FAQ: The Individual Mandate and Penalty Under the Federal Patient Protection and Affordable Care Act

FAQ: The Individual Mandate and Penalty Under the Federal Patient Protection and Affordable Care Act https://wahospitality.org/wp-content/uploads/2013/02/HC_reform-379x198.jpg

Every week, WRA conducts a toll-free conference call where members are able to ask questions relating to the healthcare issue and receive a response on the spot. This is a member-only benefit to WRA and WLA members.

To read previous FAQs or listen to recordings from previous calls click here.

Beginning January, 2014, the federal Patient Protection and Affordable Care Act (ACA) requires all US citizens to demonstrate that they have health care coverage or be subject to an annual IRS penalty.  This requirement applies with few exceptions to every man, woman and child, regardless of age, employment or economic status.  The federal law also provides avenues for those with the lowest incomes to find affordable coverage.  These avenues include expansion of state Medicaid programs, federal premium subsidies, and new government programs known as state-based health exchanges.

The following are frequently asked questions covering this issue:

How will I know which of my employees are subject to this mandate?

Employers will not have to track which employees are subject to the mandate requirements.  Each individual has responsibility for ensuring they and their dependents have health care coverage.  Although an employer with more than 50 full-time equivalent employees is required to provide coverage for their full-time employees or face a separate penalty, the responsibility for coverage ultimately rests with the individual.

Are there exceptions to the individual mandate requirement?

Yes.  Individuals who can demonstrate they meet any of the following criteria can receive a waiver from the individual mandate requirement:

  • members of a federally recognized Indian or Native Alaskan tribe;
  • illegal immigrants and those who are neither a citizen nor a national;
  • individuals participating in a federally recognized health care sharing ministry;
  • members of a federally recognized religious sect who are opposed to the concept of insurance and are exempt from personal income tax;
  • individuals incarcerated during the tax  year;
  • individuals who experience a temporary or catastrophic financial hardship during the tax year;  or
  • individuals for whom premium contributions to coverage would exceed 8 percent of their income.

Is it important for me as an employer to know who has a waiver from the requirement?

Potentially, but no documentation is required.  If you are a large employer and the insurer you have chosen for coverage has a fairly strict participation requirement, you may need to ask employees why they are not choosing employer coverage.  For your own protection, you may want employees to decline employer coverage in writing.  However, at this time, you will not need to collect any type of official documentation from your employees.  You should treat a waiver situation similar to how you treat situations in which an employee has coverage through a spouse or is on Medicare or Medicaid, etc.

How much is the penalty?

Federal rules just issued on January 31, 2013, clarify that an individual that cannot demonstrate that they had coverage during the tax year will pay the greater of either $95 or one percent of their income for tax year 2014.  In 2015, the flat penalty will increase to $325 and in 2016 it will increase to $695. The flat penalty will increase with inflation for each year after 2016.

It is important to note a penalty will be applied for each month during the tax year an individual cannot demonstrate they have coverage.  The monthly penalty will be the greater of either 1/12 of the flat penalty ($95/12 in 2014) or 1/12 of one percent of taxable income for the year.

Penalties apply to the individual, as well as to each dependent for whom the individual cannot demonstrate had coverage.   The penalty for dependents age 18 and under, is 50% of the penalty applied to the adult.

Does it matter where the individual gets their health care coverage, or must they get it from their employer in order to avoid the penalty?

The law requires that individuals have “qualifying” coverage and includes a list of those sources that provide qualifying coverage.  These sources include:

  • employer or group sponsored health plans, whether fully-insured or self-insured
  • state-sponsored health plans such as Medicaid
  • federally-sponsored health plans such as Medicare
  • military coverage such as TriCare or other veterans benefits
  • coverage purchased in the private individual market
  • coverage purchased through the new state-based health exchanges
  • federally approved health care sharing ministries

 What responsibilities do I have as an employer?

While only large employers (those with 50 or more full-time equivalent employees) are subject to the employer mandate and affordability requirements, all employers providing health care coverage will be required to report how much the employer contributed to health care coverage on an employee’s W-2.  In addition, employers will likely be asked to provide documentation of health care coverage for employees who must demonstrate they had coverage during the year.  This will be especially true for employees that separated employment during a tax year.

Donna Steward, President, Kiawe Public Affairs – This publication is intended to inform employers about  provisions of the Patient Protection and Affordable Care Act and how those provisions may affect them.  This information should not be construed as legal  or tax advice, and readers should not act upon the information contained therein without professional counsel.

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