Chapter 14: Health Insurance Concepts, Programs, and Tax Considerations

Question 1

Patient Protection and Affordable Care Act (PPACA)

Answer 1

• Commonly referred to as the Affordable Care Act (ACA)
• Consists of a combination of measures to control healthcare costs and an expansion of coverage through public and private insurance, which includes broader Medicaid eligibility and Medicare coverage, and subsidized, regulated private insurance.

Question 2

Health Insurance Marketplace

Answer 2

A resource where individuals, families, and small businesses can learn about their health coverage options; compare plans based on costs, benefits, and other important features; choose a plan; and enroll in coverage.

Question 3

Requirements for Minimum Essential Coverage (under the ACA)

Answer 3

• Enrollment in a government program such as Medicare, Medicaid, TRICARE, the Children’s Health Insurance Program (CHIP), or any other state health plan
• Purchasing insurance offered by an employer
• Purchasing insurance through a state exchange
• Purchasing insurance directly from an insurer in the individual market

Question 4

Eligibility / Exemption from Minimum Essential Coverage (under the ACA)

Answer 4

Unless exempt, Americans are required to obtain and maintain minimum essential coverages. The following individuals are exempt from this provision of the ACA:

• Members of a religion opposed to acceptance of health care benefits
• Undocumented immigrants
• Those who are incarcerated (serving time in jail)
• Members of a federally-recognized Indian tribe
• Those whose household income does not require a tax return to be filed
• Those who must pay more than 9.5% of their income for health insurance, after application of any employer contributions and tax credits
• Those eligible for hardship exemption, such as the homeless, victims of eviction from their homes, and natural or human disasters

Question 5

Individuals who do not Obtain/Retain Qualifying Health Care Coverage:

Answer 5

Will be required to pay a penalty as part of their federal income tax returns

Question 6

Essential Health Benefits Package

Answer 6

The health insurance benefits of an Essential Health benefits package must provide at least the following:

• Ambulatory patient services
• Behavioral health treatment
• Emergency services
• Hospitalization
• Laboratory services
• Maternity, including prenatal and delivery care
• Mental health services
• Newborn care
• Pediatric services, including dental and vision care
• Prescription drugs
• Preventive, wellness, and chronic disease management
• Rehabilitative and habilitative services and devices
• Substance use disorder services

Question 7

Benefit Categories

Answer 7

Essential Health Benefits package is required by the ACA to provide coverage for at least one of the four levels of coverage through all health exchanges. These levels are known as “Metal Plans” and are defined as Bronze, Silver, Gold, or Platinum. The main difference between these plans is the percentage the plan pays of the average overall cost of providing essential health benefits to members. The category chosen affects the total amount an individual will spend for essential health benefits during the year.

Question 8

Bronze Plan

Answer 8

Covers 60% of the benefit cost of the plan

Question 9

Silver Plan

Answer 9

Covers 70% of the benefit cost of the plan

Question 10

Gold Plan

Answer 10

Covers 80% of the benefit cost of the plan

Question 11

Platinum Plan

Answer 11

Covers 90% of the benefit cost of the plan

Question 12

Guaranteed Issue Provision (under the ACA)

Answer 12

This Act is designed to eliminate insurer discrimination based on health status and mandates that insurers provide health insurance to any person, regardless of medical history or current state of health. The premiums must be offered at an average and restrict the ability of the insurer to limit the scope of coverage.

Question 13

Preexisting Conditions (under the ACA)

Answer 13

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.

Question 14

Termination of Coverage Notice Requirement (under the ACA)

Answer 14

Within at least 30 days prior to the last day of coverage, insurers must provide notice of termination/cancellation and include reason for termination.

If reasoning is for nonpayment of premium, a 3-month grace period is required, during which any advance payment of tax credits continues to be collected. If premiums remain delinquent at the end of the 3 months, the policy may be terminated provided that the 30-day notice requirement has been met.

Question 15

Appeal Rights (under the ACA)

Answer 15

Health Plans must have an internal appeals process for beneficiaries to challenge “adverse benefits decisions,” such as a denial, reduction, termination of, or failure to provide to make a payment for a benefit. The plan must also include a notice of the right to an external appeal, together with a description of the process and the timeframes for such appeals.

