Looking Ahead to 2014: Individual Mandate

Now that the new year has started and several of the early provisions of health care reform are in place, the focus is shifting to long-term health care strategy. Employers are struggling to understand what the healthcare landscape may look like by  2014. Assuming no judicial or legislative changes, 2014 will see individual and employer mandates, government exchanges and government subsidies. One initial question to address is who will pay for coverage in 2014? Coverage will be paid for by a combination of employers, individuals and the government.

In order for employers to set a long-term health strategy, they’ll need to understand how the individual mandates, tax credits and premium subsidies will affect their employee population.

Beginning in 2014, individuals will be subject to a mandate—required to have health insurance—or be subject to a fee. Generally, the fee will be $695 by 2016. (See new Code Section 5000A.) However,  if the premium for an  employee’s employer-provided health insurance coverage is more than 8% of the employee’s modified household income, the employee is not required to have health insurance and will not be subject to the fee. The 8% is calculated using the least expensive, self-only health insurance premium option offered by the individual’s employer-sponsored health insurance plan. For a household income of $30,000, if the premium is more than $2,400, the individual is not required to have health insurance coverage, but if the premium is  $2,400 or less,  the individual must have health insurance coverage or pay the penalty.

Additional exemptions from the individual mandate are available to individuals exempt from filing an income tax return (generally those with income under$3,650 in 2010 ), members of Indian tribes, and those with short coverage gaps and hardships. 

Employers may want to consider how the individual mandate will apply to their employees based on employer premium rates. If the employer premium is low, the employee may face a penalty if uninsured. If the premium is too high, the employee may be off the hook, or eligible for government subsidies, but the employer may face a penalty. In future posts, we’ll discuss how individuals may be able to take advantage of government subsidies and how the employer penalties are based on the individual mandate and government subsidies.

Today’s post was contributed by Maureen Maly and Megan Hladilek.

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