Life And Health Insurance Chapter 8
Certified Insurance Agent
A Certified Insurance Agent is certified by the Exchange to transact in the individual and Small Business Health Options Program (SHOP) to write applications for Qualified Health Plans through Covered California. All individuals licensed as a Life Licensee to transact in accident and health insurance are eligible to apply. To become a Certified Insurance Agent, eligible individuals must: ● Create an account for agents at www.CoveredCA.com ● Select a preferred method of payment ● Submit a completed application ● Complete the Exchange training requirements ● Pass an exam administered by the Exchange + ● Recertification is required every 5 years following initial certification
Qualified Health Plan (QHP)
A qualified health plan is any plan which provides coverage for the 10 Essential Health Benefits and provides a minimum actuarial value of 60%.
Special Enrollment Period
A special enrolment period is the length of time during which a person may enroll in a Qualified Health Plan outside of open enrollment if a qualifying life event, such as marriage, divorce, or the birth of a child, takes place. The special enrollment period in the Individual Marketplace lasts 60 days from the date of the qualifying event and lasts 30 days in the SHOP Marketplace.
Essential Health Benefits
All health plans, group and individual, offered through an Exchange must provide, at a minimum, benefits in the following 10 categories of care and services: ● Ambulatory patient services ● Mental health and substance use disorders, including behavioral health treatment ● Emergency services ● Hospitalization ● Laboratory services ● Maternity and newborn care (including prenatal and delivery care) ● Prescription drugs ● Pediatric services, including dental and vision care ● Preventive, wellness, and chronic disease management ● Rehabilitative and habilitative services and devices
Metal Tier Benefit Categories
An Essential Health Benefits package is required by the PPACA to provide coverage for at least one of four levels of coverage offered through all health exchanges. These coverage levels are known as "Metal Tiers" and are defined as Bronze, Silver, Gold, or Platinum. The main difference between the plans is the actuarial value, or percentage the plan pays of the average overall cost of providing essential health benefits to members. The plan category chosen affects the total amount an individual will spend for essential health benefits during the year.
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 are not subject 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. HRA plans do not require coordination with a high deductible health plan.
Open Enrollment Period
An open enrollment period is the length of time during which any eligible person may enroll in a Qualified Health Plan offered through an Exchange. Open enrollment begins on November 15 before the Benefit Year and ends on February 15 of the Benefit Year.
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. An MSA is a plan purchased along with a High Deductible Health Plan. The plan is established by an employer on behalf of the employee. Premiums paid by the employer are tax deductible by the business. Distributions for qualified expenses are not taxable to the employee. Nonqualified distributions are included in the employee's gross income and subject to a penalty tax if withdrawn before age 65. If funds remain in the account at the end of the year, they can be rolled over for use in the following year without a penalty.
Healthcare Cost Assistance
California residents can obtain financial assistance in obtaining healthcare insurance coverage in one of the following ways: ● Medi-Cal Assistance - California expanded the Medi-Cal program to cover individuals under age 65 with income up to 138% of the FPL. The coverage is free for those who qualify and is part of the provisions of the Act. ● Advanced Premium Tax Credits - Premium Tax Credits are available from the federal government to help lower the cost of health coverage for individuals and small employers who meet certain income requirements and do not have affordable health insurance that meets the minimum essential coverage requirements. Consumers must purchase a QHP through Covered California to obtain Premium Tax Credits. ● Cost-Sharing Reduction - Provides out-of-pocket reductions for expenses such as deductibles and copayments on policies purchased through the Exchange by consumers with income above 138% of the Federal Poverty Line (FPL) up to 250% of the FPL.
