Chapter 14 Health Insurance Concepts, Programs, and tax considerations

Consumer-Driven Health Plans (CDHPs): Tier 3

A high deductible health plan (HDHP), which is a health insurance plan that has been designed to coordinate with pretax accounts to help consumers manage their spending for health care and insurance.

Health Reimbursement Arrangements (HRAs)

An HRA is a type of health insurance plan that reimburses employees for qualified medical expenses. The plans are entirely employer-funded and there is no limit on the amount an employer can contribute. Employees are not allowed to contribute so contributions may not be attributable to any salary reductions. Cash-payouts are not permitted, but a former employee may continue to receive subsequent coverage periods. Employer-provided coverage and medical care reimbursement amounts under an HRA are excludable from the employee's gross income. With an HRA, unused fund amounts may be carried over from year to year. Employers have full control over how the roll-over is managed and determine whether all or only a portion of unused funds carries over to the next year. The employer may determine that all fund balances reset to zero after the close of a HRA plan year. If an employee leaves their place of employment, any remaining funds revert to the employer. An employee does not own any contributions made by the employer.

Medical Savings Account (MSAs)

Archer Medical Savings Accounts are similar to HSAs, however they have different contributions limits, minimum annual deductibles, and maximum out-of-pocket limits. MSAs were designed specifically for small businesses and self-employed individuals who cannot establish HRAs or FSAs.

Patient Protection and Affordable Care Act (PPACA): Requirements

Beginning in calendar year 2014, individuals are responsible for obtaining "minimum essential coverage" for themselves and their dependents, or pay a penalty - a "shared responsibility payment." Obtaining minimum essential coverage can be accomplished in any of the following ways: • Enrollment in a government program such as Medicare, Medicaid, TRICARE, the Children's Health Insurance Program (CHIP), or any other state health plan • Purchasing insurance offered by an employer • Purchasing insurance through a state exchange • Purchasing insurance directly from an insurer in the individual market

Patient Protection and Affordable Care Act (PPACA): Emergency Care

Benefit plans that cover emergency services must provide coverage without the need for prior authorization regardless of the participating status of the provider. Out-of-network providers are covered for the same cost as in-network providers.

Patient Protection and Affordable Care Act (PPACA): Dependent Continuation

Benefit plans that provide coverage for dependents are required to cover adult children to up age 26. Eligibility for dependent child coverage may be based only in terms of the relationship between a child and participant, and not deny or restrict coverage based on factors such as: financial dependency, residency, student status, employment, or marital status.

Consumer-Driven Health Plans (CDHPs):

Consumer-driven health care allows individuals to use a 3-tiered approach to funding the costs of medical services and treatment. The various consumer-driven health plans help individuals control benefit costs by allowing them to decide how their health plan funds are used.

Patient Protection and Affordable Care Act (PPACA): Prohibit Rescissions

Coverage may only be rescinded for fraud or intentional misrepresentation of material fact. Notification must be made to the policyholder 30 calendar days prior to cancellation.

Federal Tax Considerations for Business and Group Health Insurance Policies: Medical and Dental Insurance

Group medical and dental expense premiums paid by the employer are tax deductible • Self-employed persons may deduct up to 100% of the cost of health insurance for themselves and their dependents • An employee's share of premiums paid for group health insurance are deductible only to the extent that all premiums, as well as unreimbursed medical expenses, exceed 10% of their AGI • Benefits received under any medical expense and dental plan, regardless of the premium payer, are not taxable

Health Savings Accounts (HSAs)

HSAs are available to any employer or individual for an account beneficiary (the taxpayer, including spouse and dependents)—the individual on whose behalf the account is established—who has high deductible health insurance coverage. HSAs are funded with pretax income, grow tax-deferred, and may be used tax-free to pay for unreimbursed qualified medical expenses. Nonqualified withdrawals prior to age 65 are subject to a 20% penalty tax

Patient Protection and Affordable Care Act (PPACA): Appeal Rights

Health Plans must have an internal appeals process for beneficiaries to challenge "adverse benefits decisions" such as a denial, reduction, termination of, or failure to provide or make a payment for a benefit. The plan must also include a notice of the right to an external appeal, together with a description of the external appeal process and the timeframes for such appeals.

