Wesley Sierk's Blog

Healthcare in America – 2 of 2

Posted in Health Care For Business Owners by rwsierk on March 27, 2010

This is the second of a two part Post on the current state of healthcare. In this Post, I am going to give you my understanding of the PROPOSED White House / Congressional Leadership Reconciliation Bill, the Health Care and Education Reconciliation Act of 2010, H.R. 4872. I say PROPOSED because the current bill approved by the House and signed by President Obama still has to go through the reconciliation process in the Senate. As a devout fiscally Conservative Republican (and I use Conservative with the capital “C”) and strict Constitutionalist, the first thing I did on Sunday was turn on the television so I could watch the debate over the Health Care and Education Reconciliation Act of 2010. And in between trips to the store, changing diapers, and T Ball games I watched intently all day. Much of the day was filled with stress and consternation over the potential passage of the bill largely because I, like most of the members of the House of Representatives, had not READ the Bill.

A few things became obvious; the Republican Party MUST do better. Michael Steele is a good spokesman of the RNC, but much of the talk was rhetoric with little offered publically as an alternative. The Republican caucus had great alternative plans but did a very poor job articulating their ideas to the American public. They need better PR. Most of the great ideas that were shared were done so on conservative, “Right-Wing” radio and television shows. Being played on those shows makes any idea lose credibility. Second, I was DISGUSTED at some of the hideous things I saw protestors and tea party activist doing. I watched in horror at a clip of the poor man with Parkinson’s who was quietly showing his support for healthcare reform. Angry protesters shouted insults and threw dollar bills in his face. We need honest political debate not hateful, partisan political ‘talking points’.

The Bill passed, I went to bed, and when I woke up Monday the sun still rose from the East, there were no riots, and my mortgage company still wants me to pay on time. It has been 4 days, I have read the bill and would like to give you my understanding of some of the key points. I have taken the information directly out of the bill and all is fact. Where it is my OPINION, I have clearly noted it by putting an OPINION before the statement. I hope you enjoy.

OVERALL IMPRESSION

I am shocked as I write this, but it is not all bad. The intent of the bill, forgetting the fact it was done through reconciliation in contrast to the Constitution, State’s Rights (Article X), the complete violation of McCarran-Ferguson to name a few, is a noble endeavor. The goal is to provide access to affordable healthcare to every LEGAL, non-incarcerated American. Its stated purpose is to REQUIRE most U.S. citizens and legal residents to have health insurance. Will it accomplish this goal, it is way too soon to tell.

OUTLINE OF THE NEW PROPOSED BILL

 

Health Care and Education Reconciliation Act of 2010 Overview 

Date Approved

March 21,2010 

Who is covered? What is the goal? Requires most U.S. citizens and legal residents to have health insurance. It allows the creation of state controlled American Health Benefit Exchanges. These exchanges will allow individuals and families the ability to purchase coverage. There will be premium credits and cost sharing for families and individuals that are between 133% and 400% of the Federal Poverty Level. It also allows for the creation of more/ different exchanges to provide coverage to businesses. The bill also imposed penalties for businesses whose employees receive a tax credit for insurance purchased through the exchanges. The bill also expands Medicaid to individuals / families that are up to 133% of the Federal Poverty Level.
What if you do not have coverage? This bill REQUIRES U.S. citizens and legal residents to have coverage.Those that do not have coverage will have to pay a PENALTY that is the GREATER of:

$695 per year for an individual or up to $2,085 for a family

OR

2.5% of household income.

 

These penalties are phased in from $95 in 2014 to $695 in 2016.

There are exceptions for financial hardship, religious objections, American Indians, people that went without coverage for less than 3 months, undocumented (illegal) immigrants, people that are incarcerated, people where the premium is greater than 8% of their income, and those that do not file taxes.

