out in tabular form is approximately:
(6.3% + 8.05%)/2 * 55,000 = $3,946, viz.
3,946/12 = $328.85/month.

Advance Premium Tax Credit [APTC] 

For purpose of benchmarking the eligible tax credit subsidy, the Marketplace treats cost of Silver Level of health plan by the carrier irrespective of the metal level plan [Bronze, Silver, Gold, and Platinum] that the consumer selects. If the Silver level plan costs, say $1,000 per month for this family of four, the Premium Tax Credit subsidy is $1,000 – $328.85 = $671.15/month. The Act set out  9.5% of the family income as the maximum premium payable by the family corresponding to 400% of FPL, and thus tax credit subsidy kicks in if cost of acquiring insurance coverage is more than this.

Run Calculator for Approximation of Subsidy

Click here to check if you may be eligible for Premium Tax Credit subsidy  on monthly basis that the Marketplace will pay directly to insurance carrier for you.

Cost Sharing Reductions [CSR]

In addition to the Advance Premium Tax Credit [PTC]  as elaborated in IRS Publication 974, if the income level of the family falls between 100% – 250% of FPL, which in this illustration is the case, there is additional financial help available to reduce ’Out-of-Pocket’ expense through further subsidies called Cost Sharing Reductions. In this case, only Silver Level plan helps picking up reductions of ‘Out-of-Pocket Maximum’ expenses by a formula of income range to Actuarial Value [AV]of the Silver Level plan as follows:

  • If household income is between 100% – 150% of FPL………. it is 94% AV Silver Plan
  • If household income is between 150% – 200% of FPL ……… it is 87% AV Silver Plan
  • If household income is between 200% – 250% of FPL ……….it is 73% AV Silver Plan

Note, that the family is free to purchase any of the four metal levels of health plans, depending on how best the family plans to handle costs, but the Cost Sharing Reductions Subsidy is [income 100% – 250% of FPL] is available only in Sliver Level plan.

Personal Tax Return [IRS Form 1040] and Supporting Papers to Show Healthcare Coverage 

When you file your personal tax return [Form 1040], you have to show and establish to IRS that you and your family did acquire minimum essential health insurance coverage that complied with the Affordable Care Act, whether there was Premium Tax Credit subsidy or not. You will need one of the following supporting papers:-

For working out your income level for eligible tax creditable healthcare plan, it is the Modified Annual Gross Income, or MAGI. Since the income itself is the ‘best estimate’ for next calendar year that you are buying health insurance, and making its redetermination sometime during Nov 1st  – Dec 15th, it will get fine-tuned when you file your tax return sometime in March – April next year. It may be better that you leave this to a tax preparer to take care of complexities of ACA compliance and file your digital tax return to IRS for you.
Federally Facilitated Marketplace Exchange
This is the digital meeting place, www.healthcare.gov, which facilities insurance carriers who are offering their PPACA compliant health insurance products and it buyers, the individuals with families and business groups who buy the products. This site maintains records and transactions. This is the place where subsidies of tax credit and ‘Cost Share Reductions’ are enabled to the eligible individuals and their families. This Marketplace places latest information of this site about PPACA, and has its rules to abide by for the benefit of all.
Licensed health Insurance Issuers must….

