Understanding Health Insurance in 2014 and Beyond – January 2014

The Shaw Atlas

Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.

Newsletter contents:

Understanding Health Care Reform and the Affordable Care Act
Top Ten Reasons Why People With Even Modest Estates Need Estate Planning

As all of you probably know, we are now in our busiest time of the year. Because of this we have asked several of our referral partners in different industries to write guest articles for our newsletter. In this issue, Jim Sampson, Employee Benefits Consultant for Flood and Peterson has graciously agreed to write an informative article on the Affordable Care Act. Additionally, I found a very relevant article on Estate Planning. Both are must reads. Enjoy!

Understanding Health Insurance in 2014 and Beyond

By Jim Sampson, REBC, RHU, ChFC, CLU,
Employee Benefits Consultant, Flood and Peterson

Whether you call it the Health Care Reform, the Affordable Care Act, PPACA, or the ubiquitous “Obamacare,” 2014 introduces new mandates on what must be covered, communicated, and accounted for in health insurance policies. These changes will impact the individual, the small-group employer, and the large-group employers who purchases health insurance.

While by no means exhaustive, we have summarized 10 key changes and touched on how they could impact you. Understand, also, that many of these changes could impact premiums, both at the individual level and the employer level. We hope this helps you make more informed decisions throughout the coming year.

1.       The Individual Mandate – beginning in 2014, the ACA requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. The penalty for not obtaining acceptable health insurance coverage will be phased in over a three-year period, and is the greater of two amounts—the “flat dollar amount” and “percentage of income amount.”

2014

$95 per person/1 percent of income

2015

$325 per person/2 percent of income

2016 and later years

$695 per person/2.5 percent of income

The penalty will be assessed against an individual for any month during which he or she does not maintain “minimum essential coverage” (MEC) beginning in 2014 (unless an exemption applies). The requirement to maintain MEC applies to individuals of all ages, including children. The IRS final rules provide that an individual is treated as having coverage for a month so long as he or she has coverage for any one day of that month.

Minimum Essential Coverage includes coverage under:

  • A government-sponsored program, such as coverage under the Medicare or Medicaid programs, CHIP, TRICARE and certain types of Veterans health coverage;
  • An eligible employer-sponsored plan (including COBRA and retiree coverage);
  • A health plan purchased in the individual market; or
  • A grandfathered health plan.
  • MEC does not include specialized coverage, such as coverage only for vision or dental care, workers’ compensation, disability policies, or coverage only for a specific disease or condition.

2.       New Marketplace to buy Insurance – On October 1, 2013, Colorado launched Connect for Health Colorado (www.connectforhealthco.com). This Exchange/Marketplace allows individuals to search for and shop for individual and small business health insurance plans, as well as determine whether they qualify for financial assistance.

3.       Pre-existing Condition Exclusions – Effective for plan years beginning on or after Jan. 1, 2014, ACA prohibits health plans from imposing pre-existing condition exclusions (PCEs) on any enrollees. This change may encourage individuals to purchase their own policies after leaving a job, instead of enrolling in more costly COBRA insurance from the employer.

4.       Limits on Cost-sharing – Effective for plan years beginning on or after Jan. 1, 2014, plans are subject to limits on cost-sharing or out-of-pocket costs. Out-of-pocket expenses may not exceed $6,350 for self-only coverage and $12,700 for family coverage. This change has increased costs for many individual and group plans who previously passed on greater out of pocket costs.

5.       Rating Methodology – Insurance companies will not rate insurance policies based on the member’s age, geographic location, family size, and tobacco status. A family’s premiums will now be the sum of each family member’s age-based rate.

6.       Excessive Waiting Periods – Effective for plan years beginning on or after Jan. 1, 2014, a health plan may not impose a waiting period that exceeds 90 days. A waiting period is the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll in the plan becomes effective. 

7.       New Compliance Communications – A number of new notices must be given to employees at various times through the year. Be aware that as an employer, some of the notices you may have to provide include:

  • Exchange Notices within 14 days of employee’s start date,
  • Summary of Benefits and Coverage at initial and open enrollment,
  • Statement of Grandfathered status if you still offer a plan that existed on March 23, 2010, and
  • 60-Day Notice of Plan changes if significant changes are made outside of renewal.

