How is the PPACA Really Funded?

2016 has been an important year for ensuring compliance with the new Patient Protection and Affordable Care Act (PPACA). Such compliance has meant new forms and, in many cases, exploring new options for covering employees. Naturally, many Americans are asking who, ultimately, will foot the bill for all the additional coverage and administrative costs. Will the PPACA bring down our debt as a nation, or simply add to it?

Part of the PPACA’s aims is to bring down future healthcare costs by encouraging preventive services: annual check-ups, dental visits, and so on. Underinsured and uninsured people typically did not take advantage of these measures, which led to more severe problems—and more expensive healthcare needs—down the road. Inevitably, it was the taxpayers who would have to cover these expenses.

When the PPACA was first presented to the public, it was predicted that the decline in costs associated with emergency and catastrophic care would cover a good deal of the costs of affordable preventive care for the underinsured. And so some news outlets reported—erroneously—that the PPACA would be “self funded.” Although cost controls are an important part of the picture, the PPACA is also funded by taxes at the state and federal level, as well as by the penalties that individuals pay if they elect not to be covered.

A more detailed rundown of the PPACA funding sources is as follows:

• The Medicare tax rate has been increased by 0.9%. (The increase went into effect in 2013; a chart of those liable for the increase can be found on this IRS webpage.)
• A 3.8% tax increase on unearned income for high-income taxpayers (where high income is defined as $200,000 for an individual and $250,000 for joint filers) has been introduced. This tax applies to dividends, rents, net capital gains, royalties, and gross income from interest but does not include interest on distributions from retirement plans, amounts subject to self-employment gain, tax-exempt bonds, or veterans’ benefits.

• A new tax on health insurance policies that cost more than $10,200 for an individual or $27,500 for a family per year (“cadillac plans”) brings their tax rate to 40%. The idea here is to discourage people with high incomes from avoiding taxes by having their companies compensate them with expensive, full-coverage plans. Contributions to “cafeteria plans” that allow employees to choose from among different health benefits are also limited to $2,500.
• Under Section 9008 (b) of the PPACA, manufacturers and importers of branded drugs have to pay a new annual fee. Manufacturers or importers of certain medical devices also face a new 2.3% tax.
• Under Section 9010 (b) of the PPACA, health insurance providers also must pay a new annual fee.

• The adjusted gross income floor on medical expenses deduction has been increased from 7.5% to 10%.
• A new 10% tax has been imposed on indoor tanning services for individuals.

Many of these sources of funding will be discovered as individuals and families file their taxes. They affect HR departments insofar as they change the calculus for certain kinds of plans, particularly high-cost plans and cafeteria plans.

PPACA Changes in 2016

That said, businesses are still struggling with other aspects of the PPACA—particularly the paperwork required to be in compliance, definitions of things like “small employer” and “exempt employee,” determination of part-time and full-time employees, and so on. The fact that the PPACA is being deployed in phases, with changes occurring gradually over the years, can further complicate these issues.

To help businesses navigate these changes, here is a short list of things you should aware of now in 2016:

1. As of January 1, the term “small employer” is defined as organizations having 50 or fewer full-time employees (as opposed to 100 or fewer). Individual states still reserve the option of expanding the size limit of a small employer (as long as it does not exceed 100 employees), so it is worthwhile checking with your state if you employ 51 to 100 full-time employees.
2. All employers, regardless of size, are required to file information returns to the government. Though the deadline to file these forms was extended, the new deadline has already passed and future years are unlikely to be extended.
3. In 2016, the coverage that employers offer to employees must provide minimum essential coverage to eligible dependants as well. (Previously, employers were required to offer coverage only for employees themselves.)
4. There will be a tighter focus on compliance for CY 2016, with a planned increase in the number of audits. To avoid costly audits, employers will need to ensure that forms are accurate and filed in a timely manner, and that their insurance offerings are also in compliance with PPACA regulations.

Healthcare law compliance—and the threat of expensive audits—can foment change in any organization’s benefits offerings and administration. Sonus Benefits is keeping abreast of these changes so that we can help your organization choose the best plans that fit your company and all its requirements. If you are still struggling with plan changes, talk to us.