Employer Requirements:Who has to offer? Greater than 50 employees, that DO NOT OFFER COVERAGE and have at least one employee who receives a premium tax credit: Assesses employers a fee of $2,000 per employee excluding the fist 30 employees.Greater than 50 employees, that OFFER COVERAGE and have at least one employee who receives a premium tax credit: Assesses employers a fee of the lesser of $3,000 per each employee who receives a tax credit or $2,000 for every full-time employee.Less than 50 employees: Exempt from any of the above penalties.This becomes effective January 1, 2014.

Another provision of the law requires employers that OFFER coverage to employees to provide a Free Choice Voucher to employees whose incomes are less than 400% of the Federal Poverty Level, where the employee share of the premium would exceed 8% but less than 9.8 % of their income. The voucher amount must be equal to the amount the employer would have paid for premium in a plan.

This bill also requires employers with greater than 200 employees AUTOMATICALLY enroll employee into a plan but allow employees to opt out of the plan.

(Opinion: This is beginning to look like a clever Rube Goldberg concocted by people who never owned a business. Running a business and dealing with employees is hard enough without getting vouchers, calculating employee premiums, cross checking to see if it falls between 8 to 9.6% of their income. This is crazy. The new normal in business will be to employee less than 50 employees.)

Small Business Tax Credits  Small employers with no more than 25 employees and average wages of less than $50,000 and purchase coverage for employees with a tax credit are eligible for:
For tax years 2010 through 2013, a 35% tax credit of the employer’s portion of the insurance if they pay for 50% of the employee’s coverage. A full credit will be available if you have less than 10 employees and the average wage is less than $25,000.
For tax years 2014 and later the employer only gets the tax credit if they purchase the coverage through the state Exchanges.
(Opinion: this is where the federal government moves to eliminate private companies and moves toward a universal provider model. Mark my words: this is the equivalent of allowing the camel to stick his nose under the tent.)


 

Policies Offered The bill proposes the following plans be created.

  • Bronze Plan- this is the bottom of the barrel coverage. It must provide for 60% of the benefit cost of the plan. This plan would have an out-of-pocket limit of $5,950 for an individual or $11,900 for a family.
  • Silver Plan- this has to provide 70% of the benefit cost of the plan. It has the same out-of-pocket limits as above.
  • Gold Plan- Same as above but, 80% of the cost of the plan.
  • Platinum Plan- 90%
  • Catastrophic Plan- this is available to the under age 30 marketplace. This plan is subject to the same out-of-pocket maximums as above. This plan is NOT available to businesses. (Opinion: You greedy, robber-baron employers will have to provide better coverage for your employees.)

     

Out-of-pocket limits are also adjusted if your income is between 100% and 400% of the Federal Poverty Level. The limits are as follows:

  • Between 100 and 200% of FPL the OOP limits are 1/3 of HSA limits, $1,983 for an individual and $3,967 for a family.
  • 200% to 300% the limits are ½ of the HSA limits, $2,975 for an individual and $5,950 for a family.
  • 300% to 400% the limits are 2/3 of the HSA limits, $3,987 for an individual and $7,973 for a family.

 

Polices are required to provide guaranteed issue and guaranteed renewability. Premiums are allowed to be rated based on age, family composition, area you live, and TOBACCO use. (Opinion: this is a great thing. For the first time a health insurance policy can charge more to people that smoke.)

Temporary High-Risk Pool The bill provides starting 90 days from enactment until 1/1/2014 there will be a national high-risk pool. The pool will provide coverage to U.S. citizens and legal immigrants that have pre-existing conditions AND who have been uninsured for at least 6 months. The premiums will be based on rates of the standard population and can be no more than 4 times the price.
Dependent Coverage Provides coverage for dependents up to age 26 for all individual and group policies.
Tax Changes Penalties for individuals without coverage will be $695 per year (or up to $2,085 for a family) OR 2.5% of household income. (beginning 1/1/2014)Exclude all over-the-counter drugs from reimbursement out of a Health Savings Accounts or Flexible Spending Account. (beginning 1/1/2011)Increase the tax on distributions from HSAs and FSAs to 20%. (beginning 1/1/2011)Limit the amount of contributions to Flexible Spending Accounts to $2,500 per year increased annually by a cost of living adjustment. (beginning 1/1/2013)

