Healthcare Reform 2014: Mandated Coverage, Insurance Exchanges, and Employer Requirements

3 of 5 in Series: The Essentials of Healthcare Reform

Some parts of the Affordable Care Act have already been implemented. However, several of the more groundbreaking provisions of the healthcare law — some of which will affect the greatest number of Americans — won't go into effect until 2014. In the interim, federal and state officials are working with leaders in the health and insurance industries to restructure our nation's healthcare system.

That restructuring means most Americans will be required to have health insurance and most businesses will be required to offer it to their employees. It also means the creation of another kind of insurance plan called a health insurance exchange.

Healthcare reform mandates coverage for most

The government will require most Americans to have health insurance by 2014. The government has enacted this provision as a way to get healthy people who don't feel the need to pay for coverage to buy insurance. That way, the healthy people can help fund the cost of people who require more medical care.

Several states filed, and lost, a suit against the federal government saying that it is unconstitutional to make individual citizens buy health insurance.

If you don't have coverage and you're not in one of the groups that is an exception to the rule, you'll pay a penalty. You may not be required to purchase health insurance if you

  • Face financial hardships.

  • Have been uninsured for less than three months.

  • Have religious objections.

  • Are American Indian.

  • Are a prison inmate.

  • Are an undocumented immigrant.

If you're penalized, the amount you'll be fined will go up each year for the first three years. In 2014, you'll pay $95 or 1 percent of your taxable income, whichever is greater. In 2015, the fine will be $325 or 2 percent of taxable income, and in 2016 the penalty will be $695 or 2.5 percent of income. Each year after 2016, the government will refigure the fine based on a cost-of-living adjustment.

To help you meet the cost of mandated insurance, the government will offer premium credits and cost sharing subsidies if you and your family meet certain income guidelines and if you enroll in one of the new state-run insurance exchanges.

If your income falls between 133 and 400 percent of the federal poverty level (FPL), you could receive premium credits that will lower the maximum amount of premium you have to pay for your coverage.

For example, if your income is 133 percent of FPL, you won't have to pay more than 2 percent of your income in premiums. At the high end of the range, if your income is 400 percent of FPL, your premium costs won't be more than 9.5 percent of your income. FPL is $10,830 for an individual and $22,050 for a family of four.

You could also receive a cost-sharing credit to help reduce your out-of-pocket expenses for deductibles and co-pays. Like the premium credits, the amount of cost-sharing credit you receive will be based on your income in relation to FPL.

Insurance exchanges will be additional marketplace options

Basically, the new healthcare reform law provides federal funding for states to establish American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges.

Whether you're an individual or a small business owner, these exchanges are supposed to serve as an easy, cost-affordable way for you to get health-insurance for yourself or your employees.

From a consumer perspective, the exchanges are about power in numbers. For instance, the American Health Benefit Exchanges are supposed to provide access to lower cost insurance plans for the uninsured because they allow individuals to join together to create a large pool of insured people. Usually, in the insurance world, the more people who are insured under any one plan, the lower the premiums for that plan.

The SHOP exchanges are where small business owners can join forces with others to try and get the best coverage at the best price for themselves and their workers. The SHOP marketplace is currently delayed until November 2014, but businesses with 50 or fewer full-time employees can apply for SHOP plans and tax breaks using a paper application for now. SHOP plans are currently open to employers with 50 or less full-time employees. In 2016 they will open to employers with 100 or less full-time employees.

Even if you're offered insurance through your employer, you could still opt to purchase insurance through the individual exchange if your income meets certain FPL guidelines.

Both the individual and small business exchanges are supposed to give you access to plans that have four tiers of benefits: bronze, silver, gold, or platinum. There will also be a catastrophic plan for people under 30 and for those who are exempt from mandated coverage.

States don't have to set up the exchanges. If a state chooses not to, the federal government can come in and create them. States that do opt for exchanges will decide whether they'll be run by a government or not-for-profit entity. States can also establish regional, interstate exchanges if they choose. States must make the exchanges available to consumers via call center, but it's up to the states to create additional avenues of communication, such as web access.

Many employers face penalties if they don't offer health insurance

Originally, under the Affordable Care Act, businesses of more than 50 employees were required to begin offering health insurance by 2014 or risk penalty. That mandate has now been delayed until 2015.

  • Subsidies serve as insurance enticement: Even if you don't have to insure your employees, the government is going to try and coax you into it with a series of subsidies to help you pay your premiums. If you purchase insurance for your employees through SHOP, you might be eligible for a tax credit equal to up to 50 percent of the cost you pay toward your employees' health insurance. That credit will be paid out for two years.

  • Penalties for not insuring: Beginning in 2015 if you don't offer health insurance and you're an employer with more than 50 employees, if one of those employees is a full-timer who receives a premium subsidy because he participates in an exchange, you'll have to pay a fee of $2,000 for every full-time employee you have (although penalties for the first 30 are waived).

  • Penalties even if you do insure: Even if you offer health insurance, if one or more of your full-time employees chooses not to participate in your insurance plan and, instead, opts for an exchange plan that allows them to receive a premium credit, you could still be penalized up to $3,000 for each employee receiving a subsidy.

    You can avoid being penalized for the number of employees who receive insurance through the exchange by providing each one of them with a free choice voucher to help offset the cost of their premiums.

  • Automatic enrollment required for large employers: If you employ more than 200 employees, the new law will require you to automatically enroll them in your insurance plan. However, an employee may choose not to participate.

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