Insurance Programs – Page 4 – Setnor Byer Insurance & Risk

Why Insurance Rates Increase?

Rate increases are necessary to maintain a company’s ability to pay out claims during the worst catastrophes. One of our Insurance Carriers, Tower Hill Insurance Group has created a great video explaining how and why insurance rates change. If you have any questions about your rates please contact us.

https://www.youtube.com/watch?v=LLV2RnToLME

Below please find the transcript from the video featured in this article.

Hi, this is Joel Curran coming from the Tower Hill Insurance Group, LLC offices in Gainesville, Florida, where we have been serving the insurance needs of Floridians for 40 years. Our customers are loyal – every year, more than 95% accept our renewal offer. More than 100,000 have been with us for 5 years or more.

Unfortunately, everyone has to endure rate increases. But you still think: “why did you increase my premiums? I live in the same house and the market value has declined, there were no hurricanes, and I haven’t had any claims.”

The simple answer is that we need more premiums to cover our costs. But before I give more detail, let me tell you about Good Faith and Spread of Risk. Insurance is a Good Faith contract which means in part that you pay us, and we promise to pay you for damage or injuries covered by the contract. We take that promise seriously. We need to be financially strong enough to pay claims especially if there is a catastrophe. I’ll tell you more about that in a minute.

The second principle is Spread of Risk. Two hundred years ago when Ben Franklin started the first mutual fire insurance company, insurance meant that a small group chipped in equally, and if one house burned down there was money for rebuilding it. But if only ten people paid in and there were two house fires in a year, there would not be enough money to rebuild both homes. But the bigger the group, the broader the spread of risk, and pretty soon you get to a large enough number that the risk is low compared to the number of insurance buyers. That makes the overall risk more predictable. The more predictable – the lower everyone’s contributions will be.

Florida homeowners have a higher-than normal risk. Our 1,300-mile coastline is longer than any state except Alaska. The narrow shape of Florida means even non-coastal areas are very exposed. Our love of being near the water comes with a cost. To spread the risk and keep insurance accessible to everyone, we have to spread the cost as well.

So, what are those costs? Your premium goes towards three main cost areas: First, we make sure we can pay claims. We set aside surplus funds, as well as claims reserves, and we make conservative investments to fund them. We never take a risk with your premiums by putting them into risky investments.

Second, we cover the cost of operating the company, which provides jobs for more than 350 people in Florida. Through sales commissions we also support local independent insurance agencies in every Florida county. In addition, we have to make sure that if there is a hurricane, our facilities can keep running at full capacity so we can be there when you need us most.

Third – and this may surprise you – the biggest cost is reinsurance. Reinsurance is exactly what it sounds like – insurance for insurers, to make sure we can cover catastrophic losses. Reinsurance spreads risk globally, meaning that homeowners around the world are actually helping fund claim payments if a hurricane makes landfall in Florida – which happened in 2004 and 2005– when we paid out more than $2 billion to repair homes in Florida due to 8 hurricanes.

By the same token, Florida’s contributions help fund recoveries in other states and countries. When you watch the weather channel and see tornados in Kansas, or monsoons in China, know that premiums paid by insurance buyers all over the world, including us in Florida, will help repair the damages.

Reinsurers need to be prepared for the worst, and Tower Hill Insurance Group, LLC buys only from the best, most stable reinsurers who have demonstrated year over year that they can fund the losses they insure. The bottom line on reinsurance is that, no matter how well we run our company and manage our investments, if Tower Hill Insurance Group, LLC were on our own to fund years like 2004 and 2005 we would have to charge premiums that are a multiple of what we charge now.

So back to your question, “why is my premium increasing THIS year”? Well, in determining rate changes every year, Florida insurers have to balance the need for keeping insurance rates competitive with the need for keeping their businesses stable and for buying reinsurance.

Recently, two things have contributed. In 2011, even though Florida had a mild year, the world had its worst year on record for weather catastrophes. Because their risk is spread globally, reinsurers are increasing their rates to recover. That rate increase is hitting Florida just like everywhere else. In addition, while the value of homes everywhere has drastically dropped, the cost of repairing and rebuilding has not dropped. When we pay property damage claims we expect to pay contractors a fair price for their work, so we need to collect premium accordingly.

