By: Lisa Klinger
There are two different purposes for which the “9.5% of income” test applies. There also is an 8% test.
“9.5% of income” tests:
Whether the employer is subject to a penalty if a full-time employee gets a subsidy for buying individual health insurance in the Marketplace/Exchange
Whether an individual is eligible for a subsidy
“8% of income” test:
Whether an individual is required to pay the “individual mandate tax”
9.5% Test: Whether Large Employer is Subject to a Penalty
3 Safe Harbors: A large employer who offers health coverage that provides at least minimum value will be subject to a “play-or-pay” penalty if the coverage is “unaffordable” for a full-time employee, and that employee buys health insurance in the individual Marketplace/ Exchange and qualifies for a subsidy. Coverage is unaffordable only if the employee cost for employee-only coverage is more than 9.5% of one of the following three safe-harbors:
1. W-2, Box 1 earnings
2. Monthly rate of pay at the beginning of the plan year (hourly rate times 130, or monthly salary not times 130)
3. 100% of Federal Poverty Level (FPL) for one individual
The reason these three safe harbors apply for determining whether the employer will be subject to a penalty is because the employer would not know an employee’s “household income,” which was the original standard under the ACA itself. This is an amount from the employee’s prior year tax return.
In most cases an individual’s “household income” will be the same or more than the individual’s W-2 earnings from the employer, but there are several situation in which it could be less. One example is if the individual pays alimony, which is a tax-deductible expense. Another example is if the employee and spouse file a joint return and the spouse is self-employed and had a business loss.
9.5% Test: Whether Individual is Eligible for a Subsidy
9.5% Household Income Test: Individuals whose “household income” is 100-400% of the Federal Poverty Level (FPL) may qualify for a subsidy if they buy individual insurance in the Marketplace, and if they are not eligible for government health coverage or for employer coverage that provides minimum value and is “affordable.” Employer coverage is affordable if the employee cost for employee-only coverage is less than 9.5% of “household income.” The two types of subsidies are a premium tax credit and a cost-sharing reduction. “Household income” is defined as Modified Adjusted Gross Income (MAGI) from the employee’s federal tax return for the prior tax year. For open enrollment in October to December of 2013 (for enrollment effective January 1, 2014), the most recent tax return will be the 2012 return.
8% Test: Whether Individual is Subject to the Individual Mandate Tax
8% Household Income Test: If an individual does not have “minimum essential coverage” (MEC) for any month beginning January 2014, IRC section 5000A requires the individual to pay the individual “shared responsibility payment” (often referred to as the “individual mandate tax”) for failure to have MEC. There are several exemptions and exceptions that apply. One of the exceptions is that an individual will not be subject to the individual mandate tax for failure to have MEC if the cost for the lowest-priced bronze policy available to the individual (or to the family, if the individual has a family) would cost more than 8% of household income.
If an individual is subject to the tax, the monthly tax is 1/12 of the annual tax, which for 2014 is the greater of $95 per person or 1% of household income. The penalty increases in 2015 to the greater of $325 or 2% of household income, and in 2016 to the greater of $695 or 2.5% of household income.
- See more at: http://news.leavitt.com/health-care-reform/confused-about-the-different-household-income-tests-heres-why/#sthash.b10KWrj0.dpuf
The insurance market has historically been subject to pricing cycles. These cycles are influenced by a variety of factors. This article outlines the current market conditions, describes the difference between what is known as “soft” and “hard” markets, and outlines factors that influence market fluctuations.
Current Market Conditions
According to the latest Commercial Lines Insurance Pricing Survey (CLIPS), commercial insurance prices rose by six percent in the aggregate during the second quarter of 2013. This is the 10th consecutive quarter of price increases. Workers compensation and employment practices liability experienced the largest price increases compared to the same time period in 2012.1
These rate increases are due to above average losses, low investment returns, and receding reserve releases. The effect of superstorm “Sandy” (October 2012) on property insurance is still being determined, but the losses from the storm are tempering what was a “generally improving rate environment” for property insurance buyers. 2
According to Richard Kerr, CEO of MarketScout, “The commercial P&C market in the U.S. is continuing its steady trend of rate increases. There is ample capacity but underwriters continue to increase rates as appropriate.” 3
Soft Market vs. Hard Market
In the insurance marketplace, the ability to purchase insurance can vary widely depending on market conditions. The market is typically defined as either a “soft” market or a “hard” market.
