A lot of the brokers who work with AHCP focus on both group and individual health insurance. Sure, most of you also market a full range of voluntary and supplemental products to your clients and prospects, but there’s no denying that health insurance is at the top of everyone’s priority list.
For that reason, we thought it would be helpful to highlight some of the biggest concerns your clients are likely to have this fall. While you may not offer detailed advice on their tax or legal questions, this tutorial should help you avoid the “deer in the headlights” look if they touch on a topic you don’t feel familiar.
Ever since the health reform law was passed, agents and employers have been confused about the definition of “small group” and “large group.” Much of the confusion springs from the fact that different provisions of the law have different cutoffs for small and large group, and they also have different ways of counting employees.
- The small group tax credit offers financial assistance to groups with up to 25 full-time equivalent employees, counting part-timers as a fraction of a full-time employee and using a 40-hour-per-week standard as full-time.
- The employer mandate defines an applicable large employer as one with 50 or more full-time equivalent employees, also counting part-timers as a fraction of a full-time employee but this time using a 30-hour-per-week standard as full-time.
- And the market rules, which are the rules insurance companies have to play by when designing and pricing their health plans, define a small employer as one with 1 to 50 total employees, counting each employee as one whether they work full-time or part-time hours.
Now, to make things even more confusing, the definition of small group is changing for purposes of the market rules. Starting in 2016, a small group will be one with 1 to 100 total employees. This means that companies with 51 to 100 employees, which have traditionally been considered large employers, will now be subject to the small group rules, specifically the essential health benefits requirement and the modified adjusted community rating methodology.
The good news is that there is now a bipartisan bill in both the House and the Senate that, according to the National Association of Health Underwriters (NAHU), “would give states the option to define their small group size, rather than the one-size fits-all national standard definition.” This is important, NAHU explains, because changing the definition “without any transition will adversely impact choice for medium-sized employers. Many employers will lose the coverage that they have had in the past because insurers do not participate in the small group market in their state.” A vote on these bills is expected soon.
The Employer Mandate
It’s an oldie but a goodie: the employer mandate. The reason this topic is still on everyone’s mind is because it continues to change. In 2013, it was delayed by one year. In 2014, we received the final rules from the IRS. In 2015, the mandate went into effect, but “transitional relief” helped some employers avoid penalties, at least for a while. And in 2016, the transitional relief is going away and all applicable large employers will be subject to the shared responsibility requirements.
What you need to know is that most of the transition relief ends at the close of 2015 for employers with calendar-year plans and on the plan renewal date in 2016 for non-calendar-year plans. After that point, any applicable large employer, defined as having 50 or more full-time employees (including full-time equivalents), will need to offer coverage to at least 95% of its full-time employees working 30 hours or more per week or face an across-the-board penalty of $2,000 on each of its full timers with the first 30 excluded.
Companies that do offer health coverage to their full-time employees could still be hit with a $3,000 penalty for each full-time employee who receives a premium tax credit in the individual market if the company’s plan is either unaffordable or fails to provide minimum value. Both of the penalties are prorated by month and are not tax deductible.
Employer Reporting Requirements
By far the most popular topic this fall (if popular is the right word) is the new reporting requirement under section 6055 and 6056 of the tax code. There are actually two reporting requirements: one that applies to self-insured plans and one that applies to applicable large employers. Here’s the quick summary:
- Section 6056 of the tax code, created by the Affordable Care Act, requires applicable large employers to file an information return with the IRS and provide a statement to each full-time employee about the coverage offered.
- Section 6055 of the tax code, also created by the Affordable Care Act, requires “providers of minimum essential coverage” (insurance companies and self-insured plans) to file an information return with the IRS and provide a statement to each covered member about the health coverage they and their dependents enrolled in.
The IRS uses this information to enforce the employer and individual mandates and to determine eligibility for a premium tax credit.