Increase the itemized deduction threshold for deductibility of unreimbursed medical expenses from 7.5% to 10% of adjusted gross income. (beginning 1/1/2013)

Increase Medicare tax from 1.45% to 2.35% on earned income over $200,000 for individuals and $250,000 for married couples. (beginning 1/1/2013)

Impose a confiscatory (Oops, Opinion) tax of 3.8% on unearned income for higher income taxpayers. (beginning 1/1/2013)

Tax on insurers whose premiums exceed $10,200 for individuals and $27,500 for families. This tax equals 40% of the cost of the plan that exceeds these amounts. (beginning 1/12018)

Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments. (Fact and Opinion: As I am writing this I just read in the Wall Street Journal AT & T announced yesterday they will take a charge against earnings for at least $1 billion dollars for a loss of this subsidy. They join a growing list of employers that will have to report lower earnings. Some of the other companies are John Deere- $150 million, Caterpillar- $100 million, 3M- $85 to $90 million. This could lead to dramatic shifts in the way employers- both publicly traded and privately held, approach post retirement medical coverage.)

Impose a new Annual Fee on the health insurance industry. This fee is subject to the following schedule:

  • $8 billion for 2014
  • $11.3 billion for 2015 and 2016
  • $13.9 billion for 2017
  • $14.3 billion for 2018
  • For 2019 and additional years they take the previous year’s fee and increase it by an annual inflation index.

Non-profit insurers only have to use half of their premiums to calculate their fees. Exemptions are granted to insurance companies that get 80% of their premiums from the government or if coverage is provided by a non-employer owned Voluntary Employee Beneficiary Association.

Impose a new Annual Fee on the pharmaceutical industry. This fee is subject to the following schedule:

  • $2.8 billion for 2012 and 2013
  • $3 billion for 2014, 2015 and 2016
  • $4 billion for 2017
  • $4.1 billion for 2018
  • $2.8 billion for 2019 and subsequent years.

(Opinion: the new bill extends the patents on brand name drugs to twelve years. Is it possible the pharmaceutical industry agreed to pay billions of dollars in exchange for an additional 5 years before generics can be produced of their drugs and you cannot purchase non-prescription drugs with your FSA or HRAs?)

Impose an excise tax of 2.3% on medical devices.

The deductibility of insurance company executive pay is limited to $500,000 per year. (beginning 1/1/2009) (Opinion: Large insurance companies are publically traded and have to do what’s best for the shareholders. After all of the laws passed after Enron on fiduciary liability these executives will be forced to take lower salaries. What kind of talent will be left to run these companies if their pay is limited? The best and the brightest will leave the industry where their unique skills and talents will be rewarded.)

Impose a tax of 10% on indoor tanning services.

Medicaid Expands Medicare to cover Individuals under 65, pregnant women, parents, and adults without dependent children whose incomes are up to 133% of the Federal Poverty Level. In order to fund this benefit, the federal government will reimburse states 100% of their cost in 2014 through 2016, 95% funding in 2017, 94% in 2018, 93% in 2019 and 90% for years 2020 and ALL subsequent years.
Health Insurance Exchanges This bill would create state based American Health Benefit Exchanges for individuals and Small Business Health Option (SHOP) Exchanges. (Shouldn’t it be SBHOP? Reading this bill, you see what a clever bunch these people are. I kept waiting for the acronym OBAMA and PELOSI to show up.)
These are to be run by a non-profit or a government agency. Qualified individuals or businesses with up to 100 employees can purchase insurance through these exchanges.
After 2017 these exchanges would be available to businesses with more than 100 employees.
Allow for the creation of Community Operated and Oriented (CO-OP) Plans. These are non-profit, member run insurance companies. They must have a strong consumer focus and be run independent of any existing insurance company or government agency. The bill allocates $6 billion to finance these programs and promote the creation of these Co-ops by 7/1/1013.


