The Affordable Care Act’s Credits, Subsidies, Penalties and Fees This presentation is a high-level summary and for general informational purposes only

The Affordable Care Act’s Credits, Subsidies, Penalties and Fees

This presentation is a high-level summary and for general informational purposes only. The information in this presentation is not comprehensive and does not constitute legal, tax, compliance or other advice or guidance.

A Division of Health Care Service Corporation, a Mutual Legal Reserve Company,an Independent Licensee of the Blue Cross and Blue Shield Association

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION.

Credits, Subsidies, Penalties and Fees

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Other Fees• PCORI Fee• Risk Adjustment

Payments• Reinsurance

Fee• Health Insurer

Fee

Employers• Employer Shared

Responsibility Payment

Small Businesses

• Tax Credits

Individuals• Premium

Tax Credits• Cost-Sharing

Subsidies• Tax Penalties


Individuals


Individuals: Premium Tax Credits

The Premium Tax Credit Is:

•Available for eligible individuals who purchase individual coverage on the exchanges, also known as health insurance marketplaces, with household incomes between 100-400% of the federal poverty level

•On a sliding scale

•Applied to the health insurance PREMIUM payments of a plan at any metallic level, and will most likely be applied monthly

•Advanced to the consumer upon enrollment in an exchange plan

•Based on the consumer’s income the previous year

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To be eligible for a premium tax credit, an individual must:

•be a U.S. citizen or legal resident

•have household income between 100-400% of FPL

•be enrolled in an exchange plan

•be included in tax filings to the IRS as an individual, or as a member of a married couple or family with dependents

•not be eligible for other affordable coverage, such as Medicaid or Medicare or other types of “minimum essential coverage” (other than through the individual health insurance exchange)

•not have access to an affordable employer plan that meets minimum value requirements

Premium Tax Credit Eligibility

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Income Tax Filing

•The amount received for a premium credit is based on the prior year’s income tax returns.

•These amounts are reconciled in the next year when individuals file a tax return for the actual year in which they received a premium credit.

•If a person who is filing taxes has a change in income, and the filer should have received a higher tax credit, the additional credit would be included in the tax refund for the year.

•Conversely, any excess amount that was overpaid in premium credits would have to be repaid to the federal government as a tax payment.

•For households with incomes from 100-400% of the FPL, the amount of repayment cannot exceed $400 for joint filers and $250 for single filers. This amount will be indexed by inflation in future years.

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Enhanced Actuarial Value Cost-Sharing Subsidy

Designed to help those at lower incomes with costs at the point of service by enrolling them in health plans with higher actuarial values.

Individuals: Cost-Sharing Subsidies

This Cost-Sharing Subsidy Is:

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• A federal payment to the insurer that reduces the eligible member’s costs (deductible, coinsurance or copayment)

• Based on the consumer’s income the previous year

• For those enrolled in an exchange plan with household incomes 100-250% of FPL

• Applied when members select a Silver level plan



Enhanced Actuarial Value Cost-Sharing Subsidy

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Household Income

Plan OriginalCost-Share

Member Original

Cost-Share

Plan NEW Cost-Share

Member NEW Cost-Share

250-400% of FPL 70% 30% 70% (same) 30% (same)

200-250% of FPL 70% 30% 73% 27%

150-200% of FPL 70% 30% 87% 13%

100-150% of FPL 70% 30% 94% 6%

Silver Plans & Cost-Sharing Variations

SOURCE:Actuarial Value and Cost-Sharing Reductions Bulletin published by The Center for Consumer Information & Insurance Oversight on February 24, 2012 at http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.



Out-of-Pocket Maximum

•An out-of-pocket maximum cost-sharing subsidy is available to those that select a silver plan and have a household income of 100-400% of the FPL. This subsidy limits the maximum out-of-pocket expenses for individuals.

•Without any federal subsidies, ACA limits out-of-pocket maximums to those established for Health Savings Accounts. Those limits, which include deductibles and copayments, are $6,250 for individuals and $12,500 for families for 2013. Out-of-pocket limits will be indexed.

•In 2014, this subsidy considerably reduces the out-of-pocket maximum.