We don’t take rate increases lightly, and we know you don’t either. We go through extensive analysis to determine the fairest rates, and we file our rate changes with the Office of Insurance Regulation who is charged with making sure rates are adequate, not excessive, and do not unfairly discriminate.

Hopefully what I have said makes sense to you. I want you to know that everything we do at Tower Hill Insurance Group, LLC is done to ensure peace of mind for our individual and commercial policy holders. Forty years of experience means we know how to make the right decisions to protect your interests, so stick with us and we’ll ride out any future catastrophes together.

Protecting Sensitive Data: How Secure is Your Wireless Network?

In previous articles we discussed how laptop computers and the office copy machine increase the risk of data security breaches. Another significant risk to an organization’s sensitive data is the wireless network. Since today’s workplaces are increasingly “going wireless,” the Federal Trade Commission recommends taking the following steps to protect wireless networks.

Understand how a wireless network works. Going wireless generally requires connecting an internet access point to a wireless router, which sends a signal through the air, sometimes as far as several hundred feet. Any computer within range can pull the signal from the air and access the internet. Unless precautions are taken, others can “piggyback” on the network or access information on the computer.

Use encryption. Encryption encodes the information so that it’s not accessible to others. It is the most effective way to secure a network. Two main types of encryption are available: Wi-Fi Protected Access (WPA) and Wired Equivalent Privacy (WEP). WPA2 is strongest so it should be used whenever possible. Since some older routers use the less secure WEP encryption, consider upgrading to a newer, more secure router. Note that wireless routers often come with the encryption feature turned off, so be sure to turn it on.

Use anti-virus and anti-spyware software. Since hackers are constantly developing new ways to attack computers and networks, security software is necessary. This software needs to be updated periodically so systems should be set to update automatically whenever possible.

Change the name of the router. The name of the router (often called the service set identifier or SSID) is likely to be a standard, default ID assigned by the manufacturer. Change the name to something private and unique.

Change the router’s pre-set password. Manufacturers typically assign a standard default password to a wireless router. Default passwords should be changed. Visit the manufacturer’s website to learn how to change the password.

Limit access to the wireless network. Every computer that is able to communicate with a network is assigned a unique Media Access Control (MAC) address. Wireless routers usually have a mechanism to allow only devices with particular MAC addresses to access the network. However, since MAC addresses can be mimicked, don’t rely on this step alone.

Turn off wireless network when it’s not being used. A wireless network cannot be accessed when it is turned off.

Be cautious when using a public wireless network. Many cafés, hotels, airports and other public places offer wireless networks for their customers to use. These “hot spots” are convenient, but they may not be secure.

Organizations should also consider protecting against data security breaches with insurance. Various cyber liability products are available to protect against privacy injuries, such as identity theft, and to cover the cost of complying with various data breach notice laws. Given the complexity of the risk, an experienced insurance agent should be consulted to ensure that adequate coverage is obtained. If you would like to learn more about insuring against data security breaches, contact us.

If you would like to learn more about preventing data security breaches, take our online course Information Risk Management: Strategies for Preventing and Mitigating Information Security Breaches.

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New Deadline for Affordable Care Act’s Employer Notice Requirement

Under the Affordable Care Act (ACA), employers are required to give employees written notice about their options for purchasing health insurance through Affordable Insurance Exchanges (Health Insurance Marketplaces). Though the original March 1, 2013 deadline was delayed, the Department of Labor (DOL) recently announced the new deadline for employers to begin giving this notice.

Beginning October 1, 2013, employers must provide the required ACA notice to new employees at the time of hiring. In 2014, the DOL will allow employers to satisfy this requirement by providing the notice within 14 days of an employee’s start date. An employer’s current employees must receive their notice no later than October 1, 2013.

Notice must be given to each employee regardless of their plan enrollment status or their part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan. The notice, which must be understood by the average employee, may be provided by first-class mail or, in some instances, electronically.

