For tax years 2010 – 2013, eligible small employers are entitled to a 35% tax credit for health insurance premiums they pay for employees. Tax-exempt entities are eligible for a 25% credit.
To qualify for the credit, an employer must:
Employers with less than 10 FTEs and average annual wages of $25,000 or less are eligible for the full credit. There is a phase-out of the credit for employers that have between 10 and 25 FTEs or average annual wages between $25,000 and $50,000.
All employers calculate the credit using IRS Form 8941, Credit for Small Employer Health Insurance Premiums. Taxable employers claim the credit on their federal tax return and can apply the credit to both regular and alternative minimum tax. Tax-exempt employers claim the credit by filing Form 990-T, Exempt Organization Business Income Tax Return, and can receive a refundable credit up to the amount of the employer’s payroll taxes.
In 2014, the credit will continue to be available, but with significant modifications. Employers will only be eligible for the credit if they purchase health insurance through the new Small Business Health Options Program (SHOP). The SHOP is one component of the internet-based health insurance marketplace, also known as an exchange, which launches on Oct. 1, 2013.
Other upcoming changes include:
This is a reminder that the deadline to distribute the Annual Notice of Creditable Coverage required under Medicare Part D is rapidly approaching. This notice informs participants whether the prescription drug coverage offered under your health plan constitutes creditable or noncreditable coverage. As the Medicare Part D annual enrollment period now runs from October 15 to December 7, you must distribute the notices before October 15.
Employers who sponsor a health plan offering prescription drug benefits must provide an annual notice to all Medicare-eligible participants that explains whether the prescription drug benefits offered under the plan are at least as good as the benefits offered under the Medicare Part D plan. The only employers exempt from this requirement are those that establish their own Part D plan or contract with a Part D plan.
The Centers for Medicare and Medicaid Services (CMS) has posted forms and instructions for providing this notice. The forms were last updated in 2011. They are available, both in English and Spanish.
The Notice of Creditable Coverage must be provided:
Because it is difficult to keep track of which employees (and their spouses or dependents) are eligible for Medicare benefits, you may want to consider making the Notice a part of your new-hire enrollment materials and your annual open enrollment materials. If distributed before October 15, this should take care of the first two bullet points above.
Remember that you must also submit a Disclosure to CMS Form each year, reporting whether your prescription drug coverage is creditable or non-creditable. This form must be submitted electronically within 60 days of the beginning of each plan year (i.e. if you are on a calendar year, you must submit the form by March 1, 2014).
CMS recently issued a list of FAQs regarding the Federally Facilitated Marketplace (FF-SHOP aka Marketplace aka Exchange) and how they will handle the issue of tobacco rating for medical plans.
Q1: If an employee or an employee’s dependent obtaining coverage through the FF-SHOP uses tobacco, how can the employee or dependent avoid the tobacco premium rating surcharge?
A1: The FF-SHOPs will not impose the tobacco rating surcharge at the time of initial enrollment (or re-enrollment) if the employee or dependent, as applicable, agrees at the time of enrollment (or renewal or re-enrollment) to participate in a wellness program meeting the standards of section 2705 of the Public Health Service Act, such as a tobacco cessation program.
Q2: If an employee or enrollee’s dependent who is already enrolled in coverage through the FF-SHOP decides to participate in a wellness program in the middle of the plan year after initially declining to participate, will his/her premium be reduced immediately or retroactively to the time of enrollment?
A2: In the FF-SHOPs, an employee’s or employee’s dependent’s premium will be established for a period of one year upon enrollment, renewal, or re-enrollment of that employee or dependent. At that time, the enrollee or dependent can agree to participate in a wellness program to avoid the tobacco premium surcharge. If the employee or dependent does not agree at that time to participate in such a wellness program, the employee/dependent will have an opportunity to avoid the tobacco premium surcharge upon renewal or re-enrollment.
As a business owner, it is important to understand how the Affordable Care Act may affect your business. However, with so many misconceptions about about Health Care Reform works, this can be difficult.
A common myth is that business owners will be fined if they do not provide notification to their employees about the new Health Insurance Marketplace.