Patient Protection and Affordable Care Act (PPACA): Pre-existing Conditions

Insurers are required to cover children under 19 with preexisting conditions and are prevented from dropping policyholders if they get sick. All health plans are prohibited from discriminating against or charging higher rates to any individual on the basis of preexisting conditions.

Patient Protection and Affordable Care Act (PPACA): Lifetime and Annual Limits

Insurers offering group or individual health insurance coverage are prohibited from imposing lifetime or annual limits on the dollar value of health benefits.

Business Disability Insurance: Disability Buy-Sell Agreement

Premiums are not tax deductible. • The benefits received are not taxable

Business Disability Insurance: Business Overhead Expense

Premiums paid by the business are tax deductible • Benefits received are taxable to the business owner and must be reported as income

Federal Tax Considerations for Business and Group Health Insurance Policies: Accidental Death and Dismemberment

Premiums paid by the employer are deductible • Benefits received are not taxable.

Federal Tax Considerations for Business and Group Health Insurance Policies: Long-Term Care Insurance

Premiums paid by the employer are tax deductible. • Benefits received from a qualified LTC policy are not taxable

Federal Tax Considerations for Business and Group Health Insurance Policies: Disability Income Insurance

Premiums paid by the employer are tax deductible. Under a contributory plan, premiums paid by the employee are made with after-tax dollars • Disability benefits received by the employee as a result of employer contributions are taxable as income to the employee based on the percentage of the premium paid by the employer

Consumer-Driven Health Plans (CDHPs): Tier 1

Pretax account, such as a Health Savings Account (HSA), Archer Medical Saving Account (MSA), Health Reimbursement Account (HRA), and Flexible Spending Account (FSA).

Medical Expense Coverage for Sole Proprietors and Partners

Sole proprietors and business partners qualify for a deduction that lets them write off the entire amount of insurance premiums without worrying about an adjusted gross income threshold. This also includes medical insurance premiums for spouse, dependents and any children who are under age 27. Benefits are not taxable.

TRICARE (The Uniformed Services Health program):

TRICARE is primarily for active duty and retired members of the U.S. military and their dependents. There are three plans now available, depending on the member's service status, such as active duty, National Guard/Reserves, or retired. The plans are Standard, Prime, and TRICARE For Life. As long the person is on active duty, Prime coverage is mandatory with no out-of-pocket expenses for treatment at a military medical facility. Dependent coverage is not mandatory, but most active duty personnel select Prime coverage for their dependents.

Patient Protection and Affordable Care Act (PPACA):

The ACA consists of a combination of measures to control healthcare costs, and an expansion of coverage through public and private insurance which includes broader Medicaid eligibility and Medicare coverage, and subsidized, regulated private insurance. The ACA was enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding public and private insurance coverage, and reducing the costs of healthcare for individuals and the government. It is important to remember that the ACA does not mandate that employers provide health insurance to their employees.

Consumer-Driven Health Plans (CDHPs): Tier 2

The amount the individual chooses to pay, out-of-pocket, after the funds in the pretax account have been exhausted and before the health insurance plan's deductible is met.

Patient Protection and Affordable Care Act (PPACA): Guaranteed Issue

The guaranteed-issue provision in the Act is designed to eliminate discrimination based on health status by insurers. The guaranteed-issue provision mandates that insurers provide health insurance to any person, regardless of medical history or current state of health. The health care premiums must be offered at an average and restricts the ability of the insurer to limit the scope of coverage.