The ACA’s notice requirement applies to employers covered by the Fair Labor Standards Act (FLSA). The FLSA generally applies to employers with one or more employees who are engaged in, or produce goods for, interstate commerce. Also the FLSA typically does not cover enterprises with less than $500,000 in annual dollar volume of business. However, the FLSA does cover specific entities regardless of their dollar volume of business, including hospitals, preschools, elementary and secondary schools, institutions of higher education, and federal, state and local government agencies.

To help employers satisfy their notice requirement, the DOL has prepared two model notices. There is one model notice for employers who offer a health plan to some or all employees, and another model notice for employers who do not offer a health plan. Employers may also use modified versions of these model notices as long as the required information is present.

If you would like to learn more about your obligations under the Fair Labor Standards Act, click here. If you would like information about insuring against FLSA claims, click here.

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Prevent Data Security Breaches by Protecting Laptop Computers

While laptop computers can increase workforce productivity, they also increase the risk of harmful and costly data security breaches. Since a lost or stolen laptop can jeopardize sensitive information, the Federal Trade Commission recommends the following preventative measures to protect laptop computers and the personally identifying information it contains.

Treat laptops like cash. People don’t leave their cash unattended, not even for a minute. When traveling, cash isn’t usually checked with luggage and it isn’t left in the backseat of the car. Keep the same watchful eye on the laptop as you would on cash.

Lock laptops with a security cable. Whether in the office, a hotel or some other public place, a laptop security cable should always be used. Attach it to something immovable or to a heavy piece of furniture, such as a table or a desk. Security cables work similarly to bike locks. You can purchase them at Office Depot, Amazon, Staples, etc.

Be on guard in airports and hotels. The confusion and shuffle of security checkpoints can be fertile ground for theft. Keep an eye on the laptop when going through airport security. Hold onto it until the person in front of you has gone through the metal detector, and wait for it to emerge on the other side. When staying in a hotel overnight, a security cable may not be enough. Store the laptop in the room safe. If leaving a laptop attached to a security cable in a hotel room, consider hanging the “do not disturb” sign on the door.

Consider an alarm. Depending on security needs, a laptop alarm can be an excellent security device. Some laptop alarms sound when there’s unexpected motion, or when the computer moves outside a specified range. A program that reports the location of stolen laptops upon being connected to the internet can also provide additional security.

Consider carrying laptops in something more discreet than a laptop case. When taking a laptop on the road, carrying it in a computer case may advertise what’s inside. Consider using a suitcase, a padded briefcase, or a backpack instead.

Don’t leave laptops unattended. Though colleagues may seem trustworthy, avoid the temptation to leave laptops unattended, even for a minute. Laptops should be taken whenever possible. If taking the laptop is not an option, use a cable to secure it to a table or desk.

Don’t leave a laptop in a car. Parked cars are a favorite target of laptop thieves. If leaving a laptop in a car is the only option, keep it locked up and out of sight.

Don’t put laptops on the floor. Whether at a conference, coffee shop, or registration desk, laptops should not be left on the floor. If it is necessary to put the laptop down, place it between your feet or up against your leg so you remember that it’s there.

Don’t keep passwords with the laptop or in its case. Remembering strong passwords or access numbers can be a challenge. However, leaving them in the laptop carrying case or on the laptop is like leaving keys in a car. In the event a laptop is lost or stolen, don’t make it easy for a thief to access sensitive information stored on the device.

Create ‘Uncrackable’ Passwords

The best passwords are over 6 characters, include upper and lowercase letters, and use numbers and symbols. Passcreator.com can generate a password that is nearly impossible to crack. However, this would mean you probably won’t remember it on your own. So, if you have to write any of your passwords down keep that document separate from your laptop. You can write them down on a piece of paper and keep them in your wallet. You can store them on Google Drive. Just be sure to password protect the doc! You can also store them on an Excel spreadsheet and protect the workbook to make it harder for a hacker to view its contents.

Encrypt sensitive data. The consequences of a lost or stolen laptop can be minimized by encrypting the data stored on the device so that it cannot be accessed by anyone without the proper authorization.

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Lowering Your Hurricane Insurance Premium

Many homeowners believe that switching insurance companies is the only way to save on their windstorm (hurricane) insurance premiums. Unfortunately, companies with the lowest premiums may not have enough money to pay claims after a storm. Rather than buy insurance from an insurance company without the capital to pay losses, homeowners can reduce their premiums by taking advantage of wind mitigation credits.