If your company is covered by the Fair Labor Standards Act (FLSA), you must provide a written notice to your employees about the Health Insurance Marketplace (aka Exchange) by October 1, 2013, however the Department of Labor has announced is no fine or penalty currently under the law for failing to provide this notice.
For more information on the Exchange notice, please contact our office or review a previous post on this topic.
The following is a frequently asked question recently released by CMS regarding the Marketplace and Income Verification for the purpose of advance payment of the premium tax credit and cost sharing reductions.
Q: Will Marketplaces verify the income of consumers as part of the eligibility process for advance payments of the premium tax credit and cost sharing reductions?
A: Yes. The Marketplaces will use data from tax filings and Social Security data to verify household income provided on an application, and in many cases, will also use current wage information that is available electronically. The multi-step process will begin when an applicant applies for insurance affordability programs (such as the advance payments of the premium tax credit and cost sharing reductions) through the Marketplace and affirms or inputs their projected annual household income. The applicant’s inputted projected annual household income is then compared with information available from the IRS and Social Security Administration (SSA). If the data submitted as part of the application process cannot be verified using IRS and SSA data, then the information is compared with wage information from employers provided by Equifax. If Equifax data does not substantiate the inputted information, the Marketplace will request an explanation or additional documentation to substantiate the applicant’s household income.
When documentation is requested, the Affordable Care Act and implementing regulations specify that if an applicant meets all other eligibility requirements, he/she will be provided with eligibility for advance payments of premium tax credit and cost sharing reductions based on the inputted projected annual household income for 90 days (which may be extended based on good faith), provided that the tax filer attests to the Marketplace that he/she understands that any advance payments of the premium tax credit paid on his/her behalf are subject to reconciliation. If documentation is requested and is not provided within the specified timeframe, regulations specify that the Marketplace will base its eligibility determination on IRS and SSA data, unless IRS data is unavailable. In this case, the Marketplace will discontinue any advance payments of the premium tax credit and cost sharing reductions.
Please note that applicants for advance payment of the premium tax credit and cost sharing reductions must attest, under penalty of perjury, that they are not providing false or fraudulent information. In addition to the existing penalties for perjury, the Affordable Care Act applies penalties when an individual fails to provide correct information based on negligence or disregard of program rules, or knowingly and willfully provides false or fraudulent info. Moreover, the IRS has said they will reconcile advance payments of the premium tax credit when consumers file their annual tax returns at the end of the year, and it will recoup overpayments and provide refunds when appropriate, subject to statutory limits.
Small businesses may participate in several federally facilitated Small Business Health Option Program (SHOP) exchanges – for example, if an employer has offices in different states – but each small employer is limited to establishing one FF-SHOP account per state.
If an employer has worksites in several states, it may (1) establish an account in each state where the company has a primary work location for workers; or (2) it may establish an account in one state and use that to provide health insurance for all members of the group. If it does establish accounts in several states, it must submit a separate report on the participation rate to each FF-SHOP.
An employer is considered to be a small employer eligible for SHOP coverage if its average number of employees is 50 or fewer. Employers participating in the FF-SHOP must offer coverage to all full-time employees, defined as those working 30 or more hours per week on average.
The SHOP system is a way for employers to help satisfy health reform’s mandate for individuals to obtain coverage or pay extra taxes. Furthermore, most (34 out of 50, not including the District of Columbia) states will house (but not run) FF-SHOP exchanges.
In March 2013, the CMS released final rules that described the 70% participation requirement for small employers. Under those rules, insurers may deny coverage to small employers that fail to meet the minimum participation requirements.
Minimum Participation
Insurers may impose a 70% workforce participation requirement for small employers to partake in FF-SHOP coverage. In the first open enrollment period (Nov. 15 through Dec. 15, 2013), however, workers can obtain coverage on an interim basis even if an employer falls below the minimum participation amount, according to CMS. On renewal one year later, however, insurers will be able to invoke the participation requirement. State law may impose a different minimum participation requirement. Small employers are required to keep records of coverage held by workers to substantiate minimum participation and to ensure that workers do not have double coverage.
