Understanding Affordable Care Act: Healthcare Trilogy, Part 1

Terminology Related to the Affordable Care Act

There is no doubt that the Affordable Care Act is complex! Below is a list of terms that can assist you in determining how this new law affects you!

Individual Shared Responsibility Penalty Beginning in 2014, individuals without minimum essential coverage for themselves and their dependents will be subject to a penalty. The penalty is the larger of a base amount ($95 per person up to 3 persons for 2014, $325 per person for 2015, and $975 per person for 2016 and after) or a percentage of household income (1% for 2014, 2% for 2015, and 2.5% for 2016 and after).

Minimum Essential Coverage Coverage in Medicare Part A, Medicaid, CHIP, certain other government programs, an eligible employer sponsored plan, a health plan offered in a state’s individual market, a grandfathered plan, or plans recognized by the IRS.

Premium Assistance Credit Beginning in 2014, certain low income taxpayers may receive a refundable income tax credit to help pay for health insurance coverage from a qualified plan obtained through their state marketplace. The individual can elect to have the payment sent directly to the insurer.

Adjusted Household Income A taxpayer’s modified adjusted gross income increased by the MAGI of individuals allowed a personal exemption for the tax year increased by pretax salary reductions for contributions for health insurance.

Employer Shared Responsibility Penalty Beginning in 2015/2016, Large Employers may be subject to a penalty if they do not offer their full-time employees and their dependents the opportunity to enroll in affordable minimum essential coverage and pay no less than 60% of the total allowed benefit costs under the plan.

Large Employer An employer that employs an average of 50 or more (100 for 2015) full-time employees including full-time equivalents of all other employees. A large employer must provide minimum essential coverage that is affordable to 70% of employees beginning in 2015 and 95% of employees beginning in 2016. Large Employers must obtain insurance through large group market (insurance brokers) or self-insured plans.

Affordable Coverage A health plan with a cost of not more than 9.5% of the employee’s household income is deemed affordable coverage. For individuals purchasing their own health plan, 8% of the adjusted household income is applied.

Small Employer An employer that employs an average less than 50 (100 for 2015) full-time equivalent employees. A Small Employer can obtain insurance through large group market (insurance brokers), self-insured plans, or a Small Business Health Options Program (SHOP). The SHOP is expected to open in November 2014.

Small Employer Health Insurance Credit A credit to encourage Small Employers to pay a portion of their employee’s health insurance costs. In 2014, Small Employers who purchase coverage through the SHOP marketplace are eligible for a credit up to 50% of the premium.

Full-Time Employee and Full-Time Equivalent Value An employee that works at least 30 hours per week (130 hours per month) for any calendar month. The Full-Time Equivalent Value is determined by dividing the total monthly hours of all other employees by 120.

Terminology Related to the Health Insurance Industry

Annual Limits The maximum amount of benefits an insurance company will pay for or cover in a year under a health insurance plan. Under the ACA this amount cannot be limited.

Lifetime Limits The maximum amount of benefits an insurance company will pay for or cover in a lifetime. Under the ACA this amount cannot be limited.

Bronze Plan 60%, Silver Plan 70%, Gold Plan 80%, Platinum Plan 90% The actuarial value percentage of coverage that a health insurance plan (named by four metals) provides. The individual is responsible for the remaining uninsured medical costs.

Coinsurance The percentage of allowed charges that individuals must pay for covered medical expenses AFTER a plan or policy’s deductible has been met.

Co-payment A flat dollar amount that an individual must pay when visiting a health care provider that is usually paid at the time of the service.

Deductible The dollar amount that individuals must pay for health care services each year before the insurer begins paying claims under a plan or policy. Some services must be covered without a deductible applying.

Grandfathered Plan A health plan or health insurance coverage that existed prior to March 23, 2010 that has continuously provided coverage to any individual since that date and has not done anything that would cause it to lose its grandfathered status. Grandfathered plans are exempt from many changes required by the ACA.

Pre-Existing Condition A health condition (mental or physical) that was present before the effective date of health coverage (group or individual coverage) whether or not any medical advice, diagnosis, care or treatment was recommended or received before that date. Under the ACA, pre-existing conditions cannot be excluded from coverage after 2013.

Waiting Period The period of time that must pass before health insurance coverage can become effective for an employee. For group health plan and group health insurance coverage, no waiting periods in excess of 90 days are allowed after 2013.

Are You Exempt from the Individual Shared Responsibility Provision?

Under the Affordable Care Act, the individual shared responsibility provision requires taxpayers to:

  • Have minimum essential coverage, or
  • Have an exemption from the responsibility of minimum essential coverage, or
  • Make a shared responsibility payment (penalty) when you file your 2014 federal income tax return in 2015.

The chart below from the IRS website (http://www.irs.gov/uac/ACA-Individual-Shared-Responsibility-Provision-Exemptions) shows a sampling of available exemptions and how to apply them.

For more information, contact Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your accounting, tax (personal & business) and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kenmore, Mill Creek and surrounding areas.

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