Changes to Healthcare Law May Benefit Families
by Breedlove & Associates ▪ August 20, 2013
A new era
of health insurance is set to begin on January 1, 2014. The Patient Protection
& Affordable Care Act (also known as "ObamaCare") will usher in
dramatic changes to coverage requirements and policy procurement. This month, The
Legal Review takes on a different look as we demystify our new universal
healthcare system and examine its effect on household employment.
Coverage Requirements
Next
year, every U.S. citizen will be required to have health insurance coverage -
either their own policy or through a spouse, parent or group plan. The
consequences for not having coverage will be a fine, which will become
increasingly punitive over the next few years. Unfortunately, many household
employees currently don't have health insurance - due to expense, difficulty
obtaining coverage or simply a lack of perceived need.
Beginning
October 1, 2013, each state will provide access to an online health insurance
exchange, which will provide a marketplace where individuals can compare health
insurance plans and purchase a policy that suits their needs. Links to the
exchange in each state can be found on the HealthCare.gov website.
How Employers Can Help AND Save Money
While
household employees will be required to have health insurance coverage,
household employers are NOT required to offer or pay for the coverage. However,
Congress has created incentives for employers to make health insurance
contributions part of the compensation package.
First,
the employer contribution is considered non-taxable, so neither the employer
nor the employee is required to pay any taxes on that portion of the
compensation.
Second,
families are eligible for a health insurance tax credit (HITC) - as long as
they pay for at least half of their employee's health insurance premium and the
annual wages they pay to the employee (or average annual wages if they have
more than one employee) is less than $50,000. Currently, the HITC provides a tax
credit of up to 35% of the employer's health insurance contributions. However,
this credit will increase to a maximum of 50% starting in 2014.
The
combination of non-taxability and tax credit make employer-paid health
insurance a very attractive benefit option for most families. Take a look at
the following example to see how a nanny's income and a family's cost can be
affected by the family covering the full cost of a health insurance policy at
$300 per month (or $3,600 annually):
As you can see, the nanny takes home
more money and the family saves money.
It's a win-win for both family and caregiver.
How Families Can Pay for Insurance and Receive the Credit
Generally, a household employer is not able to set up a group health insurance policy to offer their employee. Instead, the employee should find and purchase an individual policy of their choosing. The family may pay up to the entire monthly premium for their employee and should make payments directly to the health insurance company in order to keep accurate records of their contributions. At tax time, the family will file Form 8941 with their personal income tax return to claim the tax credit for their health insurance contributions.
What if the Employee Purchases Insurance on Their Own?
If a family does not wish to contribute to their employee's health insurance premiums or the employee wishes to purchase coverage on their own, they can still be eligible for a subsidy to offset the financial burden if they purchase a policy through their state's exchange. The amount of the subsidy is based on the employee's income level and will usually be credited to them at tax time. (In certain circumstances the employee may be able to receive their subsidy earlier)
