Three Years after PPACA: What We Know-and Don’t

If one thing is for sure, it is that health-care reform is not cost neutral—for anyone. As provisions of the Patient Protection and Affordable Care Act—shorthanded these days as just ACA—begin to take effect, employers and individuals alike need to be aware of the taxes, fees, and penalties imposed by different parts of the law. Here are but a few of the added costs to anticipate in the coming months and years as they relate to the ACA.

One caveat: implementation of the law is a moving target. We saw evidence of that last month, when the federal government delayed—by a full year, to 2015—the launch for health-care exchanges that are key components in the effort to provide coverage to America’s uninsured. The prudent business owner will factor into company planning the likelihood that additional changes are coming.

Required Fees

Insurers or sponsors of self-insured plans are the parties directly responsible for paying most fees; however, for fully insured plans, the amount is presumed to be passed down by way of premiums.

Reinsurance Fee: Insurers and third-party administrators (on behalf of self-insured plans) are required to pay a fee to finance reinsurance payments for the individual market in years 2014 through 2016. Initial estimates show these fees will total $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016. This translates to a premium increase for employers; estimates vary as to the amount of that increase.

Funds from this fee will set up a reinsurance pool to support payments to individual market insurers that cover high-cost individuals; the end goal being to mitigate adverse selection in the onset of individual market insurance exchanges.

Annual Fee on Health Insurers: This fee applies to “any entity which provides health insurance for any U.S. health risk.” This includes entities that provide stop-loss for self-funded plans. The fee is for premiums on fully insured business, including medical, dental, and vision plans, as well as premiums on stop-loss for self-insured groups.

Based on all premiums collected in 2014 (including non-calendar year plans running from 2013 to 2014), the fee starts at $8 billion in the first year and goes up to $14.3 billion by 2018. The fee will increase in subsequent years in an amount proportional to premium growth.

Pharmaceutical Industry Fee and Medical Device Tax: Since 2011, the ACA has imposed an annual fee on certain pharmaceutical manufacturers and importers of brand-name drugs. In 2013, it establishes a 2.3 percent excise tax on the “first sale for use” of some medical devices. These provisions will impact claim expenses for employers and out-of-pocket costs for individuals.

Taxes and Penalties

Threshold for Medical Expense Deductions: Beginning in 2013, the income threshold for claiming itemized deductions for medical expenses will increase. Individuals will now only be able to claim the itemized deduction for medical expenses if the expenses are 10 percent of income—up from 7.5 percent. Those over age 65, however, can claim at the 7.5 percent income threshold through 2016.

High-Cost Plan Excise Tax: A 40 percent excise tax, also known as the “Cadillac Tax,” becomes effective in 2018 on the cost of coverage in excess of $27,500 (family coverage) and $10,200 (single coverage); increased to $30,950 (family) and $11,850 (single) for retirees and employees in high-risk professions. The tax is imposed on the “coverage provider,” which can be the insurer or the employer.

“Play or Pay”: 2014 brings the marquee individual coverage mandate and also the “Play or Pay” provision for employers. Under this rule, employers with at least 50 full-time employees that do not offer coverage will be subject to penalties if any full-time employee receives a government subsidy, or premium credit, for health coverage. The penalty is $2,000 per year per full-time employee (excluding the first 30 employees). Employers that do offer coverage, but still have employees receive the premium credit will have a $3,000 annual fine for each employee receiving the credit, up to an aggregate cap of $2,000 per full-time employee. Employers will not be subject to any fine if they offer coverage that satisfies affordability criteria, which is employee-only coverage that is 9.5 percent of W-2 earnings or less.

These taxes, fees, and penalties will affect each employer differently, based on size, location, and plan design. But as provisions become effective, employers can anticipate cost increases in many different areas. Your best insurance against running afoul of any of those provisions is to consult an insurance broker who can assist with fee/penalty projections, help you decide how to move forward with your health plan, and work with your human resources department to ensure compliance.