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Health Care Reform After the Supreme Court Ruling- Its Impact on Your Clients and Your Firm August 23, 2012 Jim Wisdom, CFP James L. Wisdom Insurance Services

Health Care Reform After The Supreme Court Ruling

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Health Care Reform after the Supreme Court Ruling

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Page 1: Health Care Reform After The Supreme Court Ruling

Health Care Reform After the Supreme Court Ruling- Its Impact

on Your Clients and Your Firm

August 23, 2012Jim Wisdom, CFP

James L. Wisdom Insurance Services

Page 2: Health Care Reform After The Supreme Court Ruling

Introduction Summary of Supreme Court Ruling Impact of ‘12 Election on Health Care Reform What to expect prior to 1/1/14 The Main Event: What to expect after 1/1/14 Impact on Employers/Providers/Insurers/Brokers Key Benefits of Health Care Reform Trends / Consequences of Health Care Reform Impact on your firm What can you do to assist your clients? Q&A

Overview

Page 3: Health Care Reform After The Supreme Court Ruling

Employed in the Insurance/Financial Services Industry since 1985

Insurance Broker/Consultant since 1996 Started James L. Wisdom Insurance Services

in 2003 Goal: To share my perspective/opinions in

hopes that we can more effectively serve our clients in the coming years.

Note: We do not provide tax or legal advice

Introduction- Jim Wisdom, CFP

Page 4: Health Care Reform After The Supreme Court Ruling

Individual mandate deemed unconstitutional under the Commerce Clause

Individual mandate (effective 1/1/14) deemed constitutional under taxing power

States can’t be compelled to comply with enhancements to Medicaid effective 1/1/14

Summary of Supreme Court Ruling

Page 5: Health Care Reform After The Supreme Court Ruling

Health Care Reform likely to stay regardless of our next President

Any chance of GOP Repeal efforts would require 1) keeping the House; 2) winning the White House; and 3) a filibuster proof (60+) majority in the Senate

Budget reconciliation a possibility for certain provisions

2012 Election and Health Care Reform

Page 6: Health Care Reform After The Supreme Court Ruling

Certain provisions already in effect Insurance carriers will avoid rate increases

greater than10% per year (bad P.R.) Carriers will control health care claims costs

via reduced benefits, tiered networks and more pre-authorization

New taxes to pay for PPACA

What to Expect Prior to 2014

Page 7: Health Care Reform After The Supreme Court Ruling

Reduced benefits Increased Out-of-Pocket Maximums Increased Deductibles Separate buckets for Network and Non-

Network Deductibles Separate buckets for Network and Non-

Network Out-of-Pocket Maximums Increased Coinsurance % paid by insureds

What to Expect Prior to 2014

Page 8: Health Care Reform After The Supreme Court Ruling

Ways that carriers can use tiered networks: Create a subset of their existing HMO

networks (“most cost-effective providers”) Ditto for existing PPO networks The bottom line: reduction in patient access

to providers

What to Expect Prior to 2014

Page 9: Health Care Reform After The Supreme Court Ruling

Employees: +.9% Medicare tax on earnings ($200K for singles; $250K for joint filers)

3.8% tax on net investment income (not indexed for inflation)

Flex Spending Accounts capped at $2,500/yr. 2.3% excise tax on Medical Device

manufacturers Itemized deduction threshold for unreimbursed

medical expenses rises to 10% of AGI from 7.5% of AGI◦ This tax postponed for those over 65 until 2017

New Taxes/Fees in 2013

Page 10: Health Care Reform After The Supreme Court Ruling

It’s a whole new ball game State Based Exchanges start up Individual mandate kicks in Guaranteed Issue applies Employer “pay or play” provision applies 3:1 ratio in pricing between youngest and

oldest age bands 40% “Cadillac Tax” effective 1/1/18

◦ This tax is not indexed for inflation

The Main Event- 1/1/14 and Beyond

Page 11: Health Care Reform After The Supreme Court Ruling

To be up and running by 1/1/14 CA is leading the way Exchanges are state-created marketplaces

where insurance products can be easily compared.