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Out-of-Pocket Maximum Subsidy Amounts

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Income Level 2013 OOP Maximum

Without Subsidy(Individual)

Reduction in OOP Liability

2013 OOP MaximumWith Subsidy(Individual)

100-200% FPL $6,250 2/3 of the maximum $2,083




Individuals: Penalty for No Coverage

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Minimum Essential Coverage DefinedA government-sponsored program, including coverage under Medicare Part A, Medicaid, the Children's Health Insurance Program and TRICARE®

An eligible employer-sponsored plan (meets affordability and minimum value requirements)

A health plan offered in the individual market

A grandfathered health plan

Other health benefit coverage (such as a state health benefit risk pool) that is recognized by the U.S. Department of Health and Human Services

• Beginning in 2014, most U.S. citizens and legal residents must have a minimum level of health coverage or pay a federal tax penalty.

• The tax penalty is assessed according to a percentage of income or flat fee, whichever is greater.


Individuals: Penalty for No Coverage

Penalty Amounts

Examples of Penalty (% or flat fee, whichever is higher)

Year Percent of Income or Flat Fee

2014 1.0% of taxable income or $95



after 2016the tax will increase annually by cost-of-living adjustment

the tax will increase annually by cost-of-living adjustment

YearAnnual income of

$15,000Annual income of



$30,000

2014 1% = $150 $95 1% = $200 $95 1% = $250 $95 1% = $300 $95

2015 2% = $300 $325 2% = $400 $325 2% = $500 $325 2% = $600 $325

2016 2.5% = $375 $695 2.5% = $500 $695 2.5% = $625 $695 2.5% = $750 $695

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Small Businesses


Small Businesses: Tax Credit

Tax Credit Amount Available

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YearTax Credit Available:

For-profit Small BusinessesTax Credit Available:

Non-profit Small Organizations

Currentup to 35% of the employer’s contribution

up to 25% of the employer’s contribution

2014up to 50% of the employer’s contribution

up to 35% of the employer’s contribution

Tax Credit Requirements

•Must have less than 25 full-time equivalent employees

•Must pay an average annual wage of $50,000 or less per employee

•Must provide health care insurance and cover 50% or more of cost


SOURCE:Statistics of U.S. Businesses, 2008, All industries Texas; from The U.S. Census Bureau at http://www.census.gov/epcd/susb/latest/tx/TX--.HTM.

Small Businesses: Penalty

Are there any penalties for small businesses?

•ACA does not require businesses with less than 50 full-time equivalent employees to offer health insurance.

Employer Shared Responsibility Payment

•Businesses with 50+ full-time equivalent employees must offer their employees and dependents health insurance that provides “minimum value” and is “affordable.”

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Employers



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• Beginning in 2014, ACA requires employers with more than 50 full-time equivalent employees to offer minimum essential health coverage to their employees and their dependents or be subject to a tax penalty.

• If a business employs less than 50 full-time equivalent employees, with full-time defined as averaging 30 or more hours a week in a given month, then the business is exempt from the employer shared responsibility payment.

• An employer cannot offer just any health care plan. The plan has to be one that meets “minimum essential coverage” requirements.



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Minimum Essential Coverage Requirements

Affordable

•The employer’s coverage is deemed affordable if the employee’s share of the premium costs for self-only coverage does not exceed 9.5% of the employee’s household income.

Minimum Value

•An employer’s plan’s share of total allowed costs must be at least 60%. Minimum value must be determined using a method that is consistent with the actuarial value rules.



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Penalty 1: Failure to Meet the Affordable Requirement

•If a company offers health insurance, but requires some employees to contribute more than 9.5% of their income,

•AND those employees obtain health insurance through a public exchange,

•AND they receive a subsidy,

•THEN the employer would pay a penalty of $3,000 per employee receiving the subsidy.



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Penalty 2: Failure to Offer Minimum Value Requirement

•A company with 50 or more FTEs that does not provide health insurance will be subject to a penalty of $2,000 per year multiplied by the number of FTEs, minus the first 30.

•For example, a company with 100 FTEs would be subject to a penalty of $140,000. ([100 – 30] x $2,000 = $140,000)

•The penalty is $2,000 for each full-time employee in excess of 30 full-time employees. Note that the penalty is for each full-time employee, not “full-time equivalent” employee.


Other Fees

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. 22

Other Fees: PCORI

As part of the Affordable Care Act (ACA), health insurance issuers and sponsors of self-insured group health plans will be assessed an annual fee – based on the average number of covered lives – to fund patient-centered outcomes research. (Also known as The Comparative Effectiveness Research Fee.)

Patient-Centered Outcomes Research Institute FeesPatient-Centered Outcomes Research Institute Fees

• Fee amount is $1 times the average number of covered lives for plan/policy years ending before 10/1/13.

• Fee amount is $2 times the average number of covered lives for plan/policy years ending on or after 10/1/13, subject to adjustments that include the projected increases in National Health Expenditures.

