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Health Care Reform after the Supreme Court Ruling
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
Health Insurers must take all applicants No Pre-Existing Conditions No Underwriting
Guarantee Issue Applies - 2014
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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?
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?
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!