You asked: “What are Exchange subsidies and how will employers be impacted by them?”
In this issue of “What’s Up Wednesday”, we will continue on our theme of examining our clients’ common questions around the Affordable Care Act.
Quick overview: In the last two blog posts, we discussed that the Affordable Care Act (ACA) doesn’t actually require employers to provide health coverage to their employees. Instead, as of January 2014, this new law will enforce penalties to affected “large” employers if they fail to offer appropriate coverage to their full-time employees AND these employees qualify for and receive governmental assistance to purchase health insurance through an Exchange. Large employers are clarified in the regulations to be those companies with at least 50 full-time employees (employees working on average at least 30 hours per week) or 50 full-time equivalent (FTE) employees.
“Exchange” review: Before we go any further, another reminder; exchanges are expected to be state-created marketplaces where insurance plans can be easily compared and purchased. Much is still unclear at this time regarding Exchanges and whether all states will create an Exchange. It is believed that if a state does not create its own Exchange, then the federal government will establish and operate an Exchange in that state.
Eligibility for Individuals to Receive Government Assistance for Health Coverage
Not all employees are actually eligible for Exchange subsidies to assist them with paying for health care costs. In general, individuals are not eligible for government assistance if they are eligible for Medicare or Medicaid, or if they are already offered “minimum essential coverage” that is “affordable” through their employer. Employer sponsored health coverage is considered affordable as long as employees do not have to pay more than 9.5 percent of their income to purchase it.
For employees who are eligible, governmental assistance to purchase health insurance comes in the form of premium tax credits or cost-sharing subsidies.
A premium tax credit helps individuals and families purchase health coverage through an Exchange and applies to U.S. residents with household incomes of 100% – 400% of the federal poverty line (in 2013, a maximum of $44,680 for individuals and $92,200 for a family of four).
Cost sharing subsidies, on the other hand, reduce the amounts individuals or families have to pay for such items as copays, coinsurance and deductibles. These subsidies are available to individuals who have a household income no greater than 250% of the federal poverty line and individuals can be eligible for both the tax credit and cost sharing subsidies in certain circumstances.
For example: an individual whose household income is at 200% of the federal poverty line may be eligible for a premium tax credit to help contribute to his/her monthly insurance premium. That same person could also receive a cost sharing subsidy to help reduce the out-of-pocket expenses for the actual health care services.
The value of the subsidies is determined on a sliding scale, depending on the annual income of the individual/family. Both the premium tax credit and cost sharing subsides ensure that individuals do not have to pay more than a certain percentage of their income to purchase a comprehensive health insurance plan. So, a family of four with an income at 200% of the federal poverty line, or about $47,000, would pay no more than 6.3 percent of its income (approximately $247 a month) for a family policy.
Will Employers Have to “Pay” if they decide not to “Play”?
Because Exchange subsidies are available only to individuals with household incomes of at least 100 percent and up to 400 percent of the federal poverty line, employers that pay high wages to their employees may not be subject to penalties even if they do not provide sufficient coverage that meets the affordability and minimum value requirements. Because Exchange subsidies are also not available to individuals who are eligible for Medicaid, some employers may be partially immune to the penalty regarding their low-wage employees—particularly in states that elect the Medicaid expansion. However, it may be difficult for an employer to assume its low-paid employees will be eligible for Medicaid and not eligible for Exchange subsidies because an employee’s household may have more income than just the wages he or she receives from the employer. Therefore, employers who pay low wages to a large portion of their employees should consider examining their Medicaid-eligible workforce to determine the financial impact of “paying.”
In summary, employers who decide not to “play” when it comes to offering their full-time employees adequate health care coverage under ACA are not automatically subject to the penalties. Because of the eligibility requirements for individuals to obtain Exchange subsidies, there are some unique exceptions to the employer-mandate rule for some employers.
Remember to keep your questions coming in on all things ACA! Next week we are going to switch gears but would happy to return to this subject at any time. Send your questions to firstname.lastname@example.org. If you’d like email notification of all blog updates, just click the follow button at the bottom of the window.
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