Health Care Reform Effects on Small Businesses and Individuals

As we progress through the basics of Health Care Reform (HCR) in this series, we need to keep in mind that the 2700+ pages of the two bills include many provisions that can not be fully addressed here. Never the less, the purpose of this series is to provide useful information to give employers and individuals alike, information they will need to make informed decisions over the next 3 ½ years until January 1, 2014.

If you are an employer with fewer than 50 full time and “full time equivalent” (FTE) employees, you will enjoy the luxury of being exempted from the most onerous provisions discussed in the previous article. If you offer health insurance coverage to your employees you will still have a few issues affecting your health plan.

Effective for tax year 2013, an additional Medicare Part A tax of 0.9% will be assessed on incomes above $200,000 for individuals or $250,000 for joint filers. This works out to a 62% increase over the current Medicare tax rate of 1.45%. Another tax of 3.8% will be assessed against unearned income for “high income” taxpayers.

Other taxes will go into effect on or before January 1, 2014, that relate to HSA account distributions. The so-called Cadillac tax on rich health plans will begin then as well, but perhaps one of the most notable tax increases actually began March 23, of this year. All tanning bed operators began paying an additional 10% tax surcharge for customer rental of tanning beds.

If you offer group health insurance, your plan will have to eliminate lifetime caps on Essential Health Benefits (EHBs). As was discussed previously, EHBs will be further defined by Health and Human Services. It is believed EHBs will include certain wellness, outpatient and hospitalization benefits. That is, all health insurance plans must offer these benefits and can not place caps on how much can be paid out under the plan. A few of the EHBs may be required to be offered exclusive of a plan deductible, such as routine physical exams.

The most important issue for small groups is the 35% tax credit that is available for tax year 2010. This credit is available through tax year 2013 if the employer contributes at least 50% of the total premium cost. The debate continues at present if the 50% contribution rate must apply to dependents’ premiums as well. The larger the business becomes, the smaller the credit becomes. Consultation with a knowledgeable tax professional is recommended.

The credit will stop after 2013. At that time a two-year tax credit will then be available if the small group plan is purchased through the government health insurance exchange.

Children of employees are eligible as dependents until age 26, regardless of marital or student status.

By January 1, 2010,annual caps on EHBs must be eliminated. Too, the small business will not be able to extend a waiting period for enrolling new employees beyond 90 days. Texas state law already requires no more than a 3-month wait.

Pre-existing health conditions must be fully covered by January 1, 2014 for adults. The mandate for children under 19 years must be in effect by September 23, 2010. Insurance companies are challenging the child provision however saying, the time frame is too soon for the mandate to be implemented.

As you shop for better deals for small group insurance or even individual insurance, HCR is supposed to open the door to expanded competition. You will be able to continue to shop for insurance as you have in the past, but you may also go direct with insurance carriers, or look at Consumer Owned and Oriented Plans (CO OPs), or even through a state run health insurance Exchange.

The exchanges, in conjunction with purchasing from carriers directly through third parties, will most likely be the same insurance carriers, similar plans and comparable premiums. Although, the Exchanges will require insurance companies to offer plan designs that satisfy unresolved minimum benefit levels. Only the CO OPs may be able to offer a little diversity in plan design, and because they are supposed to be owned by the individual group employers, the idea is that premiums will generally remain stable.

HCR will provide initial seed money to start up the CO OPs and Exchanges, but no one knows yet any details on how these programs must be structured. Some important questions remain to be answered.

-Can CO OPs cross state lines?

-Can CO OPs include different industry types?

-Who actually will run the program?

-Will multiple plan options be available to different employers’ unique needs?

Individuals will also be able to shop through the Exchanges, but will not be allowed the opportunity to enroll in CO OPs unless 1-person groups are allowed to participate. Eventually, the small group market and individual market probably will merge into just an individual market.

A lot more of the “fun” begins for small groups and individuals January 2014. As mentioned earlier, the Medicare tax begins. Also on that date, individuals must enroll in a health insurance plan that is equal to or better than EHBs or pay a penalty. The penalty is $95 or 1% of household income in 2014; $325 or 2% in 2015; or $695 or 2.5% in 2016 and later. The penalty applies separately to the taxpayer and up to two dependents. So, a family of two people would have twice the penalty of a single person. A family of three or more would pay 3X the individual rate.

