The Affordable Care Act & Its Impact on IBPA Members: The Good, the Bad, and the Ugly
IBPA has selected Worldwide Insurance Services, Inc. (WWINS) as the administrator of the IBPA-endorsed health insurance program. You can find out more about this Member Benefit within the Member Benefits Handbook or by visiting IBPA’s WWINS site.
By Alan Leafman —
As you may have heard, the Affordable Care Act is vast and far reaching, affecting nearly every sector of the workplace, health care providers, the uninsured, and those who are responsible for providing their own health insurance. For purposes of this article I will focus on those aspects of the law that have the most impact on IBPA’s members.
What has happened so far?
Since 2010 many provisions of the law have taken affect. For the most part, these provisions have improved access to health care and enhanced coverage for self-employed individuals and small employer groups.
Here is a summary of the major changes to date:
- No one can be denied coverage because of pre-existing conditions. In fact, health insurance applications no longer include medical questions. The Affordable Care Act has a provision that allows insurance companies to surcharge tobacco user rates by as much as 50%. However, no carriers imposed this surcharge in 2014. It is likely that certain companies will begin to surcharge tobacco users in 2015.
- Children covered on a parent’s policy may remain covered until they reach age 26 regardless of whether they are full-time students, single, or married.
- Lifetime caps have been removed from all new health insurance plans that are sold in the public marketplaces.
- Preventive care services are now covered at no extra charge on nearly all new health insurance policies (not even copays are required for most preventive care)
- Dollar caps on preventive care services are not allowed on new health insurance policies (many policies in the past capped benefits for prevention at $200-$500 per year)
- For individual and small group health insurance policies health insurance companies must pay at least 80 cents of every premium dollar for health care. If they pay less than 80 cents on average for all plans within the state then rebates must be sent to each policyholder at the end of the year. Rebates are not calculated on a policy-by-policy basis but on a statewide basis.
- Many small employers (fewer than 25 employees) are eligible for federal income tax credits if they fully or partially pay for group health insurance for their employees. Tax credits are also tied to average annual wages for all employees. Credits are available if average annual wages are less than $50,000.
What comes next?
The biggest changes occurred in 2014. For high income individuals (singles earning $200,000+, joint filers earning $250,000+) the Medicare payroll tax is expanded to include dividend, interest and other unearned income. The new health insurance marketplaces were introduced on October 1, 2013 in every state. The marketplaces offer the new policies that fully comply with the Affordable Care Act. As you have probably heard, the marketplaces, particularly the federal marketplace that is used in most states (healthcare.gov), were initially plagued with technical problems that have largely been corrected.
Following are the major changes that were implemented in 2014 that have impacted self-employed individuals and small employer groups:
If You Are Self-Employed or Responsible for Your Own Health Insurance
- Health insurance became mandatory. If you choose not to purchase health insurance the tax on individuals starts at $95 per year, or up to 1 percent of income, whichever is greater, and rises to $695, or 2.5% of income, by 2016. The family penalty by 2016 is $2,085 or 2.5% of income. Future years may index the penalties to even higher levels.
- If you are satisfied with your current health insurance, AND if you have a grandfathered plan issued before 2010 you will not be required to change policies. This holds true in most states until September of 2017. Most other policies were dropped and replaced with compliant plans on January 1, 2014 or on their renewal in 2014. The actual date of change is determined by your insurance company.
- Online health insurance exchanges, called “Marketplaces” are now in operation in every state. The exchanges offer a variety of plans, all of which must contain a package of ten “Essential Health Benefits”, as defined by the Department of Health and Human Services. There are four levels of coverage incorporated into these policies and consumers will choose from among the four packages. The package names are Bronze, Silver, Gold, and Platinum. They cover approximately 60%, 70%, 80%, and 90% of an average person’s medical expenses respectively. For those whose incomes are lower than 400% of the federal poverty level premium subsidies and reduced out-of-pocket costs are available for many individuals on a sliding scale based on income.
- This means that by today’s definition, individuals earning up to $44,680 and families of four earning up to $92,200 will qualify for full or partial subsidies depending on their actual income. (Call for the guideline amounts for other family sizes)
- There will be several additional insurance companies entering the marketplaces in 2015, hopefully adding more consumer choice and greater price competition.
- Medicaid, the federal/state health care program, has become available to millions who were previously ineligible. Expansion of Medicaid to low income adults varies greatly from state-to-state. If you live in a Medicaid expansion state, low income individuals, those earning less than 133% of the federal poverty level, may qualify. In many states these individuals will have access to low-cost or no-cost coverage with minimal copayments for medical (and dental) treatments.