• Fee terminates for plan/policy years ending after 9/30/19.

Generally, the fee will apply to policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

Generally, the fee will apply to policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.


Other Fees: PCORI

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1. Coverage under a group health plan through two separate insurance policies – individuals will be “double counted”.

2. Sponsor of a group health plan that provides both insured & self-funded coverage can exclude individuals with the insured coverage when reporting the number of covered lives subject to the PCORI fee.

3. Fee does not apply to employee assistance, disease management or wellness programs as long as they do not provide significant medical care or treatment.

4. Fee is applicable to retiree coverage, COBRA coverage and similar state or federal continuation coverage.

5. Special rules for number of lives calculation in the first and last years the fee is in effect.

6. Fee does not permit third-party reporting or payment.

The IRS released the final rule on December 6, 2012The IRS released the final rule on December 6, 2012


All health insurance issuers will calculate the risk of their membership using a model provided by the government. States that run their own exchange can choose to also run risk adjustment; otherwise the federal government will operate it.

All health insurance issuers will calculate the risk of their membership using a model provided by the government. States that run their own exchange can choose to also run risk adjustment; otherwise the federal government will operate it.

The risk adjustment calculation will result in payments between issuers: insurers with lower than average risk will pay insurers with higher than average risk. Risk adjustment applies to the individual and small group markets, on and off the exchange, for non-grandfathered plans.

The risk adjustment calculation will result in payments between issuers: insurers with lower than average risk will pay insurers with higher than average risk. Risk adjustment applies to the individual and small group markets, on and off the exchange, for non-grandfathered plans.

Risk Adjustment is a permanent program that applies to the individual and small group insured markets.

Other Fees: Risk Adjustment


Reinsurance is a temporary program that will be in effect during the first three years of ACA's insurance market reforms (2014-2016).

Other Fees: Reinsurance

Helps fund temporary reinsurance programs (established under ACA) that would operate in each state from 2014 through 2016.

Purpose Purpose

The Reinsurance Fee is assessed on health insurers and plan sponsors for self-funded plans. This included grandfathered and non-grandfathered plans.

ImpactImpact


By statute, the aggregate national contributions for reinsurance payments are:

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YearContributions to the Reinsurance Pool

Contributions to the U.S. Treasury

2014 $10 billion $2 billion





• A proposed rule from the Department of Health and Human Services sets the Reinsurance Fee amount at $5.25 per month per enrolled, covered life in 2014.

• States may have the ability to require additional reinsurance fees.

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Proposed 2014 Monthly Reinsurance Contribution

2014 State Requirements



• Beginning in 2014, health insurers will be assessed an annual fee based on the value of health insurance premiums paid in the previous year.

• Exemptions exist for Medicare supplement plans, self-funded groups, long term care and others.

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YEAR FEE

2014 $8 billion

2015 $11.3 billion

2016 $11.3 billion

2017 $13.9 billion

2018* $14.3 billion

Total through 2020 $87 billion*Aggregate insurer fees will increase by an indexed amount each year after 2018.

Other Fees: Health Insurer Fee


Possible Impact on Insurance Premiums

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* http://www.ahipcoverage.com/wp-content/uploads/2011/11/Insurer-Fees-report-final.pdf**http://americanactionforum.org/sites/default/files/Case%20of%20the%20Premium%20Tax.pdf***http://www.treasuryandrisk.com/2012/07/17/healthcare-reform-fees-add-up

Other Fees: Health Insurer Fee Impact

Oliver Wyman, a national research firm, published a study for AHIP on “Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans,” Oct. 31, 2011.*

“Insured market premiums could increase on average by 1.9% to 2.3% in 2014.”“Insured market premiums could increase on average by 1.9% to 2.3% in 2014.”

Towers Watson, “Healthcare Reform Fees Add Up,” July 17, 2012.**

“In 2014, fees might mean additional costs equal to 1.5% of plan costs for self-funded plans.”

“In 2014, fees might mean additional costs equal to 1.5% of plan costs for self-funded plans.”

Douglas Holtz-Eakin, “Higher Costs and the Affordable Care Act: The Case of the Premium Tax.” American Action Forum. March 9, 2011.***

“Premium tax to raise premiums between 2.4% in 2014 to over 3% in 2015.”

“Premium tax to raise premiums between 2.4% in 2014 to over 3% in 2015.”


Questions?

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The Affordable Care Act’s Credits, Subsidies, Penalties and Fees This presentation is a high-level summary and for general informational purposes only