The Affordable Health Care Act As it Stands in California Today








California’s Exchange – Covered California

One of the more important parts of the Affordable Care Act (ACA) are new, state-run, competitive health insurance ‘marketplaces’ also known as “Exchanges.”  California’s health insurance marketplace is known as “Covered California.”  This is where individuals and small businesses will be able to purchase private health insurance for 2014.  Individuals and small businesses will still, however, still be to purchase plans through agents, brokers and directly through health insurance carriers just as they do today.

How ACA Effects California Individuals and Families

In the  in the hopes of making coverage more affordable, many individuals seeking health insurance may get financial assistance or a subsidy to purchase health insurance plans from Covered California.  The amount of assistance will be determined by an individual’s or families’ income level in relation to the Federal Poverty Level (FPL).  Applicants with annual incomes between 134% and 400% of the Federal Poverty Level (FPL) will receive a subsidy.  Those with an FPL under 134% FPL may be eligible for Medi-Cal.  Regardless of a subsidy, by law the ACA requires that all California individuals and family members have qualifying health insurance in 2014.

Enrollment in health plans effective in 2014 will begin on October 1, 2013 and end on March 31, 2014. This open enrollment period is generally the only time individuals will be able to obtain coverage for 2014 - either through Covered California or in the private market. There are, of course, certain life-changing events that allow for enrollment outside of open enrollment; e.g., the loss of a job, death of a spouse or birth of a child.  Such events may allow a special enrollment period within sixty (60) days of the event.
When an individual files their taxes they’ll need to show that they have some type of health coverage (an employer’s plan, an exchange plan, a Medicare or Medicaid plan) – unless they qualify for an exemption. If they don’t have coverage, they’ll pay a tax penalty that will get bigger over time. In 2014 the penalty will be $95.00 or 1% of taxable income, whichever is greater and capped at $285.00 per family.  By 2016, it will jump sharply to $2,085 per family, or 2.5% of taxable income, whichever is greater. Individuals will pay penalties of $95 in 2014 that will climb to $625 in 2016.

The ACA’s Effect on California Employers

Covered California will also host a marketplace specifically designed for small businesses known as the ‘Small Business Health Options Program’ (SHOP).  According to the ACA, ‘Small Business’ is defined as a company with 1-100 employees. However, the states have been given until January 1, 2016 to change the size of their Small Business market to 1-100 employees.  For 2014, Covered California has therefore deemed those with 1 to 50 employees as a Small Business.

According to the Affordable Care Act (ACA), there are three (3) provisions effective in 2014 that are the responsibility of the employer to implement in order to ensure compliance.  The provisions are as follows:The provisions are as follows:
1.  Play-or-Pay: Starting on January 1, 2014, the ACA will require “Applicable Large Employers”– presently, companies that have employed an average of 50 or more full-time and/or full-time equivalent (FTE) employees during the preceding calendar year—to offer affordable health plan coverage to full-time employees (and to their dependents) or face a penalty if an employee receives federally subsidized coverage from Covered California.

So as to afford employers sufficient time to extend coverage to dependents, employers will not be subject to penalties in 2014 for not offering dependent coverage if it takes steps in 2014 towards complying with this requirement. 

2.  Tax Reporting by Applicable Large Employers: Beginning in 2014, Large Employers were to file a return with the IRS that reports the terms and conditions of the health care coverage provided to the employer’s full-time employees for the calendar year. In addition, written statements must be provided to employees showing the information reported to the IRS. The first information returns will be filed in 2015. The IRS will use this information to verify employer-sponsored coverage and administer ACA’s penalty provisions for Applicable Large Employers.[i]  

3.  The Employer's Obligation to Notify their Employees of the Exchange: The ACA requires that all employers subject to the Fair Labor Standards Act to provide all employees with a written notice about health insurance Covered California/the Exchange (known in our state as Covered California). By October 1, 2013 employers must give notice of the exchange to each employee. The notice must provide a description of Covered California, including contact information; a statement that employees may qualify for a tax credit to pay for the Exchange covered if the employer’s plan does not provide minimum value (i.e., when the share of benefit costs do not equal or exceed 60% of the costs of coverage); A statement regarding the financial and tax consequences of purchasing coverage and that the employee would have to forego the employer-paid portion of the premium (if any) if he did went into the Exchange.  Every employee hired after October 1, 2013 must be given notice immediately.

a.      Employers Who Are Covered under the FLSA:  The FLSA applies only to employers whose annual sales total $500,000 or more or who are engaged in interstate commerce.  You might think that this would restrict the FLSA to covering only employees in large companies, but, in reality, the law covers nearly all workplaces. This is because the courts have interpreted the term interstate commerce very broadly. For example, courts have ruled that companies that regularly use the U.S. mail to send or receive letters to and from other states are engaged in interstate commerce. Even the fact that employees use company telephones or computers to place or accept interstate business calls or take orders has subjected an employer to the FLSA.[ii]

How the ACA will Effect California Small Businesses

The ACA does not require employers with fewer than 50 full-time equivalent employees to provide health insurance for their employees.   It does, however, require all employers to their employees written notice about health insurance Covered California by October 1, 2013.