HHS did build into HCR some exemptions from the penalty for certain classes of individuals:

Certain religious objections, financial hardship, and inmates for example.

It is this issue that has insurance companies a bit on edge. What’s to prevent everyone from going uninsured until they need insurance and then going out to buy it. HHS is expected to offer revisions in the coming months and years to this loop hole.

Through government subsidies and expanded Medicaid eligibility, financed through additional taxes from tanning beds, high income earners, insurance companies, pharmaceutical companies, non-participation penalties and others, millions of Americans will be able to get health care coverage. These enrollees will also be exempt from the penalties for not enrolling in insurance coverage.

The individuals remaining would then be forced to buy insurance through the Exchanges, a broker, or directly from a carrier. To prove enrollment when they file their tax returns, a form similar to a 1099 or W-2 will be submitted with the tax return to the IRS.

Insurance companies tend to be comfortable with most of the mandates placed on them in the group (large and small) and individual markets. Two provisions pose particular challenges. The lack of enforcement avenues for failure to enroll in insurance is one. The other is the Medical Loss Ratio (MLR) and premium rate review.

HCR sets up a review panel to review insurance companies’ proposed rates annually. HCR also requires insurance companies to begin in 2014 to report the proportion of premium dollars spent on clinical services, quality and other related costs. If those services are less than 80% of premiums paid by small group plan participants and individuals, the carrier is required to issue the difference in the form of a rebate.

The idea of a rebate is intriguing, but if the reverse is true as well, how much will premiums be allowed to go up if claims reach 200% or more of premiums paid? No one knows the answer to these questions yet. If a person does in fact get a 200% rate increase, will he/she still have the freedom to shop around for lower premiums. The answer would seem to be, “not likely”, since the government will be monitoring rates and such by January 1, 2014.

Then again, since the employer could get the rate increase as a group plan, would that employer then get to keep any rebate? What if one person on the group has high claims and another has low claims, “Is a rebate payable to the one and a big rate increase passed to the other?”

HCR is likely to force small group health plans out of existence (I.e. group plans under 50 lives). Because the regs have left little distinction between small group and individual plans, by January 1, 2014, individual health plans will probably take over the small group market. Employers who offer health benefits to employees would set up the program on a list bill system. At termination of employment, the employee would not have to lose insurance and could simply take the coverage with him/her.

The next employer may or may not accept that plan into its list bill arrangement, but enrollment in individual health plans will be quite simple. There will not be any health questions. The extent of the application will be name, date of birth, address, Social Security number, dependent information, and plan selection. By January 1, 2014, health questionnaires will not be necessary.

Obviously a multitude of questions will need to be answered by HHS, but it does appear groups under 50 lives and individuals will have a much easier process enrolling and maintaining insurance as long as premiums can stay affordable.

Stay tuned as the saga continues. Next time: more on individuals and seniors. We will take a closer look at health insurance for retired Americans and citizens over age 65 as well as some of the other details likely to affect those under age 65.

For rates visit: www.HealthInsuranceForTexas.com

Health Care Reform...How Are You Affected (Part 2)

With the final amendment to healthcare reform signed into law March 30 in the Health Care and Education Reconciliation Act of 2010, the onerous tasks begin within the federal departments of Health and Human Services (HHS) and the Department of Labor (DOL) to adopt rules and regulations that will, hopefully, provide needed clarity for employers and employees alike.

To date, little is known about specifics expected to come from the two departments. HHS will be the primary driver however, while DOL will address union and other labor issues that arise.

Healthcare reforms do address a few specific areas by which employers, large and small, can plan. We do need to remember the final outcome of the law was not to reduce costs. Rather, the purpose was to increase access to health insurance.

The immediate timeline related to all employer sponsored health insurance plans look like this:

-By September 23, 2010, all insurance plans must offer dependent coverage to children until age 26, regardless of marital status, student status, or employment status.

-Tightly restricted annual limits on “Essential Health Benefits” are eliminated

-Waiting periods for pre-existing conditions are eliminated for children under age 19

-Lifetime benefits are eliminated

-35% tax credit (immediate for 2010) for employers who offer and subsidize health insurance for its employees.