Essential Health Benefits Package

The health insurance benefits of an Essential Health benefits package must provide at least the following: • Ambulatory patient services • Behavioral health treatment • Emergency services • Hospitalization • Laboratory services • Maternity (including prenatal and delivery care) • Mental health services • Newborn care • Pediatric services, including dental and vision care • Prescription drugs • Preventive, wellness, and chronic disease management • Rehabilitative and habilitative services and devices • Substance use disorder services

Federal Tax Considerations for Personally-Owned Health Insurance Policies: Medical Expense Insurance

The premiums and unreimbursed medical expenses that exceed 10% of the individual's adjusted gross income may be tax deductible • Medical expense benefits received are not taxable

Federal Tax Considerations for Personally-Owned Health Insurance Policies: Long-Term Care Insurance

The premiums paid for individual LTC policies that exceed 10% of the individual's adjusted gross income may be tax deductible • For individuals age 65 or older, the premiums paid for individual LTC policies that exceed 7.5% of adjusted gross income may be tax deductible • LTC benefits received from a qualified plan are not taxable

Federal Tax Considerations for Personally-Owned Health Insurance Policies: Disability Income Insurance

The premiums paid for individual disability income insurance are not tax deductible • Disability income benefits received are not taxable

Flexible Spending Accounts (FSAs)

This is an employer-established plan that permits the employee to defer up to $2,550 on a pre-tax basis into a specifically designated account from which the employee may withdraw funds to pay for unreimbursed medical expenses such as eyeglasses, elective cosmetic surgery, deductibles, copayments, and coinsurance which are part of the insured's out-of-pocket medical expenses. The IRS sets a limit on the calendar year maximum amount the employee can defer into the account. The employer funds the account in full at the beginning of the year, and withholds a prorated amount of income at each pay period throughout the year until the employee's allocation has been fully received. FSA contributions are considered a "use it or lose it" form of voluntary salary reduction agreement.

Patient Protection and Affordable Care Act (PPACA): Eligibility

Unless exempt, Americans are required to obtain and maintain minimum essential coverage. The following individuals are exempt from this provision of the ACA: • Members of a religion opposed to acceptance of health care benefits • Undocumented immigrants • Those who are incarcerated (serving time in jail) • Members of a federally recognized Indian tribe • Those whose household income does not require the filing of a tax return • Those who must pay more than 9.5% of their income for health insurance, after application of any employer contributions and tax credits • Those eligible for a hardship exemption, such as the homeless and victims of eviction from their homes and natural or human disasters Most legal residents will qualify for federal subsidies to help them pay their insurance premiums or cost sharing obligations (co-insurance, deductibles, and co-payments) under a plan they purchase through a state or federal exchange if they meet the following criteria: • They do not have employer-sponsored coverage available to them, or • Their household incomes are 133% to 400% of the federal poverty level (FPL) (note: in states that have opted to expand Medicaid, the household income levels are between 138% and 400% of the FPL)

Patient Protection and Affordable Care Act (PPACA): Preventive Services

Well-child care from birth to the age of 19, including necessary immunizations • Well-child care from birth through the attainment of age 19 including necessary immunizations • Mammography screening • Cervical cytology screening • Prostate cancer screening

Patient Protection and Affordable Care Act (PPACA): Termination of Coverage Notice Requirement:

Within at least 30 days prior to the last day of coverage, insurers must provide notice of termination/cancellation of coverage and include the reason for termination. If termination is for nonpayment of premium, a 3-month grace period is required (during which any advance payment of tax credits continues to be collected). If premiums remain delinquent at the end of the 3 months, the policy may be terminated provided that the 30 day notice requirement has been met.

TRICARE (The Uniformed Services Health program): TRICARE

for Life serves as a second insurer for those on Medicare, Parts A and B. Medicare will be the primary payor and TFL will be secondary. There are no enrollment fees but the member must pay his own Medicare Part B premiums.

TRICARE (The Uniformed Services Health program): Prime

requires a premium, but has no out-of-pocket expenses for tests, operations, etc., as long as a primary care manager or a TRICARE approved referral is used. There is a $12 co-pay for office visits and an $11 per day charge for hospitalization.

TRICARE (The Uniformed Services Health program): Standard

requires no premiums on the member's part but does require a $12 co-pay for office visits and a 25% co-pay for procedures.

Business Disability Insurance: Key Person Disability Insurance

• When an employer purchases a disability income policy on a key employee and is also the beneficiary, the premiums are not tax deductible to the business • Benefits received are not taxable