Available to individuals and small groups Some states are creating exchanges, others

are not Fed. Govt. can establish a state-based

exchange if the state doesn’t do so

State-Based Exchanges

Page 12: Health Care Reform After The Supreme Court Ruling

16 states have created exchanges as of August 1, 2012

Subsidies in the form of tax credits available to people who earn up to 400% of FPL◦ In 2012, 400% of FPL= $44,680 (individual) and

$92,200 (family of four)

State Based Exchanges

Page 13: Health Care Reform After The Supreme Court Ruling

Some individuals who obtain Exchange coverage eligible for federal subsidies

Subsidies available for Exchanges established by states

It is unclear if subsidies will be available in federally-run state Exchanges. ◦ If no, then no penalty may apply

Exchange- Potential Loophole

Page 14: Health Care Reform After The Supreme Court Ruling

Individuals must prove they purchased minimum essential coverage or face a penalty

Penalty increases from 2014 to the greater of $695/year or 2.5% of income (indexed thereafter)

Federal premium subsidies available on a sliding scale for individuals up to 400% of FPL as described earlier (available only through Exchanges)

Individual Mandate – 1/1/14

Page 15: Health Care Reform After The Supreme Court Ruling

Health Insurers must take all applicants No Pre-Existing Conditions No Underwriting

Guarantee Issue Applies - 2014

Page 16: Health Care Reform After The Supreme Court Ruling

Applies to employers with 50+ Full Time Employees (and their Dependents) or 50+Full Time Equivalent Employees (and their Dependents)

Employer must offer minimum essential coverage to all Employees and Dependents

Employer Pay or Play Kicks In

Page 17: Health Care Reform After The Supreme Court Ruling

Annual Tax of $2,000 for each F/T Employee (less the first 30), if at least one F/T Employee obtains federally subsidized coverage through an “Exchange”

Employer Pay or Play- No Offer Penalty

Page 18: Health Care Reform After The Supreme Court Ruling

If one F/T Employee obtains federally subsidized coverage through an Exchange, the employer must pay an annual tax of the lesser of (1) $3,000 per subsidized F/T Employee; or (2) $2,000 for each F/T Employee (less the first 30 F/T Employees)

Employee Pay or Play- Unaffordable Coverage Penalty

Page 19: Health Care Reform After The Supreme Court Ruling

Employer pays $2,000 X the number of F/T employees, if at least one F/T employee obtains subsidized health coverage in an Exchange

Employer can subtract the first 30 employees from this calculation

Annual Penalty = (51 Employees – 30 Employees) X $2,000= $42,000

1/12 of penalty assessed monthly

Pay or Play Example- 51 F/T Employees No Offer Penalty Example

Page 20: Health Care Reform After The Supreme Court Ruling

Employer offers minimum essential coverage

Three employees purchase subsidized health coverage through the Exchange

Employer pays the lesser of (1) $3,000 X number of F/T employees who received subsidized coverage through the exchange OR (2) $2,000 X the number of F/T employees.

Employer can subtract the first 30 employees from this calculation

Pay or Play Example- 51F/T Employees- Unaffordable Coverage Penalty Example

Page 21: Health Care Reform After The Supreme Court Ruling

Employer pays the lesser of:

$3,000 X 3 Employees= $9,000 $2,000 X (51Employees – 30 Employees) =

$42,000

Employer pays $9,000 per year 1/12 of penalty assessed monthly

Unaffordable Coverage Penalty Example- 51 F/T Employees

Page 22: Health Care Reform After The Supreme Court Ruling

Young adults not only have to buy coverage, but their premiums may double or triple.

Example: 2012 Age Rating (6:1 Ratio) 62 yr. old - $600/month 28 yr. old- $100/month

2014 Example (3:1 Ratio) 62 yr. old- $600/month 28 yr. old- $200/month

3:1 Ratio In Pricing Starts in 2014

Page 23: Health Care Reform After The Supreme Court Ruling

For industries that haven’t offered Health Insurance- premiums likely to increase significantly.

