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Play by the rules, but what are they?

It’s been a busy holiday and open enrollment season. One of the biggest news stories centered around the new tax bill and the elimination of the “individual mandate”.

One part of this law eliminates the individual mandate for tax years beginning 1/1/2019. This means that the current law continues to be in effect for 2018. If you are currently without insurance for 2018 and want to purchase coverage for 2018, you are lucky to live in California.

The California open enrollment period continues to 1/31/2018. In fact, they have extended the enrollment date for 2/1 effective dates to January 19th. Applications received between 1/19 and 1/31 will be effective 3/1/2018.

For 2018, the annual penalty for not enrolling in a health plan is the greater of $695 for each adult and $347.50 for each child, up to $2,085 per family or 2.5% of the tax filer’s annual household income minus the federal tax filing threshold.

Following is an example from the CoveredCA website of how the penalty is calculated:

Eduardo and Julia are married and have two children under 18. They do not have minimum essential coverage for any family member for any month during 2016 and no one in the family qualifies for an exemption. For 2016, their household income is $70,000 and their filing threshold is $20,700.

  • To determine their payment using the income formula, subtract $20,700 (filing threshold) from $70,000 (2016 household income). The result is $49,300. Two and a half percent of $49,300 equals $1,232.50.
  • Eduardo and Julia’s flat dollar amount is $2,085, or $695 per adult and $347.50 per child. The total of $2,085 is the flat dollar amount in 2016.

The family’s annual national average premium for bronze level coverage for 2016 is $10,704 ($2,676 x 4). Because $2,085 is greater than $1,232.50 and is less than $10,704, Eduardo and Julia’s shared responsibility payment is $2,085 for 2016, or $173.75 per month for each month the family is uninsured (1/12 of $2,085 equals $173.75).

Eduardo and Julia will make their shared responsibility payment for the months they and their children did not have coverage when they file their 2016 income tax return.

Remember that if there is a short coverage gap of less than 3 months, one may avoid the penalty.

We are seeing small groups looking for effective dates of 2/1 and 3/1 in order to avoid the penalty as well as provide the better coverage available under group health plans.

It is important to remember that if you have been offered “affordable” health coverage by your employer, you are not eligible for a subsidy on the Exchange.

The IRS is finally catching up with those that may have been mistaken or simply lied about being offered “affordable” coverage.

Employer insurance is considered affordable under the health care law if the employee’s share of the premium for the lowest priced plan that would cover the employee only — not the employee’s family — is 9.56 percent or less of their household income. The plan must meet the minimum value standard.

The IRS compares records of an employee’s premium tax credit to the employer’s report of offering coverage. Employers provide this to the IRS on form 1095-C. The IRS notifies employers of possible penalties based on employees who received premium tax credits. The IRS began sending these notifications, called Letters 226J, in late 2017 regarding the 2015 year.

It’s important that employers respond promptly to the Letter 226J in order to avoid any penalties that may be assessed to the employer. This is where an employee might be in for an unpleasant surprise. If the employer produces documentation that the employee was offered affordable coverage, the employee will be held accountable.

It is unclear how this will effect employees of small employers (less than 50 employees). I am unaware of any reporting requirement for small employers under the ACA, but there is reporting on the CMS website as well as the fact that enrollees must report the name of their employer and the Exchanges may go back to verify if insurance was offered.

Blue Shield of CA is the primary small group employer in our area. They are currently allowing small groups to offer coverage with participation as low as 25%, rather than the historic 70-75%.

This has become quite helpful to employers who do not want to prohibit their employees from getting subsidies on the Exchange, but want to provide better benefits for their higher paid employees. They may be able to structure the contributions so they are “unaffordable” for lower paid employees, but still make benefits accessible for higher paid key employees.

One thing is for sure in this field: “nothing is so constant as change”!

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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