Small Businesses with fewer than 50 full-time employees that do provide health care coverage may be eligible for tax credits if, for the tax year, they have fewer than 25 full-time equivalent employees who are paid an average annual salary of less than $50,000. To qualify for tax credits, the employer must also contribute at least 50 percent toward the employee's premium cost. This contribution requirement also applies to add-on coverage including vision, dental and other limited-scope coverage. 
Businesses that choose to work with Covered California can select the level of coverage you they want to contribute and, within that level, their employees can choose which Qualified Health Plan offered through Covered California best meets their needs. The employee’s share of the health coverage’s cost depends on the level of coverage their employer chooses and the plan they select.

As part of the Affordable Care Act, all health plans are classified into one of four categories: bronze, silver, gold and platinum. As the metal category increases in value, so does the percent of medical expenses that a health plan will cover. This means the gold- and platinum-level plans will cover the highest percentage of health care expenses. These expenses are usually incurred at the time of health care services – when you visit the doctor or the emergency room, for example. The health plans that cover the greatest percentage of health care expenses also usually have higher premium payments.  Not only does the employer select the category in which their employees must choose plans, they also determine how much they will contribute to the premium payment as either a fixed amount or as a percentage of total cost to the employees.

Small Business employers will have an annual election period prior to the group’s annual open enrollment period. For 2014, open enrollment for small groups will begin on October 1, 2013. After that date, employers can begin participating at any time in the year (rolling enrollment), but employees can only enroll or change plans once a year, unless they qualify for a special enrollment period.

In 2014 and 2015, only small businesses with 50 or fewer employees may offer coverage through the SHOP Marketplace. In 2016 this increases to 100 employees. In 2017 California has the option of allowing employers of all size to purchase group coverage through the SHOP Marketplace. SHOP plans can be purchased directly from Covered California or through licensed agents trained and certified by the Exchange.

If an individual or group purchased a plan on or before March 23, 2010, the plan may be considered “grandfathered” by the insurance carrier underwriting that plan.  As such, the plan would be exempt from some of health reform’s mandates like the Essential Healthcare Benefit-benchmark. [ii]  Essential Health Benefits include:

  1. Ambulatory patient services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health and substance use disorder services, including behavioral health treatment.
  6. Prescription drugs must cover the greater of either one drug in every United States Pharmacopeia (USP) category and class, or the same number of prescription drugs in each category and class as the EHB-benchmark plan.  Must have procedures in place that allow a member to request clinically appropriate drugs not covered by the health plan.  Does not require coverage of all drugs in protected classes as defined in Medicare Part D.
  7. Rehabilitative and habilitative services and devices. 
  8. Laboratory services
  9. Preventive and wellness services and chronic disease management
  10. Pediatric services, including oral and vision care for individuals under the age of 19. 
While the insurer has the option to provide that grandfathered status they are not required to do so.   More than likely, and largely due to the rich benefits required the ACA requires of new health plans, grandfathered small employer group plans will be less expensive than the plans offered through SHOP.  From the small employer's perspective there are a few very rich older plans which might make sense for them to compare with currently available SHOP plans - even if this results in losing their grandfathered status.   The employee may, however, have a completely different perspective.

With an annual income of 150% to 400% of the FPL an employee is likely to receive some sort of subsidy on the plans offered by Covered California.  Consequently, although SHOP plans may be significantly more expensive than the plan presently covering the employee, because of expected subsidy the net cost of that plan will likely be less than that of a grandfathered plan.

As to what further changes the ACA and Covered California will bring to California's health care system, no truly one knows. Significant uncertainty regarding affordability and accessability of  individual and small business group health insurance will, however, remain until the Exchange opens for business and operates in the manner presently contemplated by Covered California.

___________________________

About the Author: Margy Wenham has been working as an independent insurance agent for over twenty (20) years in Redding, California. She represents most major insurance carriers, including Anthem Blue Cross and Blue Shield who are participating in Covered California.  She can be reached by calling 530.221.0955, emailing her at Margy@MargyWenhamInsurance.com or by going to one of her websites located at www.InsuredByMargy.com or www.GetCoveredCAInsurance.com.


[i] “Who is Covered by the Fair Labor Standards Act?” Nolo Law (2013) http://www.nolo.com/legal-encyclopedia/free-books/employee-rights-book/chapter2-2.html.
[ii] Effective for new and renewing plans on and after January 1, 2014, the ACA requires that all non-grandfathered, fully insured small group and individual health plans consist of ten (10)


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