  • Offer all their group and individual market policies to any eligible individual. This is called “guaranteed issue” irrespective of any pre-existing health condition regardless of the age of the covered individual.
  • Spend the required percentage of premium dollars [85%] on medical care or else provide rebate to the policyholders.
  • Offer health insurance plans that cover benefits in at least ten categories, called Essential Health Benefits (EHB), which must carry no maximum dollar limits. These ten categories of EHBs items and services are required on all individual and small group plans starting in 2014. These 10 categories are: 1) Outpatient care; 2) Emergency care; 3) Hospitalization; 4) Maternity and newborn care; 5) Mental Health Services and addiction treatments; 6) Prescription Drugs; 7) Rehabilitative services and devices, 8) Laboratory Services, 9) Preventive services, 10) Pediatric services.
  • Issue four levels of coverage for health plans related to the Actuarial Value and Out-of-Pocket cost called metal plans: Bronze, Silver, Gold, and Platinum. This is standardization of coverage for better comparison with carrier’s competition. As the actuarial value of the plan rises, so does the corresponding premium but reduces the Out-of-Pocket cost. Actuarial Value is a mathematically computed number related to demographics of geographical area and cost of doing business in that defined geographical area. In simpler terms, a 70/30 means that insurance company picks up 70% of cost of medical services to a patient and the patient picks up 30% of the medical bills, called coinsurance. Typically, this 60/40 is the Bronze level, 70/30 is for Silver level, 80/20 is Gold level, and 90/10 is the Platinum level having high premiums and lowest Out-of-Pocket costs. It may be of interest for you to compare the cost of same medical service in Miami, FL with San Francisco, CA and Manhattan, NY.  Even though the cities are comparable to traffic jams, the cost of health insurance may be substantially different.
  • In addition to the four levels of health insurance coverage plans, the insurance carriers may offer another euphemistic insurance called ‘catastrophic insurance’ (high deductible, high coinsurance, less than 60%, and low premium), is like eat cake when you cannot buy bread for individuals …

Who are under age 30 before the plan year begins;
Who have a certification from the Marketplace that they are exempt from the individual responsibility requirement because they do not have an affordable coverage option,
Who qualify for a hardship exemption.

  • Premium rates vary by age, family composition, geographic area, and tobacco use.

Annual Enrollment Periods 

This is the season of new enrollments, updating and redetermination of your (including your family) existing health plan, and changing your current health plan. The timeframes for open enrollment are:

  • From November 1st to December 15th ……Takes effect on January 1st for next calendar year.
  • From December 16th to January 15th ………Takes effect on February 1st  for the calendar year.
  • From January 16th to January 31st ………….. Takes effect on March 1st for the calendar year.

It is a good idea to check if you qualify for tax credit subsidy, and start early to shop for health plan that is PPACA compliant at your earliest during these timeframes, preferably with the help of a licensed broker.

Special Enrollment Period [SEP] 

If you could not enroll in regular open enrollment season mentioned above, you may qualify for enrollment to health plan if you qualify for any of the following qualifying life events:

  • Loss of minimum essential coverage due to any reason. Note that consumers enrolled in non-calendar year health insurance policies that end outside of the annual open enrollment period may also qualify for an SEP.
  • Marriage, birth, adoption, placement in foster care, or through a child support or other court order.
  • Loss of dependent status, like… legal separation, divorce, or death or enrollee or his/her dependent.
  • Gaining status such as citizen, national, or lawfully present individual.
  • Error in enrollment, misinterpretation, or misrepresentation.
  • Any material violation by the issuer of policy.
  • Changes in household income that makes a consumer eligible for advance payments of the premium tax credit.
  • Changes in employer sponsored coverage that makes a consumer eligible for premium tax credit.
  • Due to permanent move like changes in address, that affects the service area of the insurer.
  • Other exceptional circumstances that can be identified and acceptable to Marketplace.

What is Health Savings Account? [HSA]   

IRS has been generous to innovative this tax favored savings plan for you to pay out of this account for your qualified medical expenses when you combine it with a qualified High Deductible Health Insurance Plan. IRS limits the maximum contributions into this account for single person as $3,350 and for family as $6,750. If you are 55+ old single you can contribute $4,350, or with family up to $7,750. These contributions are 100% tax deductible for the calendar year. The accumulated contributions in this account are ‘tax deferred’ for your retirement years when you cross 65+. This is your retirement savings account, just like IRA. Remember, you have to be filing IRS Form 8889 with your 1040 Tax Return to show what you deposited in your HSA account, and what you withdrew, tax-free, to spent on your qualified medical expenses, including dental and vision. IRS Publication 502 gives eligible and ineligible expenses from HSA. Briefly, you may use this account as follows:

  • Meet deductible of your qualified ‘High Deductible Health Insurance Plan for the calendar year before plan picks up its share as per terms of the plan and you pick up coinsurance and copayments. The plan has its maximum Out-of-Pocket expense limits before it picks up 100% payment.
  • Tax deductible is off the gross income to defined IRS limits.
  • Grow accumulations in this account tax-deferred.
  • Withdrawals are NEVER taxed when used for qualified medical expenses.
  • Roll over year after year. It will work like your IRA.
  • Portable, goes with you wherever you go.
  • Health insurance premiums when you are between jobs.
  • Qualified long-term care premiums.
  • Medicare premiums and out-of-pocket expenses.
  • Living expenses after age 65. Pay ordinary income taxes on withdrawals.

Other HSA Features

  • Any funds you withdraw for non-qualified medical expenses before you are 65 will be taxed at your income tax rate plus 20% tax penalty.
  • Once you meet the calendar-year deductible, health insurance pays the remaining covered expenses in accordance with the terms and conditions of your particular plan. Some plans pay 100% of covered expenses after the calendar-year deductible is met.
  • For a qualified High Deductible Health Insurance Plan, the IRS has defined ‘qualified plan’ as having Minimum Annual Deductible as $1,300 for single and $2,600 for family with corresponding maximum annual out-of-pocket expense as $6,450 and $12,000 respectively. When you are shopping for a qualified HSA plan, you may find that deductibles of plans are generally much higher than the IRS minimums so that the premiums are relatively lower. This is where you would like to work through numbers. If you are a taxes-savvy, health conscious, and retirement minded astute planner, you may find that the HSA is a great escape to save you taxes and build up for retirement savings.
  • In addition, here is more to it; the contribution to the HSA may be by your employer as well. Get to know more about it by browsing through IRS Publication 8889.  This great feature should be of interest to employers for their business taxes planning and employee benefits.
  • The employer may combine contributions to HSA of employees in addition to premium sharing with its employees by offering HSA compliant plans to the employees.

Employer Sponsored Healthcare Plans for its Employees thru’ Federally Facilitated Small Business Health Options Program [FF-SHOP]

Under PPACA, the electronic online platform called Marketplace facilities the ‘Employers’ of small businesses to either offer and administratively control health insurance matters of its ‘Employees’ by sharing premium costs of health plans(s), including or excluding their dependent. There are two distinct categories of employers: Small Businesses, and Applicable Large Employers.

Why Use SHOP Marketplace?

  • Insurance carriers place their competitive health plans on the Marketplace for you, the employer, to select a plan for your employees, or let your employees choose a plan for themselves.
  • You set your policy of offering a selected health plan or a set of plans to choose from for your employees for enrollment, with or without their dependents, and your offer of sharing of premium costs.
  • You have administrative control on the enrollment of your employees to health plan(s) during open enrollment and off-the-open-enrollment periods.
  • If you have business in more than one state, you can either offer enrollment for one selected plan with a multi-state carrier, or else you may open account in Marketplace for each state and let your employees choose the plan.
  • You may do all the enrollment and disenrollment work for your employees yourself, or you engage services of your State licensed and certified Federally Facilitated Marketplace SHOP broker to do all the administrative work for you free of cost to yousince carriers pay to broker on commission basis. A broker can advise on how best to evolve your policy regarding health insurance for your employees in the best interest of your business.
  • You [the employer] decide on a percentage to contribute towards the health insurance premiums of your qualified employees, and their dependents if applicable. The category of plan or plan(s) that you [the employer] select for your employees affects how much your enrollee employees will pay for deductibles, copayments,  and out-of-pocket expenses for the year when heavy medical expenses strike. You [the employer] may even select a reference plan to share premium costs and your employees pick up the rest. Depending upon how you want to give premium-sharing benefits to your employees, you can estimate your expenses by running an online premium estimations tool. 
  • You [the employer] and your qualified employees may experience less financial uncertainty related to premium cost increases at plan renewal.
  • For your [the employer] new employee and qualifying event(s) affecting your currently enrolled employee in FF-SHOP plan, Special Enrollment Period is available for 30 days from the triggered qualifying event. These qualifying events are the same as for Individual & Family plans.

