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.
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.
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