The Nitty-Gritty of the ACA

By:
Daniel G. Mazzola, CPA, CFA
Published Date:
Mar 1, 2014

The Affordable Care Act has received a lot of political attention, regarding the everything from controversial mandates to difficulties signing up to political opposition. But after a Supreme Court ruling, it’s undeniably here, and the more they know, the more CPAs can help their clients. Below is a brief summary and some examples of the major provisions of the ACA.

Among the most critical provisions of the ACA is the imposition of open enrollment which effectively forces insurers to accept any and all applicants for coverage. The law further limits the ability of carriers to charge applicants different prices based on the expected health risks, permitting them to vary prices solely on the basis of family size, domicile, an applicant’s age and use of tobacco.

Much has been made about what the ACA does and does not include, or mandate. Here's a handy summary:

  • Health insurance is “guaranteed issue,” meaning no one can be turned down for coverage.
  • Premiums will not be based on health status, gender, occupation or medical claims history.
  • Insurers can no longer deny coverage due to pre-existing conditions.
  • Insurers must cover certain preventive services (check-ups) at no extra cost to enrollees.
  • Insurers may not cancel coverage if you become sick or due to an unintentional error on an application.
  • Insurers are banned from imposing lifetime or annual coverage limits on essential benefits.
  • Young adults can stay on their parents’ plan until age 26.
  • Coverage is protected for those participating in clinical trials.
  • Waiting period for those who work for large employer cannot be longer than 90 days.

In addition, the ACA requires that individuals obtaining coverage in the individual and group market, both inside and outside the exchanges, must be offered certain key services including ambulatory patient services, emergency services, hospitalization , mental health and substance use services, prescription drugs, rehabilitative services and chronic disease management, laboratory services, preventive and wellness services, pediatric services, maternity and newborn care.

What's Up with Exchanges?

Much of the focus in the ACA has been on exchanges—a new way to purchase insurance that's especially relevant for those who don't already have it through an employer. The ACA requires each state to create an insurance market place—an exchange—where individuals and small businesses can buy insurance at varying cost levels. The primary purpose of an exchange is to enable consumers who cannot obtain coverage on their own, through the government or an employer to meet their insurance obligations. The goal is to foster competition by bringing together multiple insurance companies and their policies to vie for consumers’ business. Right now, there are 16 state-run and 34 federally operated exchanges.

Each state’s exchange will offer a selection of "Qualified Health Plans"to individuals and small employers. The exchanges set standards for QHPs, certify participating plans, rank plans from bronze to platinum to indicate what level of coverage the plan offers. In 2014, no QHP will be allowed to charge cost-sharing greater than $6350 for an individual and $12,700 for families. Limits include deductibles, co-insurance and co-payments for covered services from in-network providers, but exclude premiums.

To make the list, insurers may not charge higher premiums based on health status, sex, or occupation. Only allowed to vary by age (3-to-1) place of domicile or tobacco use, and even those variations have limits.

New York's state-based exchange operates under the name “NY Health Benefit Exchange" and offers 17 QHPs. Details are available at info.nystateofhealth.ny.gov. Many have found it easier to use than the problem-plagued federal exchange.

The following chart, by way of example, shows monthly premiums for silver-level plans for single adults. As you can see, each company is free to set its own rates as long as it follows ACA rules.

Insurer
Albany
Mid-Hudson
New York
Long Island
Empire HMO $436.15 $514.41 $468.43 $431.15
Freelancers $299.57 $336.51 $394.58 $394.58
GHI $569.66 $624.18 $609.27 $656.27
HIPIC $615.72 $678.66 $678.66 $695.62
NY Fidelis $342.05 $344.93 $390.15 $360.00

It would take a book to list all the possible variations of income limits and plans, but a couple of examples show how the ACA can work for certain individuals.

Consider Karen, age 30 and single, who works full time at a coffee shop. Her annual income is $20,000. She is not able to afford insurance, and is not eligible for Medicaid. She will be able to purchase coverage from the insurance exchange because her income falls below 400 percent of the federal poverty level (FPL). Her premium will be about 5 percent of her annual income, and she is eligible for cost sharing subsidies. If she chooses not to buy insurance, there will be a tax penalty of $200 in 2014.

Let's now look at the Murray Family, with an annual income of $42,000. Parents are employed full-time, but neither of their employers offer health insurance. The son has chronic asthma. Both children are eligible for Children’s Health Insurance Program. Under ACA, the Murray family will be able to purchase coverage from a health insurance exchange because income falls below 400 percent of FPL. The family is eligible for cost-sharing subsidies to help it afford coverage. Both children remain eligible for CHIP.

Know the Limits

Just as insurance through an employer has rules about what's covered and with whom, so does ACA insurance. For example, To continue to see you current doctor you must select a plan that includes the doctor in its network. In fact, there is no provision in the ACA that mandates any medical professional to accept any form of insurance, whether it is Medicaid, Medicare or coverage purchased through a federal or state based exchange. Basically, the networks within exchanges are negotiated contracts between health insurance companies and doctors and hospitals. If certain hospitals or doctors do not think the price is right, they will not join the network.

In New York, In NY, Montefiore is in-network for seven insurers. Mt. Sinai Health system is in network for six insurers. North Shore – LIJ, which has its own insurance plan, in in-network for five insurers. MetroPlus is the insurance company for NY public hospital system.

Special Deals for Small Employers

Employers with fewer than 50 full-time employees does not have to provide health insurance. However, the ACA created exchanges for small businesses were created to encourage small employers to provide coverage to their employees. Credits—up to 50 percent of an employer's contributions—are available for businesses that purchase health insurance through these exchanges. The credits are refundable and may be carried forward or back to other tax years. However, employers taking advantage of these credits may not take tax deductions available for employer contributions.

Small businesses will have to wait until November 2014 before they can enroll online in the federal health insurance marketplace for small businesses, which is called "SHOP:—Small Business Health Options Program. Meanwhile, small businesses seeking to take advantage of the credits may can still file paper applications with the help of a broker/agent. This federal delay does not affect small business options in states like New York that run their own exchanges.

A Few More Tax Provisions…

Meanwhile, with tax season under way, it's important to note some key filing issues: individuals have been allowed an itemized deduction for unreimbursed medical expenses, but only to the extent such expenses exceed 7.5 percent of their adjusted gross income. The ACA has increased the threshold for the itemized deduction for medical expenses from 7.5 percent of AGI to 10 percent for regular income tax purposes. So a taxpayer with an AGI of $100,000 and $10,500 in medical expenses could claim a $3000 deduction in 2012, but only $500 in 2013. The increased threshold does not apply if either the taxpayer or spouse turn 65 before the end of years 2013-16; the exemption is rescinded in 2017. For purposes of the Alternative Minimum Tax, medical expenses are deductible only to the extent costs exceed 10 percent of AGI, and the new law does not change the AMT treatment.


Daniel G. Mazzola, CPA, CFADaniel G. Mazzola, CPA, CFA, is an investment advisory representative with American Portfolios Advisors Inc. He is a Chartered Financial Analyst, Certified Public Accountant and Certified Financial Planner. Mr. Mazzola is a member of the NYSSCPA Personal Financial Planning Committee. He can be reached at 516-783-9540 or dmazzola@americanportfolios.com.

 
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