Provisions of the PPACA
Changes due to the Act have become effective in stages since 2010. The following provisions have been established: ● Minimum health standards identified as Essential Health Benefits ● Under the individual mandate, all individuals without minimum essential coverage, either group or individual, will be assessed a penalty called the Shared Responsibility payment ● Prohibited insurers offering group or individual health insurance coverage from imposing lifetime or annual limits on the dollar value of the mandatory essential health benefits ● Eliminated copayments, coinsurance, or deductibles for preventive care and medical screenings on all new Level A and Level B insurance plans ● Extended dependent children's coverage through age 25 (up to age 26) based strictly on the parent - child relationship ● Health insurance exchanges must be available to individuals and small businesses as a resource to learn about healthcare options, compare and choose between those options and enroll in health plans ● Cost Sharing Reductions must be available on policies purchased through an exchange by consumers with income above 138% of the Federal Poverty Line (FPL) up to 250% of the FPL ● Employers with more than 50 employees that don't offer an affordable health plan that provides the minimum essential benefits will be required to pay an Employer Shared Responsibility penalty if the government has to subsidize at least one employee's individual plan purchased through an exchange
Consumer-Driven Health Plans (CDHPs)
Consumer-driven health care allows employers and individuals to use a 3-tiered approach to funding the costs of medical services and treatment. The various consumer-driven health plans help control benefit costs by allowing employers, administrators, and individuals to decide how the health plan funds are used. Options include: 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). 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. 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 spending for health care and insurance.
Bronze Plan
Covers 60% of the benefit cost of the plan
Silver Plan
Covers 70% of the benefit cost of the plan
Gold Plan
Covers 80% of the benefit cost of the plan
Platinum Plan
Covers 90% of the benefit cost of the plan
Health Savings Accounts (HSAs)
HSAs are available to any employer or individual for an account beneficiary (the insured, including spouse and dependents) 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. After age 65, funds may be withdrawn and used for any purpose without a penalty, but if not used to pay for health care expenses, withdrawals will be subject to ordinary income tax. The penalty does not apply when the taxpayer is age 65 or older, or in the event of the account owner's death or disability. There are no income limitations imposed on establishing an HSA, but contributions may only be made in years in which the taxpayer purchases a High Deductible Health Plan (HDHP). An eligible individual or an employer may establish an HSA with a qualified custodian or trustee (typically an insurance company or bank). Generally, account contributions may be made by the individual, the employer, or both. Contributions are deducted if made by the individual or excluded from the employee's income if made by the employer. If funds remain in the account at the end of the calendar year, they may be rolled over for use in the following year without a penalty.
Requirements
Health insurance products offered through each Exchange must be available in the same form to consumers purchasing coverage outside the Exchange. All health plans and insurers participating in Covered Californa must also offer plans at the federally designated bronze, silver, gold and platinum levels off the Exchange. Covered California offers a catastrophic "minimum coverage plan" which helps protect a person from financial disaster in the event of a serious and expensive medical emergency. Minimum coverage plans are designed to cover excessive medical bills that occur above the limit that an insured would be able to manage financially. Minimum Coverage Plans are offered to those up to age 30, or those individuals who prove they are without affordable coverage options or are experiencing financial hardship
High Deductible Health Plan (HDHP)
High Deductible Health Plans are similar to other health insurance plans; however, they contain restrictions pertaining to the individual and family deductibles, as well as annual out-of-pocket limits. To qualify as high deductible health insurance, the annual deductible must meet a minimum dollar amount, and the maximum out-of-pocket expense may not exceed the maximum dollar amount identified by the IRS. Other than preventive care, which must be made available with no cost-sharing, all covered health care expenses are an out-of-pocket expense until the annual deductible has been satisfied. After that point, depending on plan design, an insured may have little or no out-of-pocket expense, or claims will be subject to coinsurance until the annual out-of-pocket limit is reached. HDHPs also limit the contributions an individual may make to an HSA, MSA, HRA, or FSA. If funds remain in the account at the end of the calendar year, they may be rolled over for use in the following year without a penalty.
