Recap of Chapter Fourteen

The Patient Protection and Affordable Care Act (“PPACA”) established national guidelines for the provision of health insurance in the United States. Under the PPACA, insurers are prohibited from denying coverage to individuals with pre-existing conditions that would otherwise impact their insurability. The PPACA is now commonly referred to as the Affordable Care Act (ACA). 14.1
The ACA requires that all health insurance be issued on a “guaranteed issue” basis. In addition, it eliminates both annual and lifetime limits on health care expenses paid by insurance companies. 14.1
Although many states had already enacted laws restricting insurers from rescinding coverage except in cases of material misrepresentation or fraud, the ACA standardizes this requirement nationwide. Coverage may only be rescinded in cases of fraud or intentional misrepresentation of a material fact. Insurers must also provide policyholders with at least 30 calendar days’ advance notice prior to the effective date of cancellation. 14.1
The Affordable Care Act (ACA) allows most legal residents to qualify for federal subsidies to help cover premium costs and cost-sharing obligations for health insurance plans purchased through a state exchange. 14.1
The ACA requires most group and individual health plans to establish internal appeals processes to address “adverse benefit determinations,” which involve the denial or limitation of coverage. Insurers must notify policyholders of the appeals procedures and applicable timeframes. This process enables insured individuals to challenge decisions such as denials, reductions, or terminations of benefits. 14.1
The ACA also permits dependent children to remain covered under a parent’s health insurance plan until age 26. In addition, amendments to COBRA allow certain dependents whose coverage would otherwise end at age 26 to continue coverage under the group plan until age 29. 14.1
“Consumer Driven Health Plans” (CDHPs) emphasize greater consumer responsibility in selecting cost-effective health care services. These plans typically use a three-tiered structure for paying claims and provide insured individuals with increased control over how their health care funds are spent. 14.2
Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), Health Reimbursement Arrangements (HRAs), and Flexible Spending Accounts (FSAs) represent the first tier of the funding approach in Consumer Driven Health Plans (CDHPs). 14.2
To establish and fund a Health Savings Account (HSA), an individual must be enrolled in a High Deductible Health Plan (HDHP). Contributions to an HSA grow on a tax-deferred basis, and withdrawals used for qualified, unreimbursed medical expenses are tax-free. 14.2
A 20% penalty tax applies to HSA withdrawals used for nonqualified expenses. However, beginning at age 65, funds may be withdrawn for any purpose without penalty, although ordinary income taxes will apply if the funds are not used for qualified medical expenses. 14.2
The Internal Revenue Service (IRS) establishes annual contribution limits for HSAs, which are adjusted for inflation. Employers may contribute to an employee’s HSA, and spouses may each maintain their own HSA if covered under an HDHP; however, total contributions must not exceed the applicable annual maximum for individual or family coverage. 14.2
Another CDHP option is a Health Reimbursement Arrangement (HRA). HRAs are funded solely by employer contributions, and there is no maximum limit on the amount an employer may contribute. Employees are not permitted to contribute, and reimbursements received are excluded from the employee’s gross income. 14.2
Lump-sum distributions to employees upon termination of employment are not allowed under an HRA. However, former employees may continue participation in the HRA through COBRA continuation coverage. 14.2
Flexible Spending Accounts (FSAs) are employer-sponsored benefit plans funded through employees’ pre-tax salary reduction contributions. Employees may elect to contribute up to $2,550 annually, and the funds may be used to pay for qualified unreimbursed medical expenses, such as deductibles, prescription drug and service copayments, elective surgical procedures, eyeglasses, contact lenses, and certain other eligible expenses (including over-the-counter medications when prescribed by a physician). Under current IRS rules, unused FSA funds are forfeited to the employer under the “use it or lose it” provision. 14.2
TRICARE is a preferred provider organization (PPO)-style managed health care program that provides coverage to active-duty members of the U.S. military and their dependents, retired service members and their families, certain reserve and National Guard members, and other eligible beneficiaries. 14.3
Premiums for individually owned disability income insurance are not tax-deductible, and benefits received are generally not taxable. Benefits provided under health insurance policies are also not considered taxable income to the insured. 14.4
Long-term care (LTC) insurance premiums may be tax-deductible when combined with other qualified medical expenses to the extent that the total exceeds 7.5% of an individual’s adjusted gross income (AGI). The deductible amount is further limited based on the insured’s age. 14.4
In general, a business may deduct the cost of group insurance premiums and other employee benefits it provides, provided the business is not the beneficiary of the policy. Employees are not taxed on premiums paid by their employer. 14.5
Disability income benefits received by an employee are taxable to the extent that the employee did not pay tax on the premiums. If an employer pays 100% of the premium but includes the cost as imputed income to the employee, any benefits received will be tax-free, as though the employee had paid the premiums. 14.5
As with other group health benefits, an employer may deduct premiums paid for group long-term care (LTC) or accidental death and dismemberment (AD&D) policies, and employees are generally not taxed on the benefits received. 14.5
Premiums for business overhead expense insurance are tax-deductible to the business. However, because the business is the beneficiary, any benefits received are taxable as income to the extent they exceed actual overhead expenses. 14.5
Premiums for disability buy-sell insurance policies are not tax-deductible; however, benefits received by the business are generally tax-free. 14.5