Ted Sarenski, CPA/PFS, of Blue Ocean Strategic Capital, LLC, presented “What CPAs Need to Know to Advise Clients on Healthcare” in October 2013. Here are the highlights of the presentation; at the end of this article is information on how to obtain the audio recording and presentation materials.
The Patient Protection and Affordable Care Act (ACA) has arrived with fanfare, challenges and no small degree of uncertainty. As we get closer to the March 31 mandatory enrollment deadline and implementation of the ACA continues, individual and business clients will naturally have questions going forward. Many are concerned or unsure about what to do mainly because of the difficulties that have marked the rollout of the new health care law.
This is an area where you can really help your clients, so here are the basics of what the ACA is all about, including coverage requirements and individual and employer mandates, with an emphasis on how you can assist with these changes.
What Is the ACA?
The ACA opened the door for all Americans to have access to health insurance. Federal and state governments, however, are not in the business of providing health insurance. Rather, the exchange created by the ACA is the platform for the sale and purchase of health insurance from private insurance companies, such as Blue Cross Blue Shield, United Health, AETNA and others.
The online portal to this new marketplace can be found at www.Healthcare.gov. The six-month window from October 1, 2013 to March 31, 2014 is the first open enrollment period for coverage under the ACA.
The ACA establishes a number of important changes to health insurance in the United States. Under this new law, there are no annual lifetime limits to benefits, and insurance companies can no longer deny coverage based on pre-existing conditions. Along with other changes for employers, there is now a 90-day maximum waiting period for employees to qualify for employer-provided coverage.
In addition to expanding benefits, the ACA limits how much a family or individual will spend out of pocket on expenses each year. Going forward, most plans must meet new ACA standards for minimum coverage, and only those plans that are maintained in their original form are grandfathered, so many current plans will not be continued.
There are four basic plan levels under the ACA: bronze, silver, gold and platinum, with various levels of premium costs, deductibles and amounts paid by the insurance company and the consumer. A fifth catastrophic plan covers the minimum requirements with the maximum high deductible and the same out-of-pocket limits as a health savings account: $6,350 in 2014. Note that this is available only to people under 30 years of age.
You should familiarize yourself with these new minimum coverage requirements. These include specific coverage for outpatient care, prescription drug benefits, emergency care, mental health services, hospitalization, rehabilitative care, laboratory services, maternity and pediatric care and wellness services.
Penalties and Subsidies
The ACA institutes a series of penalties, tax credits and subsidies to encourage participation in the health insurance marketplace.
In 2014, the law imposes a penalty of $95 for an adult ($47.50 for a child) or 1 percent of income, whichever is greater, for individuals who do not secure health care coverage. By 2016, those penalties increase to $695 for an adult and $347 for a child, or 2.5 percent of income, whichever is greater.
Households earning less than 400 percent of the federal poverty level (FPL) will get a tax credit to assist in paying health insurance premiums. The amount premium households will pay is limited to a percentage of income relative to the FPL. Households that earn from 133 to 155 percent of FPL, for example, would pay no more than 3 or 4 percent of their income, while those earning 300 to 400 percent of FPL would pay a limit of 9.5 percent of their income.
Subsidies are also available to help households that enroll in a Silver plan to limit their out-of-pocket costs not covered by insurance. These limits range from one-third of the out-of-pocket limits on high deductible health plans (HDHPs) for households with income of 100 to 200 percent of FPL, to two-thirds of the HDHP limit for households that earn from 300 to 400 percent of FPL.
A couple of points should be mentioned. First, credits are available only for insurance purchased through ACA exchanges and not through an employer-provided plan. Those credits are paid to the insurance company instead of paying it directly to individuals, and the individual pays the net to the insurer. Second, a year-end reconciliation, using Form 1095, will begin in 2015 for the 2014 tax year. As a result, if the client has changes that affect the credits for which they qualify, there will be an adjustment on the tax return.
The ACA set a number of requirements for employers. We can assist business clients on a number of points.
It should be noted that although some extensions have been granted, employers of 250 people do not have an extension to 2015 to comply with ACA rules. Employers of 50 or fewer full-time equivalent employees (FTEs) can use the new Small Business Health Options Program (or SHOP, accessible at www.healthcare.gov), which allows businesses to compare prices, coverage and quality of plans.
Although SHOP starts in 2014, it will initially offer just one plan, and the small business health care tax credit will be available in 2014 only for plans purchased through this program. In 2016, SHOP will be available to employers with up to 100 FTEs.
Employers with fewer than 25 FTEs, who pay average annual wages below $50,000 and who contribute 50 percent or more to employees single insurance premiums, will qualify for a tax credit of up to 35 percent. Those with 10 or fewer FTEs, who pay less than $25,000, will qualify for a tax credit of up to 50 percent. Those health care tax credits expire in 2016.
Employers should have provided employees with Model Exchange Notices by October 1, 2013, and if that has not been done, you should encourage businesses to do this immediately. There are two required forms: a model notice for employers who offer health insurance coverage and one for those who do not. Copies of those Department of Labor notices can be accessed at www.DOL.gov/ebsa/healthreform/index.html.
Your Role as the Trusted Adviser
During the very helpful question and answer portion of the presentation, our online audience discussed a number of other topics relating to the ACA, including what happens if an employee loses a job and coverage after the closing of open enrollment, how family income is calculated, and the possibility of additional extensions to various parts of the law.
Although considerable controversy still surrounds the ACA, a number of changes will no doubt be made to the law that will present complex challenges to individual and employer clients. As our clients’ trusted adviser, we are uniquely positioned to offer advice and assistance. To do that, you should stay current on the requirements and benefits of this new health care law.
“What CPAs Need to Know to Advise Clients on Health Care” was presented on Oct. 8, 2013. Members of the PFP Section have full access to the audio recording and presentation materials.
Health Care and Affordable Care Act Resources
- Broadridge Advisor, a client communication and education tool provided to PFP Section members inclusive of CPA/PFS credential holders, has created a Health-Care Resource Reform Centerthat provides easy access to presentations, client alerts, consumer materials and FAQs to assist members in educating their clients.
- Members of the PFP Section, inclusive of CPA/PFS credential holders, have free access to download The CPA’s Guide to Financing Retirement Healthcare by James Sullivan, CPA/PFS, to address health care options during retirement, including Medicare and payment options. CPA2Biz offers a printed version of this guide for sale under Unlocking the Mystery of Healthcare Planning for Retirement.
- The AICPA offers a Health Care Reform Resources Center for its members to assist you in navigating the complexities of the health care reform provisions so you can make informed decisions for your clients and organizations.