A Quick Overview of Health Care Reform- What Happens and When

Now That the Screaming Has Subsided, What Does it All Mean?

The health care reform saga of 2009/2010 has been controversial to say the least.  Now that a health care reform bill has been passed and signed into law, most people are wondering how it will affect their coverage in the short and long term. In a future post I'll comment on the winners and losers in the marketplace of consumers and across industry sectors as a result of this bill.  For now, I'll focus on a plain English run-down of the major elements of the health care reform law (known as the Patient Protection and Affordable Care Act). 

Our goal at CuatroBenefits is to keep clients informed and help them plan wisely as the landscape for health care and health insurance changes.  Our commitment was, is, and will continue to be helping business owners and entrepreneurs take care of the people that matter to them.  Now, on to the provisions of the new law.

Where to Start

For a bill this size with so many major elements, it can be hard to know where to start in assessing the impact.  As a starting point, the Kaiser Family Foundation produced a good timeline with an overview of important provisions organized by the year in which they will occur.  It provides nice detail, but if you want even more info, check out their more detailed overview of the bill.  See below for links to both documents.

If you are really just looking for the crib notes overview, below I’ve highlighted some points of interest for business owners and individuals to consider.

If you are an employer fielding questions from employees, it’s important to let them know that a) they might see some coverage improvements in the coming year but overall there won’t be much change in their health benefits, and b) you’ll keep them informed as the provisions of the law take effect in the coming years. 

Whether you're an employer with a group plan or an individual/family with your own health plan, you should know that you'll be operating within the existing health insurance markets and under largely the same old systems of underwriting and regulation until 2014. 

It's worth noting that LOADS of rule-making will be required at the state and federal department/agency levels to implement this new law.  It will take some years for us to get a true sense of what some of the major elements will look like and how they'll work.

Major Elements by Year

In 2010, there are some changes to all plans that will occur without requiring any action from you.  These changes are generally coverage improvements, and they start taking effect in September (six months after enactment of the bill).  They include:

• Elimination of lifetime and annual maximums
• Removal pre-existing conditions exclusions or waiting periods for children
• Coverage for preventive services with no cost-sharing for the insured
• Handling all emergency services as in-network regardless of the provider
• Allowing dependent children to remain on health plans through age 26 (many carriers are implementing this right away)

For small employers under 25 employees with an average salary under $50,000, there is also a tax credit available for 35% to 50% of the premiums paid for employees starting in the 2010 tax year.  This is a two year tax credit, and amounts vary based on certain criteria.  The IRS has already issued guidance on the new small business credit.  Be sure to discuss this provision with your accountant as you prepare your 2010 taxes next year if you think you might be eligible for this tax credit.

In 2011 we’ll see some other changes worth noting:

• Removal of over the counter drugs from consideration for allowance under tax-advantaged accounts such as flexible spending account and health savings accounts
• Reduction of maximum withholding amount for flexible spending accounts to $2500
• Increase in tax penalty for health savings account expenditures not used for qualified medical expenses from 10% to 20%
• Creation of a new, government-run long term care program requiring employers to enroll employees unless they opt out
• Medical Loss Ratio-requirement of carriers in the small group (100 or less) and individual markets to spend no more than 20% of the premium dollars they collect on expenses other than direct payment of claims or to pay rebates to customers (general and admin, sales and marketing, wellness, prevention, disease management, and other expenses may all fall into this "other than claims" category)
• Medical Loss Ratio requirements for carriers in the large group market (100+) are the same but with a threshold of 15% of the premium dollars they collect

2014 is the year in which we will see significant changes in the way health insurance is delivered and regulated.  Some major provisions:

• Elimination of pre-existing condition exclusions or waiting periods for adults as well as children
• Community rating for the individual and small group (up to 100) markets- "blended" rates that can vary only by age (limited), region, family composition, and tobacco use (limited)  
• Creation of state health insurance exchanges as a place individuals and small businesses (up to 100 employees) can go to purchase health insurance
• Definitions of what constitute qualified health plans in and out of exchanges- based on "actuarial value" (60%, 70%, 80%, and 90%, and catastrophic plans for those under 30), out of pocket maximums reduced based on income for those living under 400% of the poverty line
• Limits on deductibles for individual and small group plans ($2000 for individuals, $4000 for families)
• Employer mandate that all employers with more than 50 employees offer health insurance to their employees or face a fine ($2000 per employee per year fine, starting with the 31^st employee)
• Individual mandate that all individuals must have health insurance or pay a tax (1% of taxable income in 2014, higher of 2.5% of taxable income or $695 in 2016)
• Medicaid eligibility expansion to 133% of the federal poverty level (it's estmated that as many as half of those added to the rolls of the insured as a result of this law will be Medicaid enrollees)
• Federal tax credits for those between 100% and 400% of the federal poverty level that don’t receive employer coverage and buy health insurance through the exchange- caps the amount such recipients have to spend on premiums per year (sliding scale from 2% to 9.5% of annual income)
• Employers allowed to reward employees with premium discounts up to 30% for participating in wellness programs and meeting certain health related goals

Changes in Medicare for Seniors

• Over the next 10 years, $455 billion in spending will be cut from Medicare and other government health programs (Traditional benefits are not slated to be cut- these cuts are made to Medicare Advantage, home health care, selected hospitals, and other areas)
• Starting in 2011, government payments for Medicare Advantage plans will be cut ($132 billion in cuts over 10 years)
• The bill establishes an Independent Payment Advisory Board, made up of 15 members, that would submit legislative proposals to reduce per capita Medicare spending if that spending grows too fast- first submission would occur in 2014
• Efforts to close the Medicare prescription drug "doughnut hole" (lack of prescription coverage between $2700 and $6154 in annual expenses- starts with $250 rebate in 2010, phases up to 75% covered by government in 2020

Taxes

Expect to see quite a few new taxes beginning in 2010 under this legislation:

• Taxes on indoor tanning services (2010)- 10% excise tax- we couldn't make this stuff up  
• Taxes on prescription drug manufacturers (2012)- $2.8 billion in 2012/13, grows to $4.1 billion in 2018, $2.8 billion thereafter
• Taxes on medical devices (2013)- 2.3% on the sale of each medical device
• Tax on high earners (2013)- For those making $200,000 or more per year ($250,000 filing jointly), there is an extra 0.9% Medicare payroll tax
• Tax on high earners (2013)- For those making $200,000 or more per year ($250,000 filing jointly), there is an extra 3.8% tax on unearned income (interest, dividends, capital gains, etc.)
• Increase in itemized medical deduction threshold (2013)- the threshold for itemized deduction of unreimbursed medical expenses goes from 7.5% of adjusted gross income to 10%
• Taxes on health plans (2014)- $8 billion in 2014, grows to $14.3 billion in 2018, increasing thereafter based on premium growth
• Individual mandate (2014)- all individuals must have health insurance or pay a tax (1% of taxable income in 2014, higher of 2.5% of taxable income or $695 in 2016)
• Employer mandate (2014)- all employers with more than 50 employees offer health insurance to their employees or face a fine ($2000 per employee per year fine, starting with the 31^st employee)- not necessarily billed as a tax but the impact is the same for employers
• Elimination of tax deduction for employers receiving subsidies for keeping retirees on their prescription drug coverage (2014)
• Taxes on "Cadillac" health plans (2018)- 40% excise tax on insurers for plans that exceed aggragate annual value (premium) of $10,200 for individuals or $27,500 for families

I will comment in a future post on where I see the market for individual and group health insurance headed, what it means for stakeholders in the health care ecosystem, and some possible (if not likely) unintended consequences of the bill.

We will continue to prepare clients as these provisions are implemented to help them plan accordingly.  If you have any questions or need to discuss, please don’t hesitate to contact us.

Best regards,

Cuatro