The Supreme Court ruled that health care reform legislation passed in 2010 is Constitutional. The legislation applies to major medical health plans regardless if you receive your benefits at the workplace or purchase directly with an insurer for yourself and/or your family. Putting aside the continued controversy and vows of repeal or change, it is important that we understand how certain of the reforms and mandates, as they exist today or that are soon to be implemented barring repeal, will impact our access to care. If you receive group benefits through your employer it is important to know if your employer’s plan is a grandfathered plan since a grandfathered plan is not required to comply with all of PPACA’s mandates and patient protections. How do you know? Your plan materials must include a notice to this effect.
| Group Health Plan | Grandfathered Group Health Plan | Individual Health Plan Coverage | Uninsured |
| Plans with dependent coverage must make coverage available to “children†to age 26 regardless of tax status (it is up to you whether to add your “child†to your plan). | The same mandate applies; however, until 2014 the plan is not required to make coverage available if the “child†has access to other health coverage. | The mandate applies. | If you are not 26 and your parent has health coverage that covers dependents, your parent may add you to his/her plan. |
| Plans cannot impose pre-existing condition exclusions (PCEs) on an individual enrolled in the plan who is under 19 years of age. This applies to both denial of enrollment and denial of specific benefits.Effective 1/1/2014 this mandate applies to all ages. |
The mandate applies. | The mandate applies as long as the individual plan is not grandfathered. | Applies to any plan purchased through an Exchange beginning in 2014. |
| No more lifetime limits on essential health benefits; annual limits are being phased out and will be gone by 2014. One of the leading causes of bankruptcy will be avoided for many. | The mandate applies. | The mandate applies as long as the individual plan is not grandfathered. | Applies to any plan purchased through an Exchange beginning in 2014. |
| You can no longer be told you or a family member are not eligible to participate or can’t have certain health coverages because of health status, medical condition, claims experience, medical history or genetic information. | Mandate does not apply. | The mandate applies beginning 1/1/2014. | Temporary high risk pools were established in 2010 for uninsured individuals with pre-existing conditions.Applies to any plan purchased through an Exchange beginning in 2014. |
| Your plan cannot be canceled or non-renewed for health reasons. | The mandate applies. | The mandate applies | Applies to any plan purchased through an Exchange beginning in 2014. |
| First dollar coverage required on certain preventive services. This means your plan cannot charge a co-pay or deductible on routine preventive services, including: women’spreventive services, immunizations, blood and cancer screenings, routine vaccines, counseling services, well baby and child visits. |
Mandate does not apply. | The mandate applies to Original Medicare* plans as well as individually purchased plans. *Medicare Advantage plans aren’t required to (but may) comply. |
Applies to any plan purchased through an Exchange beginning in 2014. |
| A plan may not require preauthorization or referral to see an OB/GYN | Mandate does not apply. | The mandate applies. | Applies to any plan purchased through an Exchange beginning in 2014. |
| We can select any primary care provider, including an OB/GYN or pediatrician. | Mandate does not apply. | The mandate applies. | Applies to any plan purchased through an Exchange beginning in 2014. |
| We now have direct access to emergency care without the need to phone and get pre-authorization. | Mandate does not apply. | The mandate applies. | Applies to any plan purchased through an Exchange beginning in 2014. |
| Insurers must spend 80% – 85% (depending on group size) of every premium dollar on health care-related activities. If they miss the applicable medical loss ratio (MLR) standard they must return the difference back to their policyholders in the form of a rebate. States may impose a higher standard. The first rebates go out by August 1, 2012.Does not apply to self-funded health plans. | The mandate applies. | The mandate applies.Note: Insurers must spend 80% of every premium dollar and states may impose higher standards. | Applies to any plan purchased through an Exchange beginning in 2014. |
| Beginning in 2014 employers with 50 or more employees must offer full-time EEs and dependents minimum essential medical coverage at an affordable rate or pay a penalty. Coverage is unaffordable if you must pay 61% or more of the premium or the premium exceeds 9.5% of your household income. | The mandate applies. | N/A | N/A |
Effective with the 2013 tax year the threshold for the itemized deduction for unreimbursed medical expenses increases from 7.5% to 10% of adjusted gross income. The itemized deduction is useful when individuals have unreimbursed medical expenses that are large, relative to their incomes. The increase in the deduction threshold will make the deduction even harder to get. If you or your spouse is 65 the increase is waived until 2017. In addition, if you have access to a Medical Flexible Spending Arrangement (MFSA), a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA), this increase may have less impact on you and your family. However, also in 2013 . . .