Wind mitigation credits are premium discounts based on the ability of a home to tolerate strong winds without experiencing damage. According to one estimate, if homes were constructed in a manner beyond that which is currently required by building codes, the average losses per year would be reduced by over 70%. This is why increasing a structure’s wind resistance, or hardening, allows homeowners to save on their windstorm insurance premiums.

Homes built or retrofitted to incorporate specific mitigation features designed to increase wind resistance may qualify for wind mitigation credits. Insurance companies consider numerous factors when determining the availability and amount of wind mitigation credits, such as:

Roof Covering: Is the roof covered by shingles, clay tiles, metal, built-up tar, membrane, gravel or other material that meets or exceeds building codes?
Secondary Water Resistance (SWR): Is there a layer of protection between the roof covering and the roof decking (plywood, metal panels, etc.) that protects the home if the roof covering blows off?
Roof Deck Attachment: How is the roof decking connected to the roof trusses or rafters?
Roof-to-Wall Attachment: How are the walls connected to the roof trusses or rafters (toe nails, clips, single or double wraps, etc.)?
Roof Geometry: What is the shape of the roof (hip roof, flat roof, etc.)?
Opening Protection: How are openings, such as windows, doors and skylights protected against flying debris (shutters, hurricane glass, etc.)?

Mitigations features must meet very specific guidelines to qualify for credits. For example, the availability of a wind mitigation credit can depend on the size, spacing and number of nails used in the roof deck or roof-to-wall attachment. Credits will not be awarded unless there is strict compliance with applicable building codes, laws, regulations or standards.

The first step to getting a wind mitigation credit is to get the home inspected. Wind mitigation inspections, which typically cost less than $250 and take about an hour, are often done by licensed building inspectors, contractors, architects and engineers. However, since state laws and specific insurance company requirements may dictate who is qualified to perform wind mitigation inspections, be sure to confirm licenses and check references before hiring an inspector.

Those who do not qualify for one or more wind mitigation credits should consider the cost of hardening their homes and the anticipated savings. Since the amount of wind mitigation credit typically depends on various factors, including state laws and specific insurance company requirements, the assistance of a qualified insurance agent may be needed to estimate premium savings. If the math does not justify retrofitting, homeowners should keep wind mitigation credits in mind the next time general repairs are being done, such as roof and window repair or replacement.

If you would like to learn more about wind mitigation credits or windstorm insurance, contact us.

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Protecting Sensitive Data: Don’t Forget the Copy Machine

Collecting personally identifying information from clients, such as names, social security numbers and credit card numbers, is common practice. This means that protecting against a data security breach is (or should be) a priority for virtually every organization. Unfortunately, when it comes to implementing data security measures, many organizations overlook a significant and somewhat obvious threat: the copy machine.

Commercial copiers have come a long way, and though they may not look it, they are powerful computers. Today’s generation of networked multifunction copiers are “smart” machines capable of copying, printing, scanning, faxing and emailing documents. To manage incoming jobs and heavy workloads, these copiers require hard disk drives capable of storing a lot of information. And, since they are often leased, returned and then leased or sold again, the Federal Trade Commission (FTC) recommends including copy machines in an organization’s data security plans.

Understanding security options is the first step to controlling the risks posed by copy machines. Most manufacturers offer data security features with their copiers, either as standard equipment or as optional add-on kits. These features typically involve encryption and overwriting.

Encryption is the scrambling of data using a secret code that can be read only by particular software. Copiers offering encryption encode the data stored on the hard drive so that it cannot be retrieved even if the hard drive is removed from the machine. Since encryption is typically an automatic feature with many copiers, specific steps or processes are generally not necessary.

Overwriting changes the values of the bits on the hard drive that make up a file by replacing existing data with random characters. By overwriting the drive space occupied by a file, its traces are removed, and the file can’t be reconstructed as easily. This is different from deleting or reformatting, which doesn’t actually alter or remove the data.

