Plan Sponsorship Provisions

Many of the ACA provisions may influence what kind of health coverage an employer will offer in the future. A combination of incentives and penalties are designed to encourage employers to continue sponsoring a major medical coverage. Several of the ACA provisions could directly or indirectly increase an employer’s costs. New coverage options and premium assistance for certain individuals become available in 2014. Finally, the individual mandate for employees to obtain minimum essential coverage may influence decisions about eligibility.  This section provides an overview of a few key provisions likely to influence what kind of health coverage an employer will offer in the future (or not), particularly after 2014 and 2015.

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Health Insurance Exchanges

By January 1, 2014, states are required to establish Health Insurance Exchanges to offer private insurance choices to individuals and small employers (generally with 100 or fewer employees).  The federal government will provide a default Exchange in states that chose no to establish their own.

Individual Mandate

Beginning January 1, 2014, all individuals must obtain minimum essential coverage or pay a tax.  There are exceptions if the coverage is unaffordable (the lowest-cost option available costs more than 8% of the individual's household income), for low-income taxpayers, and for coverage gaps up to three months.


Premium Tax Credit

Federal premium assistance to purchase Exchange coverage is available for certain individuals with household income up to 400% of the Federal Poverty Level.

Small Employer Tax Credit

Employers with 25 or fewer full-time equivalent employees who earn $50,000 or less on average may earn a tax credit if the employer provides health coverage and pays at least 50% of the premium cost.


Employer Mandate (Free Rider Penalty)

Beginning in 2015, a large employer that does not offer full-time employees health coverage or offers coverage that is either unaffordable or inadequate, will owe a penalty if at least one employee qualifies to receive a premium tax credit to purchase Exchange coverage

Cadillac Tax

Beginning January 1, 2018, a 40% nondeductible excise tax will be imposed the extent the aggregate value of specified employer-sponsored health coverage exceeds certain threshold amounts.


Transitional Reinsurance Fee

For three years beginning in 2014, health insuruers for fully-insured plans and plan sponsors for self-funded group health plans will be required to pay reinsurance fees to state-established Exchange reinsurance entities.


Retiree Drug Subsidy Deduction

Employers that provide prescription drug coverage to Medicare-eligible retirees that is at least as valuable as the Medicare Part D benefit are eligible for a subsidy of 28% of allowable prescription drug claims. Beginning with the 2013 tax year, an employer's allowable deduction for retiree prescription drug expenses must be reduced by the amount of the tax-free subsidy payment received.


Medical Loss Ratio

ACA establishes Medical Loss Ratio (MLR) targets for health insurance coverage offered in the individual, small group, and large group markets.  If a health insurer does not achieve the target MLR, it must provide rebates to enrollees in that market.

ESB-American Fidelity provides Affordable Care Act (PPACA) summary information to employers on new requirements, how to comply, changing rules and more.

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