Qualifiers for Small Business Health Options Program [SHOP] Small Employer having fewer than 50 employees

Qualifiers for Small Business Health Care Tax Credit

To qualify for the tax credit, all of the following must apply:

  • You have fewer than 25 Full Time Equivalent [FTEs] employees, and average annual salary of an employee is about $50,000 or less.
  • You get higher tax credit if you have fewer than 10 employees who are paid an average of $25,000 or less. Smaller the business, bigger the tax credit.
  • You pay at least 50% of your full-time employees’ premium.
  • You offer coverage to your full-time employees through the SHOP Marketplace.
  • It is optional for you to offer health care coverage to your part-time employees (working less than 30 hours per week).

Qualifiers for Applicable Large Employers, or ALEs having more than 50 employees

You must find out how in your state you are designated as Small or Large Employer by calling SHOP Call Center at 1-800-706-7893 so you know the tax treatment you will get from IRS. Generally, if you have more than 50 employees, you are designated as Applicable Large Employer. 

It is mandatory that you (the employer) offer minimum essential health care coverage to your employees.   If you do not offer adequate affordable coverage to your full time employees, and one or more of those employees get a Premium Tax Credit, you will be paying penalty for letting that happen.  Note the keywords for health care coverage are ’’adequate affordable coverage to your full time employees, and their dependents are implied within, and that the affordable coverage  provides minimum value “ ; or else, you as Large Employer shall be liable to IRS for penalties, euphemistically termed as ‘shared responsibility’.  It is also referred to as ‘’the employer mandate’’ or ‘’the pay or play provision’’.   There are flavors of these payment shocks depending upon how you [the employer] are organized. It is best for you as employer to have your staff well versed and trained to turn the health care benefit you provide into a great incentive for your employees.
In addition to maintaining health coverage for your employees, you as the Large Employer also have ‘information reporting responsibilities’ regarding minimum essential coverage offered to your employees.   

How to Plan Your Major Medical Health Insurance

With a large variety of health insurance plans available, individual and family, and through your small or large employer, you may consider a number of factors to make choice for a plan suitable to you and your family needs.  Here are some factors to consider while making that choice to cover your routine medical needs, and your risk coverage if sudden high expenses strike:

  • If you and your family are in income level less than four times the Federal Poverty Level, check the premium subsidy available and your choice to purchase plan.
  • For purchasing health coverage through small business employer, check what choices you have for the plans and what contribution the employer will make for you and your family. You share premiums only with your employer irrespective of your income level.
  • Check if your employer offers insurance for your dependents. Ensure that your dependents are covered.
  • Check if you prefer to open a Health Savings Account and combine it with the HSA compliant health insurance plan that you would like to purchase to reduce premiums, and how will that work out considering the taxes you save.

RESOURCES
Individuals and Families:
https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families
Small Business Health Options Program [SHOP]  
https://www.irs.gov/Affordable-Care-Act/Employers/Small-Business-Health-Care-Tax-Credit-and-the-SHOP-Marketplace
Applicable Large Employers – Health Insurance 
https://www.irs.gov/Affordable-Care-Act/Employers/Affordable-Care-Act-Tax-Provisions-for-Large-Employers
Health Savings Accounts [HSAs] 
https://www.irs.gov/pub/irs-pdf/i8889.pdf
Centers for Medicare & Medicaid Services: Health Insurance Marketplace
https://marketplace.cms.gov/outreach-and-education/outreach-and-education.html

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