Soft Market. In a soft market, insurance companies are very competitive in their pricing, and they are willing to provide insurance on a much wider array of risks than they would consider during a hard market. Pricing is lower, and it is easier to obtain insurance coverage since insurance companies are less stringent about risks they will insure.
During a soft market, pricing is low enough that insurance companies may simply break even, while some may even experience operating losses. Insurance capacity (or supply) is high during a soft market, meaning that insurance companies desire to provide more insurance than consumers demand. When this occurs, insurance companies tend to lower their prices in order to meet their premium goals.4
Hard Market. In a hard market, insurance companies are very strict in their underwriting criteria and rates are high. It is often difficult for some types of businesses to purchase insurance at any price, and insurance policies often have many restrictions or exclusions. Insurance capacity during this time is lower since insurance companies focus on growth rather than profitability. Consumers’ demand for insurance exeeds insurance companies’ capacity to provide it.
Some of the factors that influence the transition between a soft and hard market include the following:
Losses paid by insurance companies. If losses from claims are higher, then pricing will increase. Major catastrophic losses can have a significant impact as losses paid are higher than expected for a normal year. If losses are low, insurers will be more inclined to decrease their pricing.
Government regulation and changing of laws.
Economic conditions. Historically when interest rates have been high, insurance markets have been “soft,” which means prices have been lower because insurance companies sought financial returns from investing their premiums. With lower interest rates, investment income decreases, thus insurance companies rely on income through profitable underwriting results, which means they are more cautious about what risks they insure.
Availability of capital. When capital (or surplus) is scarce, supply is impacted. This leads to a price increase. The opposite is true when there is an abundance of capital—rates decrease.
Overall profitability. When operating losses are too much for the insurance company to bear, prices have to go up to cover the losses. 4
These insurance cycles have changed over the past 40+ years. From about 1970 to 1990, the cycles were almost predictable and the complete cycle would last about five to six years. The cycles would affect the entire insurance industry. Now the market has changed in the following ways:
The cycle duration is longer and not as severe. This may be due to more capital being available.
Different lines of insurance are affected differently. For example, workers compensation could experience rate increases due to higher losses while at the same time general liability and commercial auto may see rate stability or even decreases. This may be attributed to the implementation of more reasonable underwriting and selection practices.
The cycles are also somewhat regional. Property rates may be higher and underwriting more stringent for locations closer to the coast due to increased risk for or the occurrence of certain types of natural disasters.
Where Are We Now?
Over the past few years, we have experienced a fairly soft market with predictions of a hardening market due to low interest rates. The hard market has not completely exhibited itself, but the trend is moving in that direction. There has been a slow and steady increase in rates over the last 12 months but not at the rate of increase that many experts were predicting. For now the market is fairly stable, though there is some degree of uncertainty created with pending government regulations that will impact business owners and the health care industry.
It was an interesting day for the first day of open enrollment. We came to work with lots of hope of getting our clients on the exchange and viewing plans. Our private exchange at www.leavitthealthexchange.com worked to show plans and subsidy calculators, but due to issues with the FFM "Federal Market Place" they where not able to apply for the subsidy.
If you are interested in viewing plans and options our "Private Exchange" www.leavitthealthexchange.com has made it really easy. No need to create an account to just look around like the www.healthcare.gov.
Want to learn more, please visit our dedicated Healthcare Reform website at http://news.leavitt.com/category/health-care-reform/ for all things healthcare or feel free to contact one of our local experts at 208-524-5858 or 356-4411.
The last three years have seen monumental change in the insurance industry. Life insurance companies are changing guarantees, this is a response of how reserves are now accounted for. Property companies are raising rates are on the rise due to storm damage and a weak bond market.
With all of that.... Nothing compares with the amount of change of the new health reform law.
Rest assure that we have been working for the last three years and with the resource of our full time ERISA Attorney we are ready to help you with answers.
Visit www.leavitthealthexchange.com to compare individual health polices and subsidy credits backed by your friends. You can always come on in or give us a call.
The Leavitt Group’s Sacramento office is pleased to announce
the hiring of Renee Bosley as vice
president in the employee benefits division. Bosley specializes in Health
Care Reform compliance, cost containment, negotiations, wellness programs, and
human resources support.
“We are excited to have Renee join our team,” said John
Connell, president of the Concord
office. “She is technically solid with issues pertaining to Health Care Reform
and is a great resource for our clients.”