Depending on the copier, the overwriting feature may allow a user to overwrite after every job, periodically or on a preset schedule. Users may also be able to set the number of times data is overwritten; generally, the more times data is overwritten, the safer it is from being retrieved. The FTC recommends overwriting the entire hard drive at least once a month.

Finally, security measures must be taken before returning, selling or discarding a copy machine. Check with the manufacturer, dealer, or servicing company for options on securing the hard drive. Some may offer to remove the hard drive so that it can be disposed of, stored or destroyed pursuant to an organization’s own security policies and procedures. Others may undertake the task of overwriting the hard drive. These services may involve an additional fee, so check the lease or purchase agreement before deciding how to proceed.

Copiers are often the center of an organization’s operations. They have “seen” and saved countless documents with sensitive, confidential or personally identifying information. This is why protecting the copy machine should be a part of every organization’s data security plans.

Organizations should also consider protecting against data security breaches with insurance. Various insurance products are available to protect against privacy injuries, such as identity theft, resulting from security breaches and to cover the cost of complying with various data breach notice laws. Given the complexity of the risk, an experienced insurance agent should be consulted to ensure that proper coverage is obtained and that no gaps remain.

If would like to learn more about preventing data security breaches, take our online course Information Risk Management: Strategies for Preventing and Mitigating Information Security Breaches.

If you would like to learn more about insuring against data security breaches, contact us.

If you’d like to subscribe to our weekly newsletters please click here.

Protecting Valuable Business Papers and Records

Businesses often prepare an inventory of valuable property to simplify the process of filing an insurance claim in the event of a loss. For some reason, papers and records rarely make the list, even though losing these documents could disrupt business operations. Fortunately, insurance is available to cover the unbudgeted and often significant costs of dealing with a loss of business papers and records.

Valuable Papers and Records (VPR) coverage is a type of property insurance that covers the cost to research, replace or restore information that is lost when papers and records are damaged or destroyed. This insurance generally covers papers and records owned by the insured or in the insured’s care, custody and control, and it is often found in property insurance and small business owners’ policies. Large or unique risks may require a separate, stand-alone policy.

Notably, since VPR covers the cost of reproduction, it is not intended to protect items that cannot be replaced or duplicated because they will only be valued at the cost of blank material of substantially identical type. So, if an original Declaration of Independence is lost, the insurer will cover the cost of a blank piece of paper. To ensure maximum protection, irreplaceable items must be listed separately under the policy and possibly appraised so their value can be determined. In some cases, a separate insurance policy may be necessary.

VPR coverage is ideal for most businesses, including:

accountants
law firms
architects and engineers
physicians and medical offices
businesses that regularly produce and rely on important documents, such as files, receipts, invoices, lists, contracts, etc.

When shopping for VPR coverage, it is important to know what the policy does and does not cover. Although definitions may vary, ‘Valuable Papers and Records’ are generally defined to include documents, manuscripts and records that are inscribed, printed or written, including abstracts, books, deeds, drawings, films, maps and mortgages.

VPR policies do not typically cover money or securities. Importantly, once papers and records are reduced to electronic format or saved on some form of electronic media (CDs, hard drives, tapes, disks, etc.), they are generally excluded from coverage under a VPR policy, and need to be insured under an Electronic Data Processing policy.

The cause of the direct physical loss or damage to the papers and records must be a covered loss under the policy. Losses caused by errors in processing or copying, earth movement, war, neglect, nuclear hazard and various events involving water are typically not covered. Since even the broadest policy forms have exclusions, it is important to review them carefully.

Coverage limits should be enough to cover the cost of replacing or reconstructing lost information through research or transcription from other sources. While VPR generally covers items kept at the premises listed on the policy’s declarations, papers and records kept at an unlisted location may be subject to a lower limit (sub-limit) or may be excluded from coverage altogether. Make sure the policy lists all locations where papers and records may be stored.

In addition to VPR insurance, businesses may consider storing papers and records in a facility with the reputation, amenities and expertise needed to offer maximum protection. According to Carlos Diaz of Value Store it, “Not all storage facilities offer a comprehensive approach to this risk. Not all solutions are the same.” Some additional services to look for in a storage facility include:

Professional and responsive staff
Physical features/amenities (fire and security system, climate control, etc.)
Experience in handling and storing similar papers and records
Comprehensive Solutions (digitizing, e-filing, bulk shredding, etc.)
Ability to comply with applicable laws (HIPAA, Gramm-Leach-Bliley, etc.)

