Many Small Employers Ineligible for Affordable Care Act Tax Credit

Although up to 4 million small employers may have been eligible to claim the Small Employer Health Insurance Tax Credit in 2010, only 170,300 small employers actually claimed the credit, according to a recent report from the Government Accountability Office (GAO). The report, Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity, http://www.gao.gov/products/GAO-12-549 noted that few small employers took advantage of the credit because most do not offer health insurance. According to the report, employers, tax preparers and brokers explained that the tax credit, alone, was not enough of an incentive for small businesses to begin offering insurance.

The tax credit, created by the Patient Protection and Affordable Care Act (ACA), allows a credit of up to 35 percent of premium costs for small employers who offered health insurance. Under the provision, an eligible small employer may claim a tax credit if it makes nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of its participating employees.

Aside from these issues, eligible small employers failed to claim the credits because of complex rules on full-time equivalents (FTEs) and average wages. Others declined to take advantage of the tax credit citing the amount of time needed to calculate the credit deterred claims.

To remedy these issues, the GAO recommended that the IRS improve instructions to examiners working on the credit and analyze results from examinations of credit claimants and use those results to identify and address any errors. 

New Jersey Governor Vetoes Health Insurance Exchange

Last week, New Jersey Governor, Chris Christie, a Republican, became the second governor to veto a state law that would have created a health insurance exchange in the state. States are required under the Patient Protection and Affordable Care Act (ACA) to create such exchanges as online marketplaces for residents and small businesses to buy health insurance. 


Christie joins the governor of New Mexico in vetoing such a bill. Four other states have notified the Department of Health and Human Services that they will not create such exchanges.

Christie noted that the Supreme Court is currently considering the constitutionality of the ACA, and explained that he vetoed the bill because the exchange was “premature” and could impose “unnecessary obligations upon the state’s citizens.”  

Ultimately, the practical effect of Christie’s veto is limited. Under the ACA states that do not make progress toward establishing an exchange by January 2013 invite action by the federal government. States without health care exchanges will have to pay to set up an exchange, but the federal government will take over the administrative operations. On the other hand, regardless of the outcome of the Supreme Court’s decision, some states may wait to take action on exchanges until the outcome of the Presidential election in November. If the Republicans gain control of both the presidency and Congress, the Act may be repealed or this requirement may be significantly altered.


Not all states are taking this tack on the issue of exchanges. Governors of 11 states and District of Columbia have approved legislation to establish exchanges in their states. New York Governor Andrew Cuomo established an exchange by executive order and the Governor of Kentucky announced that he would do the same if the Court upholds the ACA.  Two states, Massachusetts and Utah, currently have operational exchanges.

Today’s the day . . . your MLR report is due to HHS

Ahhh, June 1^st. It’s a lovely day. It’s a Friday, and the official start of summer is just a few weeks away. But is there something else going on today? It’s not a holiday or my birthday (if it’s yours, Happy Birthday!). 

Oh, that’s right! June 1 is the date the medical loss ratio (MLR) annual report is due to the Department of Health and Human Services (HHS). If this reporting requirement applies to you (and it does if you are an insurer offering group or individual health insurance or if you are a group health plan (but not if you are a self-funded plan)), you’d better stop reading this and get cracking on filling out the reporting form. Here’s a handy link to the 58 pages of instructions.

Note that “mini-med” plans (policies that have a total annual limit of $250,000 or less) and expatriate plans must submit quarterly filings. In addition, an issuer of only excepted benefits is not subject to the MLR filing requirements, according to Q&As issued last week.

Yes, it's due today! If you were hoping for an extension of the June 1 deadline, you're out of luck. The Centers for Medicare & Medicaid Services (CMS) confirmed earlier this week in

Technical Guidance (CCIIO 2012—004) that the June 1 deadline will not be extended.

What has to be reported? In case you’ve forgotten, Public Health Service Act (PHSA) Sec. 2718, as added by the Patient Protection and Affordable Care Act (ACA), requires health insurers offering group or individual insurance coverage and group health plans to provide annual reports concerning the proportion of premiums that go to providing benefits. The report must identify the ratio of the incurred loss (or incurred claims) plus the loss adjustment expense (or change in contract reserves) to earned premiums. Issuers and plans must provide annual rebates of excess costs to their enrollees.

The report must include the percentage of total premium revenue that such coverage expends on the following:

1.      reimbursement for clinical services,

2.      activities that improve health care quality,

3.      all other non-claims costs, including an explanation of the nature of such costs, and

4.      federal and state taxes and licensing or regulatory fees.

What’s the MLR? Under PHSA Sec. 2718, minimum loss ratios are established for large group plans, small group plans, and individual plans. The minimum loss ratio for large group plans (plans with 101 or more employees) is 85%, or a higher percentage if a state requires it. The minimum loss ratio for individuals and small group plans (plans with 100 or fewer employees) is 80%, or a higher percentage if a state requires it.

What if I don’t comply? I’m just the messenger, but you should know that HHS regulations provide for the imposition of civil monetary penalties if an issuer fails to comply with these reporting and rebate requirements. The civil monetary penalties provide for a penalty for each violation of $100 per entity, per day, per individual affected by the violation.

Why are you still reading this? I just told you about the possible penalties for noncompliance, so you better get to work! If you need help, click here and here for prior posts on MLR rules. If you’re not responsible for filling out an MLR annual report and you’d rather read about the rebate you might receive, click here instead.