Essential Health Benefits will be better defined by HHS over time, but will certainly include mandatory wellness benefits. Health plans in effect on or before March 23, are considered “grandfathered” and thus are exempt from the following mandates. However, a change in carriers, a “substantial” change in benefits, or a substantial shift in costs of premiums to employees will result in the loss of this exemption. HHS will issue R & Rs later, further defining the parameters of “substantial change”.

Grandfathered plans may enjoy the luxury of smaller premium increases over time than non-grandfathered plans because these new plans have other, stricter requirements.

In the interim, grandfathered plans are exempt from:

-First dollar coverage for preventive care although some grandfathered plans offer this benefit.

-Non-discrimination rules are extended to insurance plans. That is, management may not have a richer benefit plan than non-management

-Emergency care services must be treated as “in-network” without prior authorization

-Pediatricians and OB-GYNs are considered primary care providers.

Insurance carriers will be required to abide by a “minimum loss ratio” (MLR). This will apply to all group insurance plans. In short, the MLR states that insurance companies must issue refunds to groups if claims are less than 85% (large groups) and 80% (small groups) of total premiums paid. The reverse is also true. Small groups in particular could face excessively high premiums after one particularly unfavorable year. Some employers who provide health insurance are now faced with some tough decisions as a result of health care reform. Non-grandfathered plans are more likely to see significantly higher premiums than grandfathered plans, as R & Rs clarify some of the uncertainty.

Health Care Reform included some other obscure provisions about which employees are probably unaware. All non-grandfathered plans and employer groups with 25 or more employees (including common ownership of 2 or more small businesses) will be subjected to a number of reporting requirements in addition to the mandates listed previously. Too, health care reform will begin to count part-time employees as well through a formula called “full-time equivalent” (FTE). This could be especially troubling to employers with fewer than 50 full-time employees, but after accounting for FTE of part-time employees they could inadvertently be counted as 50+ and subject to mandates. The FTE formula will be clarified as time goes by, but by January 1, 2014, all non-grandfathered groups will be subject to these mandates.

Health care reform does not require employers to offer group insurance. Nevertheless, penalties will apply to 50+ employee groups (including FTE & remember the common ownership rule) who do not offer medical insurance. For instance, an employer would face a $2000 fine per employee (31^st employee and beyond) if even one employee receives a $2000 tax credit from the government toward health insurance through the Exchange (to be explained in a later column) or through Medicaid.

Employers who offer health insurance must also offer a free voucher, equal to the employer’s contribution, to all employee’s whose household income is less than 400% of the federal poverty level. The employers can then purchase insurance through the Exchange. If the Exchange is cheaper than the value of the voucher, the employer is then required to pay the difference to the employee.

On January 1, 2014, the IRS will get involved. Employers of 50+ and not grandfathered will be required to report the value of the health insurance on W-2’s to be issued by January 2012. Penalties will apply here as well if the reported value is greater than $10,200 for individuals or $27,500 for families. That is, insurers will be assessed an excise tax on the coverage and because of the MLR, that assessment will likely be pushed on to employees as higher premiums.

If the employer’s contribution is less than 60% or the employee’s cost share of premium exceeds 9.5% of household income and an employee receives a government subsidy, then a penalty of $2,000 for each employee (31^st employee and beyond) is levied.

By March 2012, employers of 50+ and non-grandfathered plans must provide a 4-page pre-enrollment coverage document outlining benefits and exclusions to all new employees. Details will be forthcoming from HHS.

Reading “between the lines”, it would appear the government is making it difficult for employers at or near 50 full-time employees to offer health insurance. Likewise, employers may be forced to eliminate part-time/seasonal workers and instead opt for overtime to regular/full-time employees to avoid potential penalties and the possibility of having to cover part-time employees on insurance.

Health care reform includes other mandates that will trigger by January 1, 2014, but are not as likely as the above mandates to alter an employer’s basic business model on hiring practices, nor are they as apt to influence an employer’s decision on whether to offer insurance.

Inevitably, many more questions will arise. As you can see, the intent with health care reform is a push toward universal coverage through employers of 50+. Next time, we’ll talk about individuals and groups under 50.