To satisfy the requirements under section 6056 of the tax code, an applicable large employer must provide a form 1095-C to each full-time employee by the end of January and file a form 1094-C with the IRS by the end of February (or end of March if filing electronically).
To satisfy the requirements under section 6055 of the tax code, a self-insured small employer (not subject to the employer mandate) must provide a form 1095-B to each full-time employee by the end of January and file a form 1094-B with the IRS by the end of February (or end of March if filing electronically). A self-insured applicable large employer (subject to the employer mandate) simply completes forms 1094-C and 1095-C, as required by section 6056, but fills out an additional section of the 1095-C to satisfy both reporting requirements.
While you’ll want to stop short of providing tax advice to your clients, it’s not a bad idea to find a good administrator who can help them with their employer reporting requirements.
The Cadillac Tax
The so-called “Cadillac tax,” a 40% excise tax on high-valued health plans, doesn’t go into effect until 2018, but larger employers are already starting to develop strategies to help them deal with this potentially devastating surcharge. The tax actually applies to insurance companies and self-insured plans, but everyone expects carriers to pass on the extra cost to their fully-insured clients in the form of increased premiums.
It seems like there are new articles almost every day about the Cadillac tax. Some believe it will cause employers to water down their health benefits; others believe it could discourage small employers from continuing to offer group health coverage to their employees.
The Individual Mandate
In 2016, the amount people will pay for going without health insurance is increasing once again. The new tax penalty will be the greater of $695 per adult and $347.50 per child with a cap of $2,085 per family or 2.5% of the applicable income, defined as household income minus the family’s tax filing threshold.
As the penalty continues to increase, more and more people who, until now have remained uninsured, will consider purchasing coverage which is good news for brokers who sell individual health. And, of course, when you talk with prospects about their health insurance needs, you’ll want to mention the supplemental insurance and any other products you offer to help fill the gaps in their health coverage.
Premium Tax Credits
Whether it’s required or not, many people would be unable to afford the ever-increasing health insurance premiums without some sort of financial assistance. As we all know, the Supreme Court ruled that the ACA’s controversial premium tax credits are available in every state, whether the state established its own exchange website or not, so your individual clients and prospects can apply for a tax credit during this year’s open enrollment period. And with all of the publicity surrounding the court case, it’s likely that more people will be at least generally aware of the tax credits this year.
The individual mandate and the tax credits work hand in hand. People hear about the penalties they may have to pay if they don’t have insurance, and that encourages them to shop for coverage. When they do start exploring their options, those that qualify for a tax credit realize that the policy won’t cost them an arm and a leg. As a broker, talking about the mandate and the tax credits together will help people see that the cost of purchasing health insurance may be not be any higher than the penalties they’ll pay if they choose not to.
The Presidential Election
The closer we get to November 2016, the more your clients will want your opinion on what’s going to happen. The correct answer is “I don’t know.” Why? Because if you act like you do know, then your clients will want to adjust their plans based on your opinions, and some will want to postpone any action at all in anticipation of the law being repealed and replaced. We’ve already learned that the wait-and-see approach is not a good strategy. Every time it looked like the ACA might go away, whether because of a presidential election, Supreme Court case or government shutdown, it’s managed to survive.
The best advice we can give you is to tell your clients that there are a lot of different opinions out there, but regardless of what any candidate says, the President cannot single-handedly repeal, replace or even make significant changes to the health reform law. While we should all keep an eye on the various campaigns and support the candidate that we feel would do the best job leading our country, we should move forward with the assumption that the Affordable Care Act is here to stay. If something changes, that’s the time to rethink our plans.
These aren’t the only topics your clients will be interested in this fall, but we hope you found this short tutorial beneficial. As we enter the busy fourth quarter, AHCP will continue to provide you with timely information and tools to keep you informed about any important developments surrounding health reform. We can also help you round out your portfolio of products and provide tips on how to maximize your sales during the very short open enrollment window. Contact AHCP today and let us know how we can help you be more successful.