Human Resources News & Insights

Finally, answers to employee questions about reform’s individual mandate

Ever since the Obama administration announced it would be delaying enforcement of the Affordable Care Act’s employer mandate to provide health insurance, the natural inclination has been to wonder: What’s this mean for the individual mandate?  Finally, we have answers you should pass along to your employees.  

The White House just released the final regulations surrounding Obamacare’s individual mandate. It answers the majority of the questions employers and workers have raised.

The seven things you and your workforce need to know:

1. Employer-sponsored coverage satisfies the mandate

Back when the administration announced it was delaying enforcement of the employer mandate, we posed these questions:

  • Will the government really punish individuals for failing to purchase insurance on their own if employers won’t be punished for failing to offer it?
  • What happens to those employees who are offered employer-sponsored coverage that’s “substandard” — in other words, it fails to meet Obamacare’s minimum essential coverage requirements? Will they have to reject their employer’s plan to buy a plan that meets the law’s minimum coverage requirements in order to avoid a penalty?

The answer to the first question is “yes.” The government’s moving forward with penalizing individuals who can obtain affordable coverage and elect to go without it.

The answer to the second question is any employee who accepts coverage under an employer-sponsored health plan will be classified as having fulfilled their duty to obtain minimum essential coverage under the law.

The final regs say all employer-sponsored plans will be categorized as having met the minimum essential coverage requirements.

2. Workers will be fined if their dependents go uninsured

A taxpayer will be liable for the “shared-responsibility” penalty if the taxpayer or any non-exempt individual whom the taxpayer claims as a dependent does not have minimum essential coverage.

Married taxpayers filing jointly will be jointly responsible for paying the non-compliance penalties assessed to their dependents.

Penalty payments are to be made when submitting federal income tax returns.

3. Individuals mustn’t go three straight months without coverage

The final rules say being without coverage for a period of less than three months will not trigger a non-compliance penalty.

The IRS has even gone so far as to suggest individuals can get out of paying the penalty if they can show they have had coverage for at least one day per month for at least nine months out of the year.

The IRS said it will reconsider this rule if it appears as though it’s being abused, and signs that a person has abused the system — by purchasing coverage that protects them for just one day a month — may trigger a penalty.

Gaps in insurance coverage prior to Jan. 1, 2014 will not be counted when measuring the length of an individual’s coverage gap.

4. The IRS is very limited in how it can go after individuals

The law says the IRS cannot subject taxpayers to any criminal prosecution or penalty for refusing to pay the shared-responsibly penalty. So the IRS can’t impose any levies or liens against individuals to collect payment.

Therefore, the only two ways the IRS can collect the penalty is to take it out of an individual’s withholding or withhold it from a person’s tax refund. So technically, the IRS is powerless to collect the penalty from those who don’t participate in the withholding process and aren’t eligible for a tax refund.

5. The fine is small

If you don’t offer employer-sponsored coverage and your employees don’t plan on obtaining health insurance because they feel they can’t afford it (regardless of whether or not the government deems it “affordable”), and they’re stressed about having to pay a penalty, you can help relieve some of their stress with this info:

The penalty for not carrying insurance is the higher of $95 or 1% of the individual’s taxable income. So if an individual is earning $30,000, his or her shared-responsibility penalty would be $300.

That’s a drop in the bucket compared to what insurance premiums would actually cost the individual.

Of course, not carrying health insurance is a very risky proposition should the person get sick or injured.

6. You’re exempt if coverage is unaffordable

The final rules make it clear that the requirement to obtain minimum essential coverage or pay a shared-responsibility penalty applies only to the limited group of taxpayers who have access to affordable coverage but chose to remain uninsured for at least three consecutive months.

What that means is some people who choose to go without coverage won’t be penalized. Individuals who slide into this category are those who aren’t offered employer-sponsored coverage and would need to pay premiums costing 8% or more of their household income in order to purchase coverage on their own.

7. No tax return = no penalty

Other individuals who are exempt from the non-compliance penalty are those whose income falls below the federal poverty line, those who don’t file an IRS tax return, members of federally-recognized Indian tribes and members of certain religious sects or divisions shielded from Obamacare’s requirements by the Internal Revenue Code.

The Congressional Budget Office estimates that less than 2% of Americans will have to pay a non-compliance penalty.

This post originally ran on our sister website HRBenefitsAlert.com.

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