 8.       New Fees built into premiums – In 2014 a number of new fees begin that will impact premiums. Those include:

  • Research Fees – Health insurance issuers and self-funded group health plans must pay fees to finance comparative effectiveness research. For plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014, the fee is $2 multiplied by the average number of lives covered under the plan.
  • Reinsurance Fees – Health insurance issuers and self-funded group health plans must pay fees to a transitional reinsurance program for the first three years of health insurance exchange operation (2014-2016). The fees will be used to help stabilize premiums for coverage in the individual market. For 2014, HHS has proposed a national contribution rate of $5.25 per month ($63 per year). For 2015, the annual contribution rate is proposed to be $44 per enrollee per year.
  • Health Insurer Provider Fees – Beginning in 2014, the ACA imposes an annual, non- deductible fee on the health insurance sector, allocated across the industry according to market share. The aggregate annual fee for all covered entities is expected to be $8 billion for 2014, $11.3 billion for 2015 and 2016, $13.9 billion for 2017 and $14.3 billion for 2018. Insurance carriers will build this cost into their premiums.

 9.       Additional Medicare Tax – Effective Jan. 1, 2013, the Medicare Part A (hospital insurance) tax rate increases by 0.9 percent (from 1.45 percent to 2.35 percent) on wages over $200,000 for an individual taxpayers and $250,000 for married couples filing jointly. An employer must withhold the additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

 10.    Employer Penalties for Not offering Required Coverage (Large Employers only) – Employers with 50 or more employees (including full-time and full-time equivalent employees) that do not offer coverage to their full-time employees (and dependents) that is affordable and provides minimum value will be subject to penalties if any full-time employee receives a government subsidy for health coverage through an Exchange. This provision was delayed until 2015, but employers need to understand the mandate, examine how it might impact them, and begin to plan now.

As you may suspect, the list could go on. However, these are top items that could impact your business or your family. For more help, feel free to contact Flood and Peterson.

Founded in 1939, Flood and Peterson has become one of the most respected firms in the Rocky Mountain region and one of the nation’s largest independently owned agencies. With offices in Greeley, Fort Collins, and Denver, Colorado, we employ 118 dedicated, experienced professionals. Fifteen active partners lead our employee-owned company.  Flood and Peterson advises clients in Commercial Insurance, Surety Bonds, Employee Benefits, 401K/Retirement Planning, and Personal Insurance.

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Top Ten Reasons for Estate Planning

I found this article in the Ultimate Estate Planner Newsletter, as written by Heidi Freeman, a partner in the law firm of Oshins & Associates, LLC in Las Vegas, NV, to be extremely relevant and required reading for all.  It is called the Top Ten Reasons Why People with Even Modest Estates Need Estate Planning.   It contained some very good information as to why most everyone should consider basic estate planning even though they do not have estates in excess of the federal exemption limits. I hope you enjoy. Kevin Shaw

TOP TEN REASONS WHY PEOPLE WITH EVEN MODEST ESTATES NEED ESTATE PLANNING.

The American Taxpayer Relief Act of 2012 (actually passed on January 1, 2013), permanently increased the gift, estate and generation-skipping transfer tax exemptions to $5 million per person. In 2014, adjusted for inflation, the amount is actually $5.34 million per person ($10.68 million for a married couple). Due to the increased exemption amounts and the addition of portability, significantly fewer clients are in need of transfer tax planning. This article provides ten reasons why clients who do not have a transfer tax concern still have compelling estate planning needs.

Reason #1: Naming Beneficiaries. Many individuals have not considered who will inherit their assets if they do not have at least a Will. Intestate succession laws differ widely from state to state. A client may be surprised to learn that his/her spouse and parents or spouse and children will share in the inheritance under the state law where the client resides. Also, clients often forget who has been designated as the beneficiary under retirement plans, life insurance and other assets.

Reason #2: Appointing Guardian for Minor Children. Clients with minor children should be encouraged to at least update or put their Wills in place in order to name guardians for their children. When deciding who will be the physical custodian of the minor child, clients should also consider who will be the trustee to manage the child’s inheritance.

Reason #3: Appointing a Health Care Agent. Clients need to consider who will make medical decisions in the event the client is incapacitated and whether the client wishes to remain on life support. This is another area in which clients may be surprised by who is appointed under state law as the decision maker in the event the client has not signed a health care proxy. It is especially important for unmarried clients who wish for their significant other to be their health care agent.

Reason #4: Appointing Agents/Trustees to Manage Assets in the Event of Incapacity. In addition to considering who will manage and benefit from their assets after death, clients need to have a succession plan in the event of the client’s incapacity. This may take the form of a durable financial power of attorney, trust planning or a combination thereof. Clients with businesses may want to name different people for purposes of running their company vs. their personal assets.