Other Highlights
Here are a few other policies small employers will want to know when considering group coverage with an FF-SHOP:
With the open enrollment period for the Exchange beginning October 1, 2013, many questions are beginning to surface regarding how premium subsidies will work as individuals start to evaluate all of their options available to them.
Q1: It sounds like individuals who choose to buy health insurance on the Exchange will have to pay the full monthly premium for the coverage they choose and subsidies will be paid through tax credit that are received annual as a tax refund. How can a low income person who is living paycheck to paycheck afford this?
A: When consumers apply for a plan on the Exchange (aka marketplace), you will be asked to provide income information to determine if you are eligible for a premium tax credit (aka subsidy). A subsidy will be available to people with incomes up to 400% of the federal poverty level ($45,960 for an individual in 2013 or $94,200 for a family of four).
If you qualify for the subsidy, consumers can opt to receive their tax credits in advance, and the exchange will send the money directly to the insurer every month. This subsidy will reduce the amount you owe up front on your medical premium. You can also choose, instead, to receive your credit when you file your taxes the following year.
It is important to estimate your income as accurately as possible and to contact the Exchange during the year if you find out that you are making more or less than expected. When completing your 2014 taxes, your estimate will be reconciles with what you actually earned. If you have received more than you were due, you could have to repay those amounts.
Q2: What happens if I do not pay my premium in a timely manner after I have purchased insurance on the Exchange? If I am terminated from the policy, will I be able to have it re-instated?
A:Consumers who are receiving premium tax credit for coverage on the Exchange will have a 90 day grace period to catch up on late premiums. Other consumers who do not receive a subsidy may get more or less time, depending on the Exchange rules. Once the grace period has passed, consumers will generally have to wait until the next annual open enrollment period in the fall to re-enroll in coverage. Please note though, if an individual goes uninsured for more than 3 months, they could be assess a penalty for not having insurance coverage of up to $95, or 1% of income in 2014, whichever is greater.
Please contact our office for assistance with evalutating your options and obtaining coverage through the Exchange.
Imagine you are home on a weeknight and suffer a burn while cooking dinner. You are unsure if the burn is severe enough to seek care at your local Urgent Care or Emergency Room, but want some advice on it.
Did you know that most insurance companies offer a 24/7/365 nurse hotline as an added benefit with your medical insurance coverage? With just one free call, you can speak with a team of registered nurses who can offer you advice on if you should seek additional medical care or provide you with at home remedies to try. Most carriers even have access to an audio library where you can listen to a variety of pre-recorded information about various illnesses/conditions.
Please contact our office for more information on if your insurance carrier offers this service.
The Internal Revenue Service (IRS) launched a new website aimed at clarifying many of the tax provision of the Patient Protection and Affordable Care Act (PPACA). The site (www.irs.gov/aca) aims to provide a tool to more clearly explain responsibilities and potential benefits to individuals, employers, and other organizations including insurers and others affects by the law’s tax changes.
Please contact our office for more information on how you can prepare for the many changes coming with Health Care Reform in 2014.
Employers must provide a creditable or non-creditable coverage notice at least once a year to all Medicare eligible individuals who are covered under, or who apply for, the group’s prescription drug plan. This notice must be provided to both active employees and retirees who are eligible for Medicare Part D.
The Medicare Modernization Act mandates that all employers offering prescription drug coverage disclose to all Medicare eligible individuals with prescription drug coverage under the plan whether the coverage is “creditable”. This information is essential to the Medicare eligible’s decision whether to enroll in a Medicare Part D prescription drug plan.
Employers are required by the Centers for Medicare and Medicaid Services (CMS) to provide creditable coverage at least once a year and at the following times:
This notice does not need to be a separate mailing and can be included with other plan information materials either printed or electronic. Employers are required to provide this notice and to provide CMS with your plan’s creditable or non-creditable coverage status annually via online form within 60 days of the beginning of each plan year.
Please contact our office for assistance in determining if your prescription drug plan is considered creditable or non-creditable coverage or if you need a copy of the model notice for employees.