Question 16

Prohibit Rescissions (under the ACA)

Answer 16

Coverage may only be rescinded for fraud or intentional misrepresentation of material fact. Notification must be made to the policy holder 30 calendar days prior to cancellation.

Question 17

Dependent Continuation (under the ACA)

Answer 17

Benefit plans that provide coverage for dependents are required to cover adult children up to age 26. Eligibility may be based only in terms of the relationship between a child and participant, and not deny or restrict coverage based on factors such as: financial dependency, residency, student status, employment, or marital status.

Question 18

Lifetime and Annual Limits (under the ACA)

Answer 18

Insurers offering group or individual health insurance coverage are prohibited from imposing lifetime or annual limits on a dollar value of health benefits.

Question 19

Emergency Care

Answer 19

Benefit plans that cover emergency services must provide coverage without the need for prior authorization regardless of participating status of the provider. Out-of-network providers are coverage for the same cost as in-network providers.

Question 20

Preventive Services

Answer 20

Insurance plans must include coverage for preventive health services such as:

• Well-child care from birth to age 19, including necessary immunizations
• Mammography screening
• Cervical cytology screening
• Prostate cancer screening

Question 21

Consumer-Driven Health Plans (CDHPs)

Answer 21

Allows individuals to use a 3-tiered approach to funding the costs of medical services and treatment. The various consumer-driven health plans help individuals control benefit costs by allowing them to decide how their health plan funds are used. Options include:

• Tier 1
• Tier 2
• Tier 3

Question 22

Tier 1 (Consumer-Driven Health Plans)

Answer 22

Pretax account, such as a Health Savings Account (HSA), Archer Medical Savings Account (MSA), Health Reimbursement Account (HRA), and Flexible Spending Account (FSA)

Question 23

Tier 2 (Consumer-Driven Health Plans)

Answer 23

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.

Question 24

Tier 3 (Consumer-Driven Health Plans)

Answer 24

A high deductible health plan (HDHP), which is a health insurance plan designed to coordinate with pretax accounts to help consumers manage their spending for health care and insurance.

Question 25

High Deductible Health Plan (HDHP)

Answer 25

Similar to other health insurance plans, however, these plans 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 the plan’s 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 contributions an individual may make to a HSA, MSA, HRA, or FSA.

Question 26

Health Savings Accounts (HSAs)

Answer 26

A trust created exclusively to pay qualified medical benefits. Available to any employer or individual for an account beneficiary

• the individual on whose behalf the account is established - who has high deductible health insurance coverage.
• Funded with pretax income and grows tax-deferred
• May be used tax-free to pay for unreimbursed qualified medical expenses
• For high deductible plans
• Nonqualified withdrawals prior to age 65 are subject to a 20% penalty tax. After 65, funds may be withdrawn and used for any purpose without penalty, but if not used for health care expenses, withdrawals will be subject to ordinary income tax. Penalty does not apply when taxpayer is 65 or older, or in the event of account owner’s death.
• Funds may roll over and used for the following year without penalty, if not used by the end of the calendar year.

Question 27

Medical Savings Account (MSAs) OR Archer Medical Savings Account

Answer 27

Similar to HSAs, but have different contribution 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 and FSAs.

• A MSA is purchased along with a HDHP. Premiums are tax deductible by the business and 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 account at the end of the year they can be rolled over for use in the following year without penalty.

Question 28

Health Reimbursement Arrangements (HRAs)

Answer 28

HRA is a type of 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 may not be attributable it any salary reductions.

• Cash-payouts not permitted, but 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.
• Unused funds may be carried over year to year - employer has full control over how roll-over is managed.
• If employee leaves company, remaining funds revert to employer.
• HRA plans do not require coordination with a HDHP

Question 29

Flexible Spending Accounts (FSAs)

Answer 29

Employer-established plan that permits the employee to defer up to $2,550 on a pre-tax basis into a specifically designated account. Employee may withdraw these 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.

