Health Care Reform – What you need to know

Genesis Financial & Insurance Services is uniquely qualified to provide clarity and guidance to employers and individuals regarding health care reform. Our principals have served as presidents of the Local, State and National Association of Health Underwriters. They hold PPACA Certifications and will be certified to represent Covered California (California’s Health Insurance Exchange/Marketplace), once certification is made available.

Below is a brief summary of the new health care law. Clients of Genesis Financial & Insurance Services will be advised on the Affordable Care Act and kept informed as further guidance and regulation is released. Please do not hesitate to contact us for any reason.

 

Patient Protection and Affordable Care Act (PPACA)

Commonly called the Affordable Care Act (ACA), is a United States federal statute signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act, it represents the most significant government expansion and regulatory overhaul of the country’s healthcare system since the passage of Medicare and Medicaid in 1965.

The ACA aims to increase the quality, affordability, and rate of health insurance coverage for Americans, and reduce the costs of health care for individuals and the government. It provides a number of mechanisms, including mandates, subsidies, and insurance exchanges, to increase coverage and affordability. The law also requires insurance companies to cover all applicants within new minimum standards and offer the same rates regardless of pre-existing conditions or sex.

Additional reforms aim to reduce costs and improve healthcare outcomes by shifting the system towards quality over quantity through increased competition, regulations, and incentives to streamline the delivery of health care. The Congressional Budget Office projected that the ACA will lower both future deficits and Medicare spending.

 

Provisions

The ACA includes numerous provisions to take effect over several years beginning in 2010. There is a grandfather clause on policies issued before then that exempt them from many of these provisions, but other provisions may affect existing policies.

• Guaranteed issue will require policies to be issued regardless of any medical condition, and partial community rating will require insurers to offer the same premium to all applicants of the same age and geographical location without regard to gender or most pre-existing conditions (excluding tobacco use).

• A shared responsibility requirement, commonly called an individual mandate, requires all individuals not covered by an employer sponsored health plan, Medicaid, Medicare or other public insurance programs, to secure an approved private- insurance policy or pay a penalty, unless the applicable individual is a member of a recognized religious sect exempted by the Internal Revenue Service, or waived in cases of financial hardship. This was included on the rationale that- without such a mandate, a form of community rating, and coverage standards- the guaranteed issue provision would likely exacerbate adverse selection: if people could not be denied insurance by companies they might put-off insuring themselves until they got sick, causing insurers to resort to larger premium increases on sick individuals and more extensive coverage limits to afford the remaining insured population, which could result in an insurance death spiral. This led to the inclusion of subsidies so people with low-incomes can comply when the mandate goes into effect.

• Health insurance exchanges will commence operation in each state, offering a marketplace where individuals and small businesses can compare policies and premiums, and buy insurance (with a government subsidy if eligible).

• Low-income individuals and families above 100% and up to 400% of the federal poverty level will receive federal subsidies on a sliding scale if they choose to purchase insurance via an exchange (those from 133% to 150% of the poverty level would be subsidized such that their premium cost would be 3% to 4% of income).

• The text of the law expands Medicaid eligibility to include all individuals and families with incomes up to 133% of the poverty level, and simplifies the CHIP enrollment process. In National Federation of Independent Business v. Sebelius, the Supreme Court effectively allowed states to opt out of the Medicaid expansion, and some states have stated their intention to do so. States that choose to reject the Medicaid expansion can set their own Medicaid eligibility thresholds, which in many states are significantly below 133% of the poverty line; in addition, many states do not make Medicaid available to childless adults at any income level. Because subsidies on insurance plans purchased through exchanges are not available to those below 100% of the poverty line, this may create a coverage gap in those states.

• Minimum standards for health insurance policies are to be established (an “essential health benefits”, and annual and lifetime coverage caps will be banned.

• Firms employing 50 or more people but not offering health insurance will also pay a shared responsibility requirement if the government has had to subsidize an employee’s health care.

• Very small businesses will be able to get subsidies if they purchase insurance through an exchange.

• Co-payments, co-insurance, and deductibles are to be eliminated for select health care insurance benefits considered to be part of the “essential benefits package” for Level A or Level B preventive care.

• Changes are enacted that allow a restructuring of Medicare reimbursement from “fee-for-service” to “bundled payment.” A single payment is paid to a hospital and a physician group, for example, for a defined episode of care (such as a hip replacement), rather than individual payments to
individual service-providers.

 

Funding

The ACA’s provisions are funded by a variety of taxes and offsets. Major sources of new revenue include a much-broadened Medicare tax on incomes over $200,000 and $250,000, for individual and joint filers respectively, an annual fee on insurance providers, and a 40% excise tax on “Cadillac” insurance policies. The income levels are not adjusted for inflation, leaving the possibility of increased taxes on incomes over 250,000 inflation-adjusted dollars after more than two decades without indexing through. There are also taxes on pharmaceuticals, high-cost diagnostic equipment, and a 10% federal sales tax on indoor tanning services. Offsets are from intended cost savings such as changes in the Medicare Advantage program relative to traditional Medicare.

Summary of tax increases:

(ten-year projection)

• Increase Medicare tax rate by 0.9% and impose added tax of 3.8% on unearned income for high-income taxpayers: $210.2 billion
• Charge an annual fee on health insurance providers: $60 billion
• Impose a 40% excise tax on health insurance annual premiums in excess of $10,200 for an individual or $27,500 for a family: $32 billion
• Impose an annual fee on manufacturers and importers of branded drugs: $27 billion
• Impose a 2.3% excise tax on manufacturers and importers of certain medical devices: $20 billion
• Raise the 7.5% Adjusted Gross Income floor on medical expenses deduction to 10%: $15.2 billion
• Limit annual contributions to flexible spending arrangements in cafeteria plans to $2,500: $13 billion
• All other revenue sources: $14.9 billion
Summary of spending offsets: (ten-year projection)

• Reduce funding for Medicare Advantage policies: $132 billion
• Reduce Medicare home health care payments: $40 billion
• Reduce certain Medicare hospital payments: $22 billion
Original budget estimates included a provision to require information reporting on payments to corporations, which had been
projected to raise $17 billion, but the provision was repealed.