The Affordable Care Act (ACA), a.k.a. Obamacare, has been mired in controversy and change from the day it was signed into law. It has caused many businesses to address the following.

  • Increased federal and state regulation
  • Confusion on implementation
  • Determining full-time, part-time, full-time equivalents (FTE) or variable employees
  • New IRS forms to file
  • IRS penalties and fees

President Obama has issued more than 50-plus executive orders changing and implementing the ACA.

Minimum Essential Coverage

The ACA enabled the federal and state governments to establish health insurance exchanges that insure individuals and families with minimum essential coverage plans. Individuals on Medicaid receive the coverage for free (the taxpayer pays the premiums), low-income individuals earning up to about $50,000 annual income receive subsidies to supplement their premiums, and individuals earning more than four times the poverty level pay the annual premiums that are required to purchase different health plans.

The federal and state electronic health insurance exchanges had multiple difficulties in implementation and created problems when enrolling the individuals seeking coverage. Maryland later adopted the Connecticut software for enrollment and reenrolled all the individual policies the following year.

Who Gets What

Small businesses, which are primarily sole proprietors or have up to five employees, have moved into these individual plans because the plans have been cheaper than the small group plans they had been purchasing for their employees. However, the plans are cheaper because of huge deductibles, such as the $6,500 deductible in the Bronze plan.

Larger small businesses that decided to remain in groups, effective Jan. 1, 2015, are able to participate in the Small Business Health Options Program (SHOP) and receive tax credits to reduce the cost of their employees’ coverage if the average salary of the employees is less than $50,000.

Some businesses with fewer than 50 employees had been reimbursing their employees for health care costs and faced significant tax penalties beginning July 1, 2015.

In 2015, employers with more than 50 full-time or FTE employees are subject to “pay or play” rules. The employer has to offer coverage to substantially all full-time employees and their dependents. If the employer fails to do so, the monthly penalty assessment on the employer is substantial.

Requirements and Fees

An employer with fewer than 250 W-2 forms is required to report the aggregate cost of employer-sponsored group health plan coverage on the employees’ W-2 forms. Failure to do so results in a penalty of $30 per W-2 form.

The IRS created Code Sections 6055 (self insured health plans) and 6056 (fully insured health plans for employers with at least 50 employees). If the business fails to provide information to the IRS about the health plan coverage it offers (or does not offer), it can be penalized $100 for each return or statement.

Other fees created by ACA include the Patient-Centered Outcomes Research Institute (PECORI fees) and Reinsurance fees. The PCORI fees and Reinsurance fees must be paid to stabilize premiums for coverage in the individual market.

In 2018, the employers who have been providing high-cost health insurance, the “Cadillac Plans,” will be taxed a 40% excise tax to encourage employers to choose lower cost health plans for their employees. Unions particularly are fighting to defeat this provision in the ACA.

Uncertain Future

The passage of the PACE Act in October 2015 has amended the definition of small business from 50 FTE to 100 FTE. However, the change was left to the discretion of the states, and Maryland will continue to define small business as 50 FTE employees in 2016.

Individual rate increases, to be effective in 2016 in Maryland, and that have been approved by the Maryland Insurance Commissioner, are as high as 26% for Carefirst, 10% for Kaiser and 9.5% for Evergreen. Carefirst actually filed for a 40% increase due to the loss of $100 million in the individual products insuring older and sicker patients. This increase may mean that some individual subscribers may convince their employers to insure them under small group plans again.

ACA deductibles are on the rise in 2016 to mitigate the cost of the individual plans. Low-end Bronze plans, with the cheapest premiums, will have a deductible jumping from $5,000 to $6,500. The Silver plan, with the most comprehensive coverage, will have a jump in deductibles from $3,500 to $6,500.

Due to the $500 million cuts in Medicare brought by the funding of the ACA and a reduction in Medicare reimbursements to physicians, individual practitioners and smaller physician practices are merging into larger practices or directly with hospitals. The growth of urgent care centers are rushing to fill the void and expense of vanishing primary care physicians and overutilized emergency rooms at hospitals.

Businesses and insurance companies will need to continue with an uncertain future of the ACA. With a new president and Congress, it may end up being repealed. Even if not repealed, ACA will continue to change dramatically over the next several years.

Gordon M. Mumpower, Jr., is president of Commercial Insurance Managers Inc. and can be reached at [email protected] or 410-799-2142.