• Contribution limits determined by the IRS
• Employer funds the account in full at the beginning of the calendar year, and withholds a prorated amount of income at each pay period through the year until the employee’s allocation has been fully received.
• Considered a “use it or lose it” form of voluntary salary reduction agreement. A grace period of up to the first 3 months of the following calendar year may be offered by the employer to spend the unused funds.
• FSA may be opened without a HDHP or any other medical care plan.

Question 30

TRICARE (The Uniformed Services Health program)

Answer 30

• Primarily for active duty and retired members of the U.S. military and their dependents.
• Three plans now available, depending on member’s service status (active duty, National Guard/Reserves, or retired)
• Plans are Standard, Prime, and TRICARE for Life.
• As long as person is on active duty, Prime coverage is mandatory with no out-of-pocket expenses for treatment at a military medical facility. Dependent coverage is not mandatory, but most active duty select Prime coverage for their dependents.

Question 31

Standard (TRICARE Plan)

Answer 31

Requires no premiums on the member’s part, but does require a $12 co-pay for office visits and a 25% co-pay for procedures

Question 32

Prime (TRICARE Plan)

Answer 32

Requires a premium, but has no out-of-pocket expenses for tests, operations, etc., as long as a primary care manager or TRICARE-approved referral is used. There is a $12 co-pay for office visits and an $11 per day charge for hospitalization.

Question 33

TRICARE for Life (TRICARE Plan)

Answer 33

Serves as a second insurer for those on Medicare Parts A and B. Medicare will be the primary payor and TFL will be the secondary. There are no enrollment fees, but the member must pay own Medicare Part B premiums.

Question 34

Individual Disability Income Insurance - Federal Tax Considerations

Answer 34

• Premiums are NOT tax deductible

- Benefits are NOT taxable

Question 35

Individual Medical Expense Insurance - Federal Tax Considerations

Answer 35

• Premiums and unreimbursed medical expenses that exceed 10% of the individual’s adjusted gross income MAY BE tax deductible
• Benefits are NOT taxable

**Only amounts above the floor are tax deductible

Question 36

Individual Long-Term Care Insurance - Federal Tax Considerations

Answer 36

• Premiums paid that exceed 10% of individual’s adjusted gross income MAY BE tax deductible
• Individuals 65 and older, premiums exceeding 7.5% of adjusted gross income MAY BE tax deductible
• Benefits are NOT taxable

**Only amounts above the floor are tax deductible

Question 37

Group Disability Income Insurance - Federal Tax Considerations

Answer 37

Premiums paid by employer ARE tax deductible, and under a contributory plan, premiums paid by the employee are made with AFTER-TAX dollars
- Disability benefits ARE taxable as income to employee based on percentage of premium paid by employer

Question 38

Group Medical and Dental Insurance - Federal Tax Considerations

Answer 38

• Premiums paid by employer ARE tax deductible
• Self-employed persons may deduct up to 100% of the cost for themselves and their dependents
• Employee paid premiums ARE tax deductible only to the extent that all premiums, as well as unreimbursed medical expenses, exceed 10% of their Adjusted Gross Income
• Benefits are NOT taxable, regardless of the premium payor

Question 39

Group Long-Term Care Insurance - Federal Tax Considerations

Answer 39

• Premiums paid by employer ARE tax deductible

- Benefits are NOT taxable

Question 40

Group Accidental Death and Dismemberment - Federal Tax Considerations

Answer 40

• Premiums paid by employer ARE tax deductible

- Benefits are NOT taxable

Question 41

Medical Expense Coverage for Sole Proprietors and Partners

Answer 41

Sole proprietors and business partners qualift for a deduction that lets them write off the entire amount of insurance premiums without worrying about an adjusted gross income threshold. This also includes medical insurance premiums for spouse, dependents, and any children who are under age 27. Benefits are NOT taxable.

Question 42

Business Overhead Expense

Answer 42

• Premiums paid by business ARE tax deductible

- Benefits received ARE taxable to business owner and must be reported as income

Question 43

Key Person Disability Insurance

Answer 43

• Premiums are NOT tax deductible to the business, when employer purchases policy and is also the beneficiary
• Benefits are NOT taxable

Question 44

Disability Buy-Sell Agreement

Answer 44

• Premiums are NOT tax deductible

- Benefits are NOT taxable