Be sure to visit the storage facility and check references, and before moving in, confirm coverage by checking the VPR policy. If it has lower limits for papers and records stored off-premises or excludes coverage altogether, the storage facility may need to be added to the list of covered locations.

Though protecting against the loss of papers and records is rarely high on the list of priorities, it should be. Those who underestimate the importance of papers and records may one day recognize they are not just valuable, they are invaluable.

If you would like to learn more about protecting your valuable papers and records, please contact us.

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Will business owners buy insurance online?

Insurance companies such as Geico and Progressive started selling personal insurance online over a decade ago. So is it safe to assume that business insurance can also be sold online?

We decided to explore this endeavour and we’re not the only ones. Plenty of insurance agencies offer business insurance, but very few can offer clients an online quote.

Just because the tool is out there doesn’t mean business owners will use it. Getting a quote for business insurance is significantly more complicated than obtaining a personal quote. Some of the other agencies that are offering business quotes are approaching it quite differently than we did.

Hiscox is targeting small business with a page on their site dedicated to explaining the various types of insurance coverage small business owners need. Apogee lists the types of insurance they can quote instantly and features a video tutorial of how to use their quoting tool. Our tool lists all the instant quotes we offer including Property and Liability Quotes, Professional Liability Quotes, Business Auto Quotes, and many more.

The introduction of this tool to our website also created the need for a complete redesign. We call ourselves a full-service independent insurance agency and creating this tool made us realize the possibility for an online marketplace. If clients can get quotes online they should be able to service their policies online as well. That’s why we also created a service page which allows clients to manage their policies online

If successful, online quotes for business insurance could be a big game changer. It will be interesting to see how many more agencies begin offering business quotes online. Get a quote and let us know what you think.

At Setnor Byer Insurance & Risk, we are committed to offering you a seamless insurance experience. Check back with us periodically for informational updates about insurance news. If you have specific questions about our instant quoting tool or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

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Health Benefits and Value under the Affordable Care Act

The Department of Health and Human Services (HHS) released final rules pursuant to the Affordable Care Act (Act) that are designed to help consumers shop for and compare health insurance options in the individual and small group markets. According to the HHS, these final rules will promote consistency among health plans, protect consumers by ensuring that plans cover a core package of health benefits and limit out of pocket expenses.

To make it easier for consumers to make apples-to-apples comparisons among health insurance plans, the final rules create uniform standards of coverage and value.

Essential Health Benefits

The Act provides that health plans offered in the individual and small group markets, including those available through Health Insurance Marketplaces (Exchange), must offer a core package of items and services known as Essential Health Benefits or EHBs, which must be equal in scope to those benefits offered by a typical employer plan. Under the Act, EHBs must provide:

Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn care
Mental health and substance use services, including behavioral health treatment
Prescription drugs
Rehabilitative services and devices
Laboratory services
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care

To protect consumers against discrimination the final rules also:

Prohibit discriminatory benefit designs
Include special standards and options for coverage not typically covered by individual and small group policies
Include standards for prescription drug coverage

Actuarial Value

The final rules outline actuarial values of individual and small group plans to help consumers distinguish and compare plans offering different levels of coverage. Actuarial Value, or AV, is calculated as the percentage of total average costs covered by a plan. For example, if a plan has an AV of 70%, a consumer could expect to pay an average of 30% of the costs.

Beginning in 2014, non-grandfathered health plans in the individual and small group markets must meet certain AVs, which have been assigned the following “metal levels”:

A platinum health plan has an AV of 90%.
A gold health plan has an AV of 8%.
A silver health plan has an AV of 70%.
A bronze health plan has an AV of 60%.

To give health plans some flexibility, a plan can meet a particular metal level if its AV is within 2% of the standard. For example, a silver plan may have an AV between 68% and 72%. The final rules also provide flexibility, if necessary, for issuers in the small group market regarding annual deductible limits to achieve a particular metal level.