- Acceptance into all health insurance plans is guaranteed regardless of pre-existing conditions or your current physical condition.
- Individual and family health insurance premiums have increased significantly in nearly all states. Three reasons for this…
- Guaranteed acceptance has caused many previously uninsured individuals to acquire health insurance. Due to much pent up demand for care, claims, the major driving force behind premiums, have gone up, therefore pushing premiums higher.
- New mandated benefits are now included in all of the new policies.
- Males in their 20’s and 30’s have seen the greatest premium increases because the Affordable Care Act requires that the difference in premiums between the youngest adults and the oldest adults may not be greater than 3 to 1. (Example: under the ACA the same $600 per month policy for a 60-year old may cost $200 per month for a 20-year old…today that policy could cost the 20-year old $100 per month in most states). Prior to 2014 it was common for the oldest (but under age 65) adults to pay up to 6 times more for health insurance than those in their 20’s. In addition, rates may no longer be based on gender as they had been in most states.
If You Own a Small Business
- Breathe a sigh of relief if you employ fewer than 50 workers. Employer-provided health insurance is not mandatory.
- Businesses with fewer than 25 full-time employees will continue to be eligible for tax credits if they provide group health insurance that has been purchased on the new Small Business Health Option Programs (SHOP) exchanges for small businesses. The credit was increased to 50% in 2014 but only for small group plans purchased through the SHOP program, the small business section of healthcare.gov. The SHOP section of the federal website will not be fully functional until enrollment season for 2015 but the process of shopping for employer group coverage can be started on healthcare.gov and finished by a broker.
- Summary of Benefits and Coverages. The employer must distribute this to employees for plan years after September 2012. Penalty for not doing so is $1,000 per employee.
- HHS has issued model language for notices that employers are now required to provide to their current and future employees notifying them of the existence of public exchanges. One version of the notice is for employers that provide group health insurance benefits, the other version is for employers that do not currently provide group health insurance benefits.
- Look for a strong trend toward Defined Contribution, a new approach to benefits. Until now, nearly all small employer group plans used a Defined Benefit structure. Employees had a choice of one or two health insurance plans, benefits of which were “defined” by their employer. Under Defined Contribution employers will define a benefit allowance for each employee, a flat dollar amount that the employee may use for the purchase of health insurance and related benefits. Employees will then be able to select from among a choice of many plans, some requiring no additional cost, others requiring additional premiums from the employee. Benefit choices will also include supplemental plans for services such as dental, vision, disability, and life insurance.
- CAUTION: Unless the Defined Contribution plan is done within a structure that is authorized by the Internal Revenue Code the money paid as an allowance to the employees will be considered taxable income. In addition, the allowance paid by the employer could be subject to payroll taxes, usually an additional 7.65%. An increase in taxable income may adversely impact the size of government-paid premium subsidies and cost sharing reductions for participating employees. Ask your broker how to properly structure such a plan.
- Contrary to what you may have heard, you will not be required to report the value of employer-provided health insurance on W-2’s. Only employers filing 250 or more W-2’s are subject to this requirement. For now, the value of employer provided health insurance benefits will not be taxable.
All of this comes at a cost. Here is a brief overview of the new taxes (direct and indirect) as a result of healthcare reform:
- Comparative effectiveness tax for each plan enrollee starting at $1 per year and up to $2 to fund a special federal medical best practices research effort.
- Health insurance company premium tax.
- Excise tax on gross sales for manufacturers of medical devices.
- Increasing the threshold for medical expense deductibility from 7.5 to 10% of adjusted gross income on federal return Schedule A. Not directly a tax but a more rigid requirement for deducting medical expenses.
- New threshold for Medicare tax charges on higher income individuals and families. In addition, for “unearned” income (interest, dividends, etc.) it is a tax paid on the person/family’s tax return.
So, there you have it…
…the good, the bad, and the ugly about health care reform. As you can see, access to coverage is being enhanced, barriers to coverage, particularly for those with pre-existing conditions, are being removed, and new benefits are being added to personal health insurance plans. These changes however, come with a cost and only time will tell if the health care act lives up to its name…The Affordable Care Act.
Alan Leafman is the president and founder of WorldWide Insurance Services, Inc., Chicago and Phoenix. His career in the financial services industry began in 1983 when he served as Registered Principal and Vice President of Excalibur Securities, Inc. He then joined New York Life Insurance Company in 1986 and, in 1989, founded the company that is today WorldWide Insurance Services, Inc. This benefits brokerage company serves the needs of the members of more than twenty national trade associations and other membership organizations throughout the United States.