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FAQ: What Important Provisions Are Taking Effect Under the Affordable Care Act?

September 24, 2013

Patrick L. Connolly, CPA, MST

The Patient Protection and Affordable Care Act (PPACA)—the Obama administration's healthcare reform law—was enacted in 2010, and many of its provisions have taken effect. Other important provisions will first take effect in 2014 and 2015. These provisions of the law will require affected parties to take action—or at least to be aware of the law's impact—in 2013 and 2014. These provisions affect individuals, families, employers and health insurers, among others.

Individual Mandate

The individual mandate will begin in 2014. The mandate applies separately for each month. Individuals and their dependents must either carry health insurance or pay a penalty, known as the individual shared responsibility payment. The health insurance must qualify as minimum essential coverage (MEC). Most employer-offered plans, as well as Medicare and Medicaid, qualify as MEC. Certain groups are exempt from the individual mandate, including members of a health-sharing ministry, taxpayers without an income tax filing requirement, members of federally recognized Indian tribes and persons for whom coverage is unaffordable (more than eight percent of the individual's household income).


Affordable health insurance marketplaces (exchanges) are ramping up and will be open for business October 1, 2013. Exchanges will provide an open enrollment season during which individuals and families without health insurance can sign up for an insurance policy offered through the exchange, effective January 1, 2014. Anyone needing insurance, or looking for cheaper insurance, can use an exchange. Persons who obtain coverage through an exchange will avoid owing a penalty under the individual mandate. Employers have to start notifying existing employees about the existence of exchanges by October 1, 2013, and must notify new employees when hired.

Low-income individuals and families who purchase insurance through an exchange may qualify for the health insurance premium tax credit for 2014 if their household income falls between 100 percent and 400 percent of the federal poverty level for 2013. Individuals who do not have a filing requirement for 2013 do not need to file a return to qualify for the credit. Individuals will generally self-certify as to their eligibility for the credit. Based on this information, the exchange will determine whether the insured person qualifies for the credit. Taxpayers may qualify for an advanced credit; in this case, the exchange will pay the credit directly to the insurer during 2014 to offset a portion of the health insurance premium.

Small Employer Credit

Small employers may be able to claim the maximum small employer health insurance credit, if the employer has ten or fewer employees and average wages per employee of $25,000 or less. While the credit has been around since 2010, the amount of the credit increases for 2014 and 2015 to 50% of premiums paid for taxable employers, and 35% for non-profit employers.

Employer Mandate

The employer mandate (the employer-shared responsibility payment) was scheduled to take effect in 2014, but the IRS postponed it until 2015. Nevertheless, during 2014 employers will want to start paying attention to whether they would qualify as an "applicable large employer" (ALE), since status as an ALE for 2015 depends on 2014 employees. An employer who has 50 or more full-time equivalent employees is an ALE. New employers will be treated as an ALE if they "reasonably expect" to have 50 employees. Employers that are members of an affiliated group of companies under Code Sec. 414 must determine their status as ALEs based on the number of employees in the group.

Employers will also want to look at their health insurance offerings. Once the employer mandate applies, employers must offer MEC to 95 percent of their full-time employees. The coverage must also be affordable and must provide minimum value. Employers should look at whether they need to redesign their plan offerings or change the employees' share of the cost to comply with these requirements. If the employer's coverage does not satisfy these requirements, if the employee purchases insurance through an exchange, and if an employee qualifies for the insurance premium tax credit, the employer may be responsible for the employer mandate and owe a penalty.

Employer reporting. The requirement for employers and insurers to report health insurance coverage provided to employees and others was also postponed until 2015. Nevertheless, the IRS is encouraging health insurer issuers to experiment with the requirement by filing the necessary reports for 2014. Larger employers also have to report the value of their health insurance coverage on the employee's Form W-2. The amount reported is not taxable.

Wellness programs. Beginning in 2014, employers may offer wellness programs as part of their healthcare benefits offered to employees. Employers may offer benefits, such as premium reductions, to employees who satisfy certain health-related requirements.

Disclaimer: Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service (or state and local or other tax authorities), and (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to promote, market or recommend any transaction or tax-related matter(s) addressed herein without the express and written consent of Blum, Shapiro & Company, P.C.


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