Reason #5: Protecting a Beneficiary from Himself/Herself. A trust is a useful tool for a beneficiary who is too young or does not have the proper investment skills to manage his/her inheritance. First, it can be used to name a person/institution as the investment trustee until the beneficiary is capable (if ever). Second, a trust can be used to distribute funds over time to protect assets from a spendthrift beneficiary’s own misjudgment. Third, the trust can be used to provide supplemental benefits to a beneficiary with special needs without disqualifying the beneficiary from other government support. Clients with special needs children are often unaware that by leaving assets outright to their children, they are placing the special needs child in a position that may disqualify the child from benefits in the future.

Reason #6: Protecting Children/Beneficiaries from Creditors and Divorcing Spouses. An irrevocable trust established by a third party either during lifetime or after death can be one of the most useful tools for asset protection. Clients who do not have any planning documents or whose documents distribute outright to their beneficiaries are foregoing the creditor and divorce protection that could be given to their beneficiaries. If the client’s documents are drafted so that the assets are maintained in continuing trust (rather than forcing out distributions of income or principal at staggered ages), the trust assets can be protected from the beneficiary’s creditors or divorcing spouses. If the beneficiary is capable of managing the inherited wealth, the trust can be designed as a beneficiary-controlled trust, which gives the beneficiary as much control as possible without giving up the protection the irrevocable trust provides. With a beneficiary-controlled trust, the primary beneficiary is either the sole trustee or the investment trustee. For optimal creditor protection, the trust will be designed as a fully discretionary trust with an investment trustee (the beneficiary) and a distribution trustee (independent trustee).

Reason #7: Protecting Your Client from Creditors and Divorcing Spouses. Even clients with modest wealth may encounter situations calling for enhanced creditor protection. A client who may inherit several hundred thousand or more from his/her parents should talk with his/her parents about changing their estate planning documents such that the inheritance is left in trust for the client (i.e. Reason #4 above). Advisors should periodically review the client’s assets and ownership structure to make sure there are no gaps for asset protection purposes. For example, if the client has forgotten to wrap rental property in a business entity, such as a limited liability company, or if the client has a corporation that could be converted into a limited liability company for superior charging order protection. In addition to isolating assets in business entities, clients may consider transferring a portion of their wealth to a self-settled spendthrift trust. A self-settled spendthrift trust is an irrevocable trust that protects the trust assets from the settlor’s creditors, while still allowing the settlor to benefit from the trust assets. Fifteen states have adopted laws that offer creditor protection for self-settled spendthrift trusts. Each of the states that allow self-settled trusts require a statute of limitations period that must expire before transferred assets are protected from the settlor’s creditors. Therefore, it is advisable to start asset protection planning as early as possible.

Reason #8: Minimizing Income Taxes. Advisors may find that their clients’ focus has shifted from minimizing estate taxes to minimizing income taxes. The income of assets held in a trust that has its situs in a state with no state income tax may escape state income taxation of the state where the client resides. The contributed assets must produce income that is not considered source income as to the taxing state. For example, a New York resident could contribute a marketable securities portfolio to a Nevada Intentionally Non-Grantor Trust (“NING”) to reduce or eliminate state income tax for the income of the portfolio.

Reason #9: Adjusting Existing Documents to do “Better Planning.” It is always a good idea to review the existing documentation of a new or prospective client. Even irrevocable trusts can be modified through (i) the decanting or modification laws of many states or (ii) the exercise of a power of appointment. The modification may allow the trust to address a change in circumstance for the client’s family or remedy a defect in the creditor and divorce protection of the trust. Attorneys and other advisors should ask to see copies of existing trusts, including irrevocable trusts of which the client is a beneficiary, to see what can be done to improve the trust under new favorable trust laws.

Reason #10: Avoiding Probate. A client’s estate can be designed to avoid probate through the use of beneficiary designations and a revocable trust. Probate can be a costly and time consuming court proceeding and can easily be avoided by establishing and funding the revocable trust during the client’s life. The revocable trust is especially important for clients who own real property in multiple states because ancillary probate proceedings are required in each state if the property is titled in the client’s name. The revocable trust will outline the client’s beneficiaries and provide asset management succession (in the form of a successor trustee if the client becomes incapacitated). The revocable trust can be drafted to provide the creditor and divorce protection noted above for the client’s beneficiaries upon the client’s death.

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