Bosley joins the Leavitt Group from Wells Fargo Insurance
Services. Prior to her working with
Wells Fargo, she ran an international non-profit organization gaining diverse
experience in all aspects of business oversight and strategic planning.
“As an employee benefits consultant, I work with my clients
to create sustainable solutions that align with corporate philosophies and
financial objectives,” said Bosley. “As a Health Care Reform specialist,
I make it my job to keep apprised of all changes and to provide real time
guidance and planning.”
United Valley Insurance Services and Leavitt Group
Enterprises have agreed, subject to applicable conditions, to a merger in which
United Valley remains a separate organization
that is wholly-owned by Leavitt Group Enterprises. United Valley shareholders will
receive cash in the merger. Closure is anticipated in August.
Mike McCreary, President of United Valley, who is expected
to serve on Leavitt Group Enterprises’ board of directors, says of the merger: “United Valley
is a great company that serves its members and customers well. We will only get
better with this merger. The current management team and employees continue
without interruption, and we will enjoy the added strength and services
available through the Leavitt Group.”
Eric Leavitt, President of Leavitt Group Enterprises,
comments: “Our acquisition of United
Valley represents a new
chapter for the Leavitt Group. In the past, we have only served agencies in
which we owned a majority interest. Through United Valley,
we will be able to serve other independent agencies in ways that will make them
stronger. We are confident we will provide great benefit to United Valley’s
current and future members.”
Dane Leavitt, Leavitt Group Enterprises’ CEO and Chairman,
anticipates that “the merger will make both companies stronger. United Valley
members receive a committed, stable owner, and access to new services. The Leavitt
Group achieves additional scale, and a broadened set of relationships with high
quality independent insurance agencies.”
Neal Stanley, United
Valley’s Chief Operating Officer,
notes that “with the Leavitt Group’s support, I expect United Valley
to grow its footprint significantly over the next several years. This merger
well serves our shareholders, members and employees. We look to the future with
United Valley was started in 1983 in California
as a local, Central Valley insurance agency
membership organization with seven member agencies. It has since grown to over
80 members in California, Arizona
and Nevada. Most
of United Valley’s
members are owned independent of United
Valley, but place a majority of their
risks through United
Leavitt Group Enterprises, founded in 1952, builds, serves
and perpetuates independent insurance agencies as a majority owner that
partners with able individual co-owners. The Leavitt Group currently consists
of over 70 separate insurance agencies with over 125 offices located in 15
The Leavitt Group’s Concord office is pleased to
announce the hiring of Paul Cardoso as an account executive in the employee
benefits division. Cardoso comes to the agency with a strong background
in sales and has worked for various fortune 500 companies, including Mohawk
Industries, Xerox, United Airlines, and Automatic Data Processing (ADP).
The 35th Annual LGAA Managers Conference was held this year in Scottsdale, Arizona. The following were recognized with awards during the conference:
Winner: Rod Leavitt, Leavitt Insurance Agency
Presented by: Dane Leavitt
Bert J. Leavitt Producer of the Year Award
Winner: Lydia Rivera, Jenkins Insurance Services
Presented by: Dane Leavitt, Wade Leavitt, Eric Leavitt
Sandra L. Maxwell CSR of the Year Award
Winner: Christina DeWeese, Lincoln-Leavitt Insurance Agency
Presented by: Dane Leavitt, Sandra Maxwell, Eric Leavitt
Quantum Leap Award
Winner: Sloan-Leavitt (Pictured: Nathan Beus, Brad Risenmay)
Presented by: Dane Leavitt, David Broadbent, Eric Leavitt
Agency of the Year
Winner: Day-Leavitt (Pictured: Phil Morrison)
Presented by: Dane Leavitt, David Broadbent, Eric Leavitt
MainStreet Agency Excellence Awards
Butler-Leavitt Insurance Agency
Day-Leavitt Insurance Agency
Nebo-Leavitt Insurance Agency
Atkinson-Leavitt Insurance Agency
Shook-Leavitt Insurance Agency
Ferguson-Leavitt Insurance Agency
Agency of the Year
Winner: Taylor-Leavitt (Pictured: Mike Taylor, Jay Jamieson)
Presented by: Dane Leavitt, Vance Smith, Eric Leavitt
Business-To-Business Agency Excellence Awards
Northern Montana Insurance Services
Leavitt Group Benefits Services of So. UT
Leavitt Insurance Agency 30 years
CIA-Leavitt Insurance Agency
Pacific Risk Management, Inc.
