What CPAs should know about healthcare reform

Since it was signed into law, the ACA has successfully increased the number of people with health insurance coverage and has reduced some healthcare costs.

It has funded public health and prevention programs, supported research on health tracking of serious illnesses, and has begun reducing disparities in health insurance coverage caused by discrimination. But it still has a long way to go towards further progress.

The following data are a few reasons the ACA and healthcare reform are critical:

• Millions still need insurance: According to the CDC, an estimated 9.6% of Americans, or 31.1 million people, still lack health insurance coverage.
• Unsustainable spending: Healthcare spending represented 18.5% of our gross domestic product in 2021.
• Lack of emphasis on prevention: According to the CDC, 90% of the nation’s $3.8 trillion in annual healthcare expenditures are for people with chronic diseases, such as obesity, diabetes, high blood pressure, heart disease, and cancer, which are largely preventable.
• Poor health outcomes: The United States spends 4% more on healthcare than other high-income countries, but has the lowest life expectancy rates and the highest suicide rates.
• Health disparities among numerous populations: According to Families USA, African American women are more than twice as likely to die during pregnancy than white women, and, according to the CDC, Hispanics are 9% more likely to have diabetes than White individuals.

What are the benefits of healthcare reform?

The implementation of the ACA is an important step forward for health reform. But it can be challenging for individuals to see just how reform will benefit them personally. We’ll dive deeper into five key benefits of healthcare reform for individuals in the following sections.

1. It helps people purchase health insurance coverage

Under the ACA’s health reform, state-based health insurance exchanges allow individuals and families to join in larger risk pools to buy private health insurance coverage.

Private insurance companies compete based on their plan’s cost and quality, and consumers can easily compare care and coverage options and get their questions answered.

The ACA also extended coverage to 31 million previously uninsured Americans with Medicaid expansion and provided tax subsidies to purchase affordable care through the health insurance exchanges. Additionally, young adults can stay on their parent's health insurance plan until age 26.

2. Stops discriminatory health insurance practices

The ACA provided new rules ensuring all Americans can get health insurance coverage even if they have a pre-existing condition. This effectively stopped insurance companies from charging people more for their health conditions and dropping their coverage when they became sick.

New regulations were created to stop insurance companies from charging women up to 48% more for coverage than men and limit the amount they can charge people based on age.

3. Keeps spending down on premiums and out-of-pocket costs

The ACA has helped to keep premium prices down for most individuals. According to The Center for Medicare & Medicaid Services, in 2019, nearly 87% of marketplace enrollees qualified for financial help with premiums, and 54% received reduced cost-sharing. The average enrollee owed only $87 per month after applying for the ACA’s financial aid.

The law holds insurance companies accountable by requiring federal oversight of premium spikes and public disclosure of administrative expenses. The ACA also includes provisions that cap what insurance companies can require individuals to pay in out-of-pocket expenses, such as copayments and deductibles, and eliminates annual and lifetime limits on coverage.

4. Provides better care and benefits

Due to the ACA, there are innovative new ways to provide a higher quality of care to better meet the needs of patients and families. This provision supports better communication and coordination among healthcare providers and patients to prevent issues, such as harmful medication interactions, conflicting diagnoses, and duplicate tests.

Health plans also have to offer a sufficient number of specialists and hospitals in their networks to meet the full range of comprehensive care and health needs for their plan participants.

5. Invests in keeping people healthy

Private health insurance plans and Medicare now cover the total costs of certain services, known as the ten essential health benefits. These health services are automatically covered so individuals and families can stay healthy without worrying about the expensive copays or deductibles that may keep them from getting the care they need.

The law also created the Prevention and Public Health Fund, designed to invest in national prevention and public health, improve health outcomes, and enhance healthcare quality. It has invested in a range of care activities, including prevention initiatives, public health infrastructure, immunizations and screenings, disease control, and public health workforce and training.

Find out other ways your clients can support their employees’ well-being with our guide

What should CPAs know about healthcare reform

The ACA created the most significant government healthcare program since the enactment of Medicare and Medicaid Services in the 1960s. The law’s complexity is due to the intricacies of the health insurance industry, so it can be difficult for individuals to understand.