The maximum contribution to a MFSA is capped to $2,500 per plan year per individual. This amount will be indexed annually for inflation. Congress and the IRS continue to revisit the “use it or lose it’s rule and it is possible that the rule may be abolished thereby allowing unused funds to roll forward and accumulate for future use.
If you are single and your wages exceed $200,000, or married and combined incomes are more than $250,000, expect to pay a higher Medicare payroll tax in 2013. Currently the total Medicare tax is 2.9%; we pay half and our employer pays half (self-employed individuals pay the full amount). Beginning in 2013, highly compensated individuals will pay an additional .9% on the excess over those base amounts. Check with your tax advisor for details.
Beginning in 2014, you may enroll in a plan through the Exchange of the state where you live. Also if you work for a small employer, your employer may also begin to offer group coverage through an Exchange. Small will generally mean 100 or fewer employees but states can define small as 50 or fewer. Not to worry if your state has not begun the process of setting up an exchange -you will be able to participate in a Federally-facilitated Exchange.
Unless you qualify for an exemption you must maintain minimum essential major medical coverage or pay a penalty for any month that coverage is not maintained. You may also hear this referred to as the “shared responsibility payment” or subsequent to the recent Supreme Court ruling you may hear it referred to as a “tax.” The penalty will be calculated by taking the greater of two amounts: either the “flat dollar amount” or the “percentage of income amount” divided by 12 to determine the penalty due for each month for which the penalty is applicable. The penalty will be capped at the national average of the annual cost of a bronze level health insurance plan, for the applicable family size, offered through the state health care exchanges (we do not yet know what that national average will be).
Not everyone will have to pay a penalty, including:
- religious conscience objectors
- members of a health care-sharing ministry;
- individuals who are not citizens, nationals, or an alien lawfully present in the United States;
- incarcerated individuals;
- individuals who cannot afford coverage (coverage would cost more than 8% of household income);
- individuals whose household income does not exceed the threshold for filing a federal income tax return;
- individuals who receive hardship exemptions through HHS
- members of certain Indian tribes
Since the formula to calculate the penalty is complex we are hoping that the Department of Health and Human Services (HHS) will help us out with a calculation tool. In case you want an idea of what to expect, below is how the flat dollar and percentage of income amounts are determined and an example from Healthcare Reform for Employer’s and Advisors (Thomson Reuters/EBIA, 2012) using $2,000 as the average annual cost of a bronze level plan.
Using the “flat dollar” calculation, the amount is set at $95 for 2014; $325 for 2015; and $695 in 2016 and thereafter for each uncovered individual not to exceed a multiple of three. The amount is capped at three regardless if more than three members of a family are uncovered; also the amount for individuals aged 18 or younger is 50% of the applicable amount per year.
The “percentage of income amount” is determined by first subtracting the taxpayer’s exemption (or exemptions for a married couple) and standard deductions and multiplying the remainder by the applicable percentage: 1% for 2014, 2% for 2015, and 2.5% thereafter.
Example: Calculating the Penalty for a Married Couple and Two Children.
Sue and Bob are married and have two children, ages 3 and 6. They are applicable individuals (i.e., no exception applies), and they do not have health insurance for the 2014 tax year. Their combined household income (after exemptions and standard deductions) is $65,000.
Their penalty under the flat dollar amount method would be $285 ($95 for Sue, $95 for Bob, and $47.50 for each child).
Their penalty under the percentage of income method would be $650 ($65,000 × 1%).
Assuming the average annual cost of a bronze level plan is $2,000, the penalty for Sue and Bob for 2014 is $650 (i.e., the greater of the flat dollar method and percentage of income method). (Thomson Reuters/EBIA, 2012)
For additional information about how the reforms and mandates will impact you, an excellent source of information is www.Healthcare.gov. This is the official site set up by the Secretary of HHS to educate the public about health care reform.