Leavitt Group of Spanish Fork
Leavitt Group Southwest
Leavitt Recreation & Hospitality Ins.
Leavitt Group Benefits Services
Taylor-Leavitt Insurance Agency
Agency of the Year
Winner: PrideMark-Everest (Pictured: Angelo & Terry Maroutsos)
Presented by: Dane Leavitt, Chris Utterback, Eric Leavitt
UPA Agencies Agency Excellence Awards
Risk Services of Louisiana
Valley Insurance Service
Naomi Plumley, director of commercial client services at the
Leavitt Group of Boise,
was recently named the “Industry Leader of the Year” by the Boise Insurance
Professionals. This award recognizes individuals who have contributed to
the insurance industry through education, creation of industry alliances, and
legislative activities. Plumley will also serve as president elect for the
2013-2014 year of the Boise Insurance Professionals.
“Naomi is one of those rare professionals that not only love
what they do but go out of their way to share their knowledge with new
professionals joining the insurance business,” said Alyce Hillman, co-owner of
the Leavitt Group of Boise.
“Naomi is one of a kind and we are lucky to work with her every day.”
Mayor Carolyn Goodman and Anna Pallan
Anna Pallan and Debra Egler, both customer service representatives
at Leavitt Group Benefits Services (LGBS) in Las Vegas, were recently recognized by the
Las Vegas Metro Chamber of Commerce with customer service excellence
certificates at their quarterly breakfast. Pallan, who attended the
breakfast, was congratulated personally by Las Vegas Mayor Carolyn Goodman.
Egler began working at LGBS earlier this year when Shea
Insurance joined the agency. Pallan has been with the agency since 2012.
Leavitt Central Coast
Insurance Services is pleased to announce that Mike Hungrecker has joined the
agency as a financial advisor. With over 20 years of experience,
Hungrecker specializes in retirement planning, life insurance, and
estate planning. He is an expert in the industry and has published
several articles regarding pensions and retirement planning.
“Mike brings a commitment
to providing excellent service to our customers,” said Ward McKalson, managing principal of Leavitt Central Coast.
“With personalized strategies and knowledge of an array of financial products
he is a valuable asset to our team.”
Leavitt Pacific Insurance Brokers is pleased to announce the
hiring of Susan Groff. Susan has over 16 years of experience helping
clients with their property and casualty insurance and workers compensation
needs. She has worked with many types of contractors including painting
and decorating contractors and their association, the Painting and Decorating
Contractors Association (PDCA).
“We are excited to have Susan on board,” said Fred Stafford,
president of Leavitt Pacific Insurance Brokers. “Her insurance knowledge
and background is diversified and brings added value to our clients.”
Barlocker Insurance Services is pleased to announce the hiring of Debbie Landrum. Landrum has been helping clients with property and casualty insurance and workers compensation needs for over 27 years and will focus on insurance programs for bowling centers, skating rinks, and painting contractors.
“Debbie’s experience with customer services and claims has given her the ability to work with a wide range of clientele,” said Bill Barlocker, managing co-owner of Barlocker Insurance Services. “We are thrilled to have her join our team.”
The Leavitt Group’s Concord
office is pleased to have bonded Bay Ship & Yacht Co. on the demolition of
the Sea Shadow, an experimental stealth ship built by Lockheed Martin for the
United States Navy in the mid-1980s.
“It was incredible to help on this project,” said John
Daley, vice president of surety for the Leavitt Group’s Concord office. “The Sea Shadow is such an
interesting part of our nation’s history.”
The purpose of this super-secret ship was to develop the
SWATH hull form, Automated Control Systems, Thermal, Sonic, and Radar
reflective technologies. The Navy sold the Sea Shadow and its dry dock to
Bay Ship & Yacht in 2012 with the requirement that the buyer dismantle and
scrap the vessel.
The Leavitt Group’s Concord
office is pleased to announce the hiring of Tammy Mission. Mission will focus on
risk management for non-profit organizations, technology, and health care
clients. She graduated with a degree in economics from Saint Mary’s College of California and has earned the Commercial
Lines Coverage Specialist (CLCS) designation.
“Tammy comes to our agency with a proven track record of
providing consultative risk management to her clients,” said Curt Perata, President
of the Concord
office. “We are excited to have her as a member of our team.”