CPAs play a significant role in helping their clients make the best health insurance decisions by explaining the new laws clearly and concisely. Below are four key regulations CPAs need to know to steer their clients in the right direction.

1. Insurance markets

The ACA’s underwriting provisions during special and open enrollment periods affect the individual and small group insurance markets, as well as the large group and self-insured markets. So, as a CPA, it’s essential to understand the difference between them all.

Although it’s not required to use, the Small Business Health Options Program (SHOP) helps small businesses provide health coverage to their employees. SHOP insurance is generally available to employers with 50 or fewer full-time equivalent employees (FTEs).

If your client has fewer than 25 employees, they can qualify for the Small Business Health Care Tax Credit if they buy SHOP insurance. Additionally, if your client has more than 50 employees, they are considered an applicable large employer (ALE) and can typically get group health insurance.

If your client is a sole proprietor or self-employed with no employees, they can get individual coverage through the health insurance marketplace. However, individual policies are considered higher risk for insurers, and they’re subject to different deductible and out-of-pocket limits.

The self-insured market is good to consider if your client has a “good risk” profile, such as young, healthy employees in a low-risk industry.

2. Premium tax credits

The ACA paved the way for tax subsidies, such as the premium tax credit (PTC), which can benefit your clients. This credit helps low- and middle-income Americans limit the amount they spend on their premiums. However, not everyone qualifies for this credit.

Those eligible must enroll in ACA coverage through a state exchange or federal marketplace to claim the PTC. If they qualify, the PTC can reduce their overall tax bill or increase the size of their yearly tax refund.

Unlike other tax subsidies, individuals who qualify can receive their premium tax credit during the year. The marketplace will send advance payments of the premium tax credit (APTC) to their health insurance company, directly reducing their out-of-pocket insurance costs every month by lowering their premium.

CPAs should be able to explain these new tax credits and subsidies, evaluate which clients can benefit from them, and calculate the amount of the credit or subsidy they would receive.

3. Employer mandate

With the creation of the ACA came the employer mandate, which affects applicable large employers (ALEs). The mandate requires ALEs to offer their FTEs and their dependents health insurance with affordable care that meets minimum essential coverage (MEC), or be subject to employer mandate penalties.

Affordability for proper health insurance coverage is determined using the employee’s salary and the lowest cost silver health policy for that employee’s age and geographic rating area.

There are two types of penalties that can be leveraged if the mandate’s criteria isn’t met. The first type is for not offering MEC to at least 95% of the ALE’s FTEs and their dependents. The second type for ALEs that don’t offer affordable coverage to their FTEs and their dependents.

For CPAs, it’s critical to explain the employer mandate to clients that are ALEs, so they aren’t subject to the mandate’s penalties. This includes helping them calculate FTEs, find coverage that meets MEC, and determine the policy’s affordability.

Help your client calculate their full-time equivalent employees with our worksheet

4. Defined contribution health plan

A defined contribution health plan is when an employer gives each employee a fixed dollar amount that the employees choose how to spend on health insurance and qualified healthcare expenses. Defined contribution health plans are programs that allow employees to be more involved in their healthcare choices.

These plans can be implemented with a pre-funded account like a health savings account (HSA) or a reimbursement schedule with a health reimbursement arrangement (HRA).

Due to the growing popularity of these health plans, CPAs should be familiar with how they are structured, administered, and reported. CPAs should also compare the tax advantages of defined contribution plans vs. traditional group health insurance to help their clients save money.

Find out everything CPAs need to know about HRAs in our blog

Conclusion

The ACA has set the pace toward improved coverage access and lower healthcare costs across the United States. CPAs can assist their clients by staying on top of industry developments and laws and serving as their first point of contact when they need advice.

As seen above, there are several regulations employers and clients need to be aware of as they navigate their health insurance choices within health reform. As a CPA, helping them choose the right health plan requires the knowledge to make the right choice.

This article was originally published on February 8, 2013. It was last updated on April 25, 2022.