Industries that have offered Health Insurance◦ Unknown: The rates/benefits of the CA Exchange◦ Employers offering H.S.A. plans may be forced to

offer lower deductible plans (increased premiums)◦ Guarantee Issue Underwriting is likely to drive up

premiums

Impact on Employers- Less than 50 Employees

Page 24: Health Care Reform After The Supreme Court Ruling

For industries that haven’t offered Health Insurance - Costs likely to increase significantly

For industries that have offered Health Insurance- ◦ Incentive to reduce # of F/T Employees below 50

to avoid penalties◦ Guarantee Issue should raise premiums◦ Unknown: The rates/benefits of the CA Exchange

Impact on Employers: 50-100 Employees

Page 25: Health Care Reform After The Supreme Court Ruling

35 Million More Insureds Supply of providers fairly constant Demand for services likely to increase

substantially Expect longer wait times Examples: Canada, Massachusetts More doctors may forgo insurance and

practice concierge medicine

Impact on Providers

Page 26: Health Care Reform After The Supreme Court Ruling

More customers= more premiums However, profits regulated due to Medical

Loss Ratio (Medical Loss Ratio) requirements

After 2014 (Guaranteed Issue), maintaining profitability may prove to be difficult

Impact on Health Insurers

Page 27: Health Care Reform After The Supreme Court Ruling

Ranks of Agents specializing in individual health insurance is declining

Commissions likely to be reduced Agents/Brokers are diversifying their books

of business prior to 1/1/4 Unclear of whether Agents/Brokers will have

a role in the Exchanges

Impact on Agents/Brokers

Page 28: Health Care Reform After The Supreme Court Ruling

You may be able to buy insurance you cannot now afford

If you have a pre-existing condition, you will be able to buy insurance for the same premium as that paid by people in good health

If you have a very expensive, ongoing health problem, there will be no annual limitation for your health coverage

No charge for routine preventive care 35 Million more Americans will be insured Strong incentives for employers to adopt a

company sponsored wellness program

Key Benefits of Health Care Reform

Page 29: Health Care Reform After The Supreme Court Ruling

Value Based Plans will gain popularity Ditto for Company Sponsored Wellness Programs Enrollment in Health Savings Accounts will decline

somewhat Costs may escalate due to many factors: more insureds,

guarantee issue, watered down penalty Young adults will be forced to buy coverage at a high rate

to subsidize the older folks The Exchanges are an unknown at this point Certain industries will shrink and/or raise prices

substantially Some employers may drop health coverage and pay the

penalty IPAB could prove to be controversial

Trends / Consequences

Page 30: Health Care Reform After The Supreme Court Ruling

You will probably start getting more questions on this topic (if not already)

A lot of confusion about this comprehensive, complex law

This law will be fully implemented in 2018 A number of new taxes- however, they

won’t apply to many Americans There will be administrative requirements

◦ Example: Employee notice of benefit summary

How Will Health Care Reform Impact Your Firm?

Page 31: Health Care Reform After The Supreme Court Ruling

Pay particular attention to employers who may be subject to a penalty (50+ employees)

Your clients will have questions-we can assist Develop a business relationship with a

broker/agent that is knowledgeable about this law

Keep your broker/agent informed of what CPA’s are being told regarding Health Care Reform

The regulations are still being written

How Can You Assist Your Clients?

Page 32: Health Care Reform After The Supreme Court Ruling

Jim Wisdom, CFP James L. Wisdom Insurance Services 4607 Lakeview Canyon Road - Suite 482 Westlake Village, CA 91361 Work: (805)497-9264 Cell: (818)469-6640 E-Mail: [email protected] Web Site: www.wisdomhealthplans.com Blog: www.jimwisdom.wordpress.com Also on Linked In, Twitter and Facebook

Thank You for Attending!