To streamline and standardize the calculation of AV for health insurance issuers, HHS is providing a publicly available AV Calculator. In 2014, this calculator will use a national standard population, but in 2015, HHS will accept state-specific data sets for the standard population if states choose to submit alternate data for the calculator.

According to HHS, these final rules will give consumers a consistent way to compare and enroll in health coverage in the individual and small group markets, while giving states and insurers more flexibility and freedom to implement the Act. Time will tell if these final rules will achieve their desired purpose.

At Setnor Byer Insurance & Risk, we are committed to guiding you through Health Care Reform. Check back with us periodically for informational updates about the Affordable Care Act. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

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The Affordable Care Act’s Individual Mandate

The Affordable Care Act’s Individual Shared Responsibility provision requires nonexempt individuals to obtain minimum essential coverage for themselves and any nonexempt dependents. Starting January 1, 2014, those failing to get the required health insurance will have to pay a monthly penalty.

Who is subject to the penalty?

The penalty, which is calculated monthly, applies to individuals of all ages, including senior citizens and children. An individual is liable for the penalty assessed against any other individual who can be claimed as a dependent for federal income tax purposes. If an individual files a joint return, that individual and their spouse are jointly liable for the penalty. Penalties will be paid by including them with an individual’s tax return.

What is Minimum Essential Coverage?

Minimum essential coverage generally includes:

Employer-sponsored coverage (including COBRA coverage and retiree coverage)
Coverage purchased in the individual market
Grandfathered health plans
Medicare and Medicaid coverage
Children’s Health Insurance Program (CHIP) coverage
Certain types of Veterans’ health coverage
TRICARE (Department of Defense health care program)

How much is the penalty?

The Individual Shared Responsibility penalty is calculated monthly by using a flat dollar amount or a percentage of household income, whichever is greater. Under the flat dollar amount method, each nonexempt individual is penalized a fixed amount. For individuals under the age of 18, the penalty is one-half the fixed amount. If an individual is responsible for multiple dependents, the total penalty cannot be more than 300% of the applicable fixed amount.

The fixed amounts used to calculate the penalty are:

$95 in 2014 ($7.92 per month)
$325 in 2015 ($27.08 per month)
$695 in 2016 ($57.92 per month)
$695 + cost-of-living increase in 2017 and beyond.

Under the percentage of income method, the penalty is a percentage of an individual’s household income, less specific deductions. To calculate household income, add the individual’s modified adjusted gross income to the modified adjusted gross incomes of the individual’s family members.

The percentages used to calculate the penalty are:

1% in 2014
2% in 2015
2.5% in 2016 and beyond.

For example, in 2014, the annual penalty will be $95 per adult and $47.50 per child, but no more than $285 (300% of $95) or 1% of the household income, whichever is greater.

Is there a maximum limit for the penalty?

Yes. The Individual Shared Responsibility penalty cannot be more than the national average premium for bronze-level (covering 60% of costs) qualified health plans offered through Affordable Insurance Exchanges. The Congressional Budget Office estimates that in 2016, the national average will be approximately $5,000 for individuals and $12,500 for families of four.

Are there any exemptions from the Minimum Essential Coverage requirement?

Yes. The following individuals are not required to obtain Minimum Essential Coverage:

Members of a religious sect that is legally recognized as being conscientiously opposed to accepting any insurance benefits.
Members of a recognized health care sharing ministry.
Individuals who are not U.S. Citizens, U.S. Nationals or lawfully present aliens.
Individuals incarcerated following disposition of criminal charges.
Members of a recognized Indian tribe.
Individuals with income below the threshold for filing a tax return.
Individuals whose required contribution for coverage exceeds 8% of their household income.
Individuals who have been certified as suffering a hardship.
Individuals with a gap in health insurance coverage of less than three consecutive months during the year.

Though proposed regulations explaining the Individual Shared Responsibility penalty have been published by the Internal Revenue Service and the Department of Health and Human Services, they are not final and may change.

At Setnor Byer Insurance & Risk, we are committed to guiding you through Health Care Reform. Check back with us periodically for future informational updates about the Affordable Care Act. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

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