Health Care reform…”What does it do for me?” “Is it going to be free?” “Will there be waiting lines at doctor offices?” “What about rationing?” These are all legitimate questions and will be addressed over the next few weeks.

Efforts to change the delivery system of health care in the U. S. goes back over 100 years. However, the most well known attempt at reform was as recent as 1994 during the Clinton administration. The overriding goal of reform debate has been to get all Americans insured and relieve the system of treating patients who had no insurance.

Providers then would shift the cost (I.e. cost shifting) to those who could afford to pay out of pocket or who had insurance. Consequently, the well to do and insured Americans saw their costs of health care rise disproportionately over time along with the premiums for health insurance.

Since the failure of the 1994 attempt at reform, the health care system introduced “Managed Care” plans. These plans offered discounts in premiums to steer insureds into certain blocks of providers. These plans had a number of different looks, but the most common in the West Texas area was PPO plans.

Managed Care plans helped alleviate the cost shifting stress for a while, but failed to bring more uninsured folks into the system. Eventually, as the number of uninsureds rose, premiums were forced higher and higher until today where it is not unusual for a family premium to be more than a house payment.

Most estimates say 47 million Americans are without health insurance today. The original goal of reform debate when it was seriously renewed in 2008, was to force that 47 million people into the cost sharing arena.

By March 23, 2010, the result of reform provided only modest incentives for those 47 million to participate in cost sharing system. Rather, the result ended up as insurance reform.

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). On March 30, 2010, the President signed into the law the Health Care and Education Reconciliation Act of 2010 (HCERA), adding certain amendments to PPACA. Combined the two laws comprise health care reform.

The end result of reform will not reduce costs. The primary focus intended to get those 47 million Americans in the system as participating financial contributors by forcing them to purchase health insurance or open the health insurance markets up to insure those with pre-existing health conditions.

The incentives to get more people into the system include:

-tax credits for businesses who offer and help pay for insurance

-penalties to individuals and families who do not buy insurance

-elimination of pre-existing health condition exclusions by health insurance carriers

-premium subsidy payments to individuals and families who could not afford insurance

-expansion of Medicaid

These mandates along with a host of other mandates will be phased in over the next seven years, with the majority required by January 1, 2014. It is on this date that subsidies, penalties, and adult pre-existing condition limitations begin. Other prominent provisions begin on that date as well:

-State run “Health Insurance Exchanges” must be operating

-Policies may no longer include limitations on annual benefits

-Wellness programs begin

-Group plans will not be able to extend waiting periods for insurance eligibility beyond 90 days

-Employers must begin to “certify” coverage.

Other mandates require insurance companies to install important provisions by September 23, 2010:

-Dependent children, whether married or unmarried, student or non-student may remain as dependents until age 26

-Group health plans may not set lifetime maximum benefit amounts on “Essential Health Benefits”. The Dept of Health and Human Services will be determining what “Essential Health Benefits” are by September 23

-Children under age 19 who have a pre-existing condition must be “guaranteed issue”

-Insurance companies may not rescind health insurance policies except in limited cases of fraud or misrepresentation by an applicant

-A $250 payment will be made to Medicare Part D (prescription drug plan) beneficiaries as the first installment toward closing the “donut hole” by 2020.

Health plans in effect on March 23, 2010, or collectively bargained plans will be exempt from certain requirements and will retain the “grandfathered” status until, as yet undefined, policy changes are made. The grandfathered plans must still abide by dependent children to age 26 and benefit limitation rules. However they will be exempt from other more significant requirements that will be addressed in later columns.

Grandfathered health plan premiums will likely be less adversely affected than post-grandfathered plans which will have to conform to many mandates. Most experts believe health insurance on January 1, 2014, could be well over 75% higher than a similar policy today.

Very small group plans may give way to individual plans of insurance because the structure of health care reform blurs the line of distinctions between the two.

In the meantime prior to September 23, 2010, insurance companies will distribute updates to small group plan sponsors the following items:

-Children can remain on parent’s coverage until age 26

-elimination of lifetime benefit caps

-35% tax credit for offering and paying all or a portion of group health plan

The next blog will focus on group insurance reforms with more detail about the effects on small businesses.