California Health Benefit Exchange
In California, the Individual Exchange and Small Business Health Options Exchange (SHOP) allow for individuals and small businesses to compare plans and buy health insurance in the private market. The Exchange is a independent public entity within the state government and operates under the name of Covered California. Covered California must meet all federal requirements established under the ACA
Eligibility
Individuals and small employers must meet federal citizenship or legal residency requirements. Household incomes between 138% and 400% of the federal poverty level may qualify for Advanced Premium Tax Credits or Cost Sharing Reductions. The California Exchange will ensure that federally-authorized tax credits are paid to the insurers. Small employers with less than 100 employees may also purchase coverage through the exchange.
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.
Minimum Essential Coverage
Minimum essential coverage is a standardized list of required coverages that must be present in a health insurance policy in order for the IRS to consider the policy satisfactory to meet the individual mandate provision. Plans that offer Minimum Essential Coverage include: Medicare. Medicaid, Individual insurance offered through an exchange, and employer-sponsored health insurance.
Administration
The Exchange does not change how existing state health care coverage programs are administered. Medi-Cal will continue to be administered by the Department of Health Care Services (DHCS). The Exchange will screen for and enroll individuals in Medi-Cal if they are eligible for those programs. The federal law requires state exchanges to perform this function. The Exchange will coordinate with the DHCS and California counties to ensure that individuals are seamlessly transitioned between coverage programs if their eligibility changes
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act, referred to as the Affordable Care Act (ACA), was signed into law on March 23, 2010. The PPACA consists of a combination of measures to control healthcare costs, and an expansion of coverage through public and private insurance which includes broader Medi-Cal eligibility and Medicare coverage, and subsidized, regulated private insurance. Eligibility for premium tax credits or eligibility for Medi-Cal is determined on the basis of Modified Adjusted Gross Income (MAGI). The PPACA 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. The Act also established the Health Insurance Marketplace, which is a resource where individuals, families, and small businesses can learn about their health coverage options; compare health insurance plans based on costs, benefits, and other important features; choose a plan; and enroll in coverage.
Actuarial Value
The actuarial value of a health plan equals the percentage of the total average costs that a plan pays for Essential Health Benefits. If a health plan had an average actuarial value of 60%, insured individuals would be responsible for paying 40% of the costs of covered benefits. A plan meets the minimum value requirement if it is designed to pay at least 60% of the total costs for covered benefits.
Guaranteed Issue
The guaranteed-issue provision in the Act is designed to eliminate discrimination based on health status by insurers. Insurers must provide health insurance to any person, regardless of medical history or current state of health. Insurers may no longer rate and charge higher premiums for substandard risks. Rates are strictly based on regional costs and the age of the insured.
Medical Loss Ratios
The medical loss ratio is the ratio of an insurer's claims costs and certain taxes and fees versus its total premiums received. By requiring a minimum MLR, an insurance company provides greater value to its policyholders when a higher percentage of premiums is used for healthcare costs versus administrative expenses or profits. The ACA requires the medical loss ratio to be 85% for large group plans and 80% for individual and small group plans. If an insurer fails the MLR test (the loss ratio is lower than the required minimum) in a calendar year for all plans in a given market segment (individual or group), the excess premium is to be refunded to consumers enrolled in plans in that market segment.
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. In the event that the employee fails to spend all of the designated funds in the account by the end of the plan year (which can extend into the first 2 or 3 months of the following calendar year), the employer retains the unused funds. An FSA may be opened without a high deductible health plan or any other medical care plan.
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.
Disability Buy-Sell Agreement
● Premiums are not tax deductible. ● Benefits received are not taxable.
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. The taxes are offset when the money is used to pay business expenses other than the owner's personal income.
Accidental Death and Dismemberment
● Premiums paid by the employer are tax deductible. ● Benefits received are not taxable.
Long-Term Care Insurance
● Premiums paid by the employer are tax deductible. ● Benefits received from a qualified LTC policy are not taxable.
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. Example: Theresa's employer pays 75% of the premium for her long term disability benefits. As a result, 75% of the benefits received by Theresa under that policy will be taxable as income to her. She must pay any income tax due from her own resources.
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.
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.
Disability Income Insurance
● The premiums paid for individual disability income insurance are not tax deductible. ● Disability income benefits received are not taxable.
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.