Over the past few years, employees across the country have been raising questions about health care reform and how it will impact them. The following communication has been created to help inform and educate employees about the possible changes that may affect them in the future.
What is Health Care Reform?
The Affordable Care Act was passed by Congress and then signed into law by the President on March 23, 2010. On June 28, 2012 the Supreme Court rendered a final decision to uphold the health care law. This law is commonly referred to as Obama Care, Health Care Reform, the Affordable Care Act (ACA) or the Patient Protection and Affordable Care Act (PPACA) – these terms are synonymous.
The Affordable Care Act (new law) puts in place initiatives and changes regarding health care insurance. These changes have been phased in starting in September of 2010 and will continue beyond 2015. The details and specifics on how each of these initiatives will be implemented, also known as the regulations, are being written and determined as the phases are taking effect. In some cases there have been delays in implementing certain provisions.
Note: The practical “hows” have not yet been outlined on many of the upcoming provisions, so even the experts have questions about how this will impact the health care delivery system.
This communication is designed to provide you with an update on what’s been implemented, what’s coming up and how it may impact either your employer or you. Included you will find a Question / Answer* section with additional detail.
Important Note: Some of the health care reform provisions apply to small employers and some provisions apply to all employers. If you are currently covered under your employers’ health care plan, in order to determine the impact of the ACA on your coverage, you must know whether your employer is considered a large employer or a small employer. Under the ACA, a large employer has 50 or more full-time employees.
What has been implemented since 2010?
Over the last few years, several provisions have been implemented. You likely have experienced some of the new provisions. The most talked about provisions include the following:
- Dependent children up to age 26 are now covered on health plans even if they are not a fulltime student.
- Pre-existing conditions do not apply for children.
- Small employer plans must provide coverage for certain “essential benefits”.*
- Certain essential benefits cannot have a lifetime or annual dollar limit.*
- Over-the-counter medication must have a doctor’s prescription in order to be covered on the health plan.
- Preventive care services, including specific medications, are covered at 100% – no out-of-pocket cost to you.
- A new format for the description of your benefits has been created. It is called the Summary of Benefits and Coverage.
- The cost of your health insurance premium is displayed on your W-2 statement.
- For your health care Flexible Spending Account, the maximum contribution is $2,500 annually.
As you can see, most Americans have been touched by one or more of these provisions. The majority of these are positive and have improved the insurance coverage provided. As you can understand, improved benefits result in a higher premium. As benefits improve, the insurance premiums will also increase.
What is expected in 2014?
The upcoming year has a few key provisions that will be implemented. You may begin hearing about some of these provisions.
- Pre-existing conditions do not apply for adults.
- Wellness program incentives and penalties are permitted at a higher level than previously allowed.
- All individuals are required to have health insurance coverage or pay a tax penalty.
- Employers with +50 fulltime employees must provide health insurance coverage. That coverage must be affordable and must provide minimum essential coverage. If the health insurance coverage does not meet these criteria, the employer is subject to a tax penalty.
- Fulltime is considered 30 hours a week.
- Affordable means the employee contribution cannot exceed a percentage of gross income of the lowest paid employee.
- Minimum Essential Coverage means that the benefit plan must provide certain benefits at a specific value.
- At the State and Federal level, insurance Exchanges will be implemented. An Exchange is simply a marketplace for shopping and buying health insurance coverage. Initially, the Exchange will be available for individuals and small employers. Remember, as of January 1, 2014, every individual is required to have health insurance coverage. The Exchange provides another option for buying that coverage.
- Individuals purchasing health insurance through a State Exchange may qualify for a tax subsidy*.
These are the key provisions that will be effective January 1, 2014. Now, let’s further explore some of the details of these provisions.
The (*) Section — Question / Answer
Do I have to purchase health care insurance?
Yes. Starting January 1, 2014, every individual must have health care insurance with minimal essential coverage or pay a tax penalty. The tax penalty will be phased in over the next three years and starts at $90 annually. You can purchase health care insurance through an employer plan (if eligible), through the individual insurance marketplace or through either a State or Federal Exchange.
What is a State or Federal Exchange?
An Exchange is simply a marketplace for shopping and buying health insurance coverage. Eventually, the Exchanges will provide a menu of insurance plans designed to meet a variety of needs. For example, the Platinum Plan may provide a 90% benefit value whereas the Bronze Plan may provide a 70% benefit value. The “minimum” benefit plan must provide at least 60% benefit value. This doesn’t necessarily mean the plan will have a 60% coinsurance rate, since the benefit value includes more than the coinsurance. In layman’s terms this means that the benefits must roughly cover 60% of the cost of coverage for annual care (deductibles, copays, pharmacy and other out of pocket costs).
A State Exchange is operated at the individual State level. Georgia, for example, declined to create an exchange, and therefore residents of Georgia will have access to the Federal Exchange.
Starting on January 1, 2014, the Federal Exchange will offer only one health insurance plan. State and Federal Exchanges are still being created – and the rules governing them are still being finalized. Details are limited regarding the specific benefit plans and how these will function.
What type of health insurance are large employers required to provide?
Large Employers must provide health insurance that is both affordable and provides minimum value coverage. The employee contribution for “employee only coverage” cannot exceed 9.5% of the lowest paid fulltime employee’s annual salary. The employer must provide at least one benefit plan that meets the minimum coverage of 60% benefit value (as described above).
If the employer doesn’t meet these requirements, then, they will pay a tax penalty of up to $3,000 per employee per year. This provision of health care reform has been coined: Play or Pay, meaning employers must either Play and offer their full-time employee’s health care insurance or Pay a penalty.
What is the individual tax subsidy?
A tax subsidy is government assistance to help pay for a state health care exchange. A subsidy is available to individuals and families with income between 100% – 400% of the federal poverty level. The estimated range to qualify for a subsidy is $44,000 for an individual and $89,000 for a family.
Why are some employers moving employees to part-time status?
The ACA states that employers with +50 fulltime employees are mandated to provide health insurance that is both affordable and provides minimum value. A fulltime employee is defined as working 30 hours a week. Some employers are taking measures to keep their fulltime employee count below 50 employees.
What are essential benefits?
There are specific categories, or types of benefits, that are deemed “essential benefits” and that must be covered in small employer health insurance plan. The ten categories are: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, laboratory services, preventive and wellness services, chronic disease management and pediatric services. For each category, there are specific services to be covered.
For essential benefits, are there lifetimes or annual benefit maximums?
No. The Affordable Care Act requires all plans – small and large to cover essential benefits without lifetime or annual maximums.
Is the cost of health insurance premiums going to go up?
There are many factors that impact health insurance premiums. Here are a few things to think about:
- On any group health plan, the claim experience and the health of the covered group (employees and their families) directly impact the cost of health insurance premiums.
- Medical cost inflation is always a factor. Just like the cost for a gallon of milk is going up, the cost for medical services is also increasing.
- Benefit enhancements increase the health insurance premiums. For example the initial premium impact to provide preventive care at 100% was about a 2% increase to premiums. Preventive care services, when used consistently over the long-term, will eventually reduce costs, however, covering the services does produce an increase in current cost.
In a nutshell, health insurance premiums are expected to increase.