 

Eligibility of Premium Credits
For Employees
Employees are eligible for premium credits if the employee cost of a premium exceeds 9.5% of their income or if the employer plan does not have an actuarial value of 60%.
Effective Date 1/1/2014
(Opinion: This is the beginning of where the plan can go sideways. How would employee ever know what the actuarial value of the employer plan is? Also, if you remember from above, if an employer offers health coverage and they have ONE employee takes the tax credit, they are subject to the lesser of $3,000 per employee who takes the credit or $2,000 per employee. Rule of thumb for employers to be 100% compliant: Don’t start a business, go get a good, safe government job.)

 
How much are the premium credits?  Premium credits are refundable and advanceable to employees whose incomes are between 133% and 400% of the FPL. The amount of credits are limited to the following income levels:
% of the FPL % Credit of income
Up to 133% 2%
133% to 150% 3% to 4%

150% to 200% 4% to 6.3%

200% to 250% 6.3% to 8.05%

250% to 300% 8.05% to 9.5%

300% to 400% 9.5%

Effective 1/1/2014

Cost Sharing Subsidies Eligible individuals and families are available for cost sharing subsidies annually. The subsidies provided are:
94%- if your income is 100% to 150% of the FPL
85%- if your income is 150% to 200% of the FPL
73%- if your income is 200% to 250% of the FPL

70%- if your income is 250% to 400% of the FPL

In order to receive a federal premium credit, eligible individuals and families are required to provide income and citizenship verification. This is also where the tricky language on ABORTION (highlight added for dramatic effect only. It is not a statement of right or wrong) If an individual receives a subsidy, none of the federal subsidy can go to provide abortion services except for cases of rape, incest, or (Opinion: the doctor provides the service. The Hyde Amendment portion of the bill is ridiculous. If the federal subsidy is 94%, all the plan has to do is state the 6% the individual paid went for those services. I do not have an opinion on a woman’s right to choose as I am not a woman. As a side note to the Bart Stupak Democrats who held out over this nonsense: the bill ALREADY allowed abortions in cases of rape and incest. I was watching your dumb press conference and I heard you say now women who got pregnant through “no fault of their own” will not be forced with the choice to terminate a life. With the exception of rape and incest (that was in the bill), I have never met a woman who got pregnant through “no fault of her own”. You are a fool! Also, your entire stance was about ABORTION and you never use the word abortion. It’s like talking about Medicare without ever using the word Medicare. We are not that stupid, we are adults. Use the word ABORTION. You should also know that currently 87% ofall private insurance policies cover abortion, according to the Guttmacher Institute. But only 13% of abortions are paid for with insurance because most women who get pregnant do not have insurance or are on Medicare.)


The effective date is contradictory when reading. It could be 1/1/2013 or 1/1/2014. We shall wait and see.

Wellness Programs Provides grants for small businesses for up to 5 years to establish a wellness program. (beginning 1/1/2011)
Permits employers to offer REWARDS to employees for participating in wellness programs and meeting health related goals. An employer can provide premium discounts, waivers for their cost-sharing piece, or additional benefits not offered to other employees who did not meet the goals. These benefits can be up to 30% of cost of coverage. The employer will have the ability to raise this to 50% if the plan is successful and the discount is “appropriate”. For an employee where the standard is “unreasonably difficult” the employer must come up with alternative standards for those employees.

 

I have made a reasonable attempt to portray the parts of the bill that will effect business owners. Within the over 2000 pages there are many other things I did not include. Some of these are changes to Long Term Care, Student Loans, Medicare Reimbursements, etc. Many of the provisions I have left out deal with technical insurance company regulations, what the states must do to be compliant, actuarial calculations and the like.

I would welcome any questions or feedback on my analysis of the bill and what it will mean to business owners.

Wes

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