Impact of The Affordable Care Act

 

Have you been watching the news on The Affordable Care Act more commonly known as Obamacare? 

 

Do you know what the requirements are?  Do you know if the health insurance youhave qualifies?  Do you know the penalty for not having coverage?

You are probably like me – the news coverage is about what a disaster the rollout of the insurance exchanges have been.  And the finger pointing has begun.

Here is what you need to know:

The insurance you have needs to cover ALL of the following:

Hospitalization, doctor’s visits, emergency care, laboratory services, preventative services, prescription drugs, substance use disorder service, mental health, maternity and newborn care, and rehab and rehabilitative services and devices.

Insurance programs before had been a smorgasbord and you could pick the items you wanted covered and the premium was adjusted accordingly.  Now if you are past child bearing years, you still pay for maternity.  You know you don’t need substance abuse services, yet you will pay for that coverage too.

So, how do you control the cost of your coverage?  One means is the plan you choose.

Bronze plans provide 60% coverage; you pay 40%.

Silver plans provide 70%coverage; you pay 30%

Gold plans provide 80% coverage; you pay 20%

Platinum plans provide 90% coverage; you pay 10%.

Catastrophic only coverage is allowed for only those under 30 years.

You will be able to compare plans among insurance carriers.  You will see some price adjustments based on zip code – more rural being limited network; age-brackets have been shrunk to 3 brackets from 7.  This benefits older people.  The rates are unisex for health insurance.  This benefits women.

The premium subsidy and tax credit are related to your income.  You have to make $11,490 to get assistance.  The amount of assistance you receive, phases out with the increase in income up to 400% of the poverty level.

At this time, if you want to get a subsidy or tax credit, you may want to talk with an insurance agent.  In order to speed up the roll out, some of the security measures were stripped down.  Identity theft is a strong possibility.

In order to receive the premium subsidy and or tax credit, you have to apply for insurance on the insurance exchanges. (You can use the insurance agents to apply.) The subsidy only applies to the Bronze level plan.

In 2014, Idaho legislative session, we will likely hear debate over expanding Medicaid.  The states did win that round with the Federal Government.  They cannot be forced to provide expanded Medicaid services or lose all federal funding.  Idaho chose not to expand Medicaid.  So that leaves a population in the gap – not eligible for Medicaid but they don’t make enough to be eligible for premium assistance.

Idaho is one of 17 states that do a state based exchange.  They are using the Federal platform to begin, but will build their own platform in the second phase.

Why did Idaho choose to take on the responsibility of the insurance exchange?  This will save Idaho residents money.  Idaho has a healthier population then many states.  Having our own pool for risk is less expensive than being a part of a national pool.  Also, the excise tax charged by Idaho’s exchange is 1.5% compared to 3% charged by the Feds.  (Excise tax pays for the operation of the exchange).

36 states chose to rely on the Federal Insurance Exchange.  This is a much higher number than anticipated and has bogged the process down.  Reports on the progress of the exchanges indicate state run programs are faring better.

Idaho is one of the states that chose to start over on individual health plans.  Regulators felt there were too many modifications to bring into compliance.  If you have an individual plan, expect to be notified of plan changes and premium increases when you renew.

Penalties for individuals who don’t have adequate health insurance coverage are:

2014 – The penalty is $95 minimum or 1% of your income.  The penalty for children is ½ that amount.  $2,250 is the cap for penalties for a family.

2015 – The penalty begins at $325 up to 2% of your income.

2016 – The penalty begins at $695 up to 2.5% of your income.

For children in divorce, whoever claims the dependency exemption has the responsibility of coverage and related penalty.  That is how IRS will enforce the tax law.  Your divorce decree may require one spouse to carry the insurance, yet the fine goes to the spouse claiming the dependent.

Those who may be exempt are:

1)    Can’t afford the coverage.  The cost exceeds 9.5% of your income.  Up to 9.5% of your income is considered “affordable”.

2)    Taxpayer is below the tax filing requirement.

3)    Gaps in insurance coverage of 3 months or less.

4)    Member of an Indian tribe.

5)    Hardships need to apply through the exchange and Health & Human Services decides if a hardship exists.

Other exemptions were passed by law or administrative mandate.  Congress will not be a part of the new health care system.  You may have heard some unions have been excused.  But it is exemption from the luxury tax, a tax because the policy is a ‘Cadillac’ or too much coverage; which results in over use of the medical system.

How is this ‘Affordable Health Care Act’ being paid for? 

There are several revenue streams.  Individual tax increase; business fees; tax increases on health insurance companies.

Individual Tax Increases: 

Starting in 2013, an additional .9% Medicare tax is charged on wages and self-employment earnings.

The threshold for this tax is wages and self-employment income over:

$250,000 combined wages on a joint return

$200,000 on a single return

$125,000 for married filing separate

You need to pay attention to your family’s total income.  Your employer only has to withhold taxes if an employee’s wages exceed $250,000.  However, combined earnings may exceed the $250,000.  You may need to increase your withholding on your wages or make estimated tax deposits.

An additional 3.8 % tax on net investment income – Your investment income – interest, dividends and capital gains are subject to additional taxes if your adjusted gross income (AGI) exceeds:

$250,000 for joint returns

$200,000 for single returns

$125,000 for married filing separately

$  11,950 for estates and trusts

This tax is often referred to as a Medicare Tax because of the 2.9% original rate and the .9% additional rate for Medicare on wages equals the 3.8% tax.  However, the new tax code does not designate these taxes for the Medicare Trust Fund.

Beginning in 2013, are reductions in itemized deductions.  The most notable is the medical expense threshold moved from 7.5% to 10.00% of your AGI.  For those 65 and over, the new threshold won’t be applied until 2016.

Be aware, the new ‘Medicare Tax’ does not receive the same ‘above the line’ deduction that self-employment tax does.

Business Taxes 

The insurance industry will have an excise tax of $8 Billion.  Insurance companies with net premium revenue over $25 million will share proportionally in this excise tax.

But will the insurance companies really be paying that excise tax?  The estimated cost will be $65 per participant in 2014.

Compensation for insurance employees is restricted.  A company can deduct up to $500,000 for any one employee’s salary.  Any amounts over that are not deductible for tax purposes.

There is supposed to be a reduction of Medicare payments to hospitals.  This has been on the books for years and may actually get implemented.  The concept is hospitals should have more ‘paying’ patients with mandatory health insurance coverage.

Tanning salons also are subject to additional taxes.  This too has been passed to the consumer in price increases.

Employers are encouraged to have health insurance plans.  They have an added fee per participant to help cover the costs of the ACA.  In 2013 the fee is $1 per participant; 2014 it will be $2 per person.

That is the fee for compliance.  There are penalties for large employers, defined as over 50 employees, that don’t offer the minimum essential coverage.  The employer must also cover 60% of the total cost of coverage.

One of the unintended results of this law is in many cases it is cheaper for the employer to pay the fine than provide health insurance coverage.  And many low wage earning employees may be benefited by buying insurance on the exchange as they could qualify for a subsidy or tax credit they can only get on the exchange.

It would seem the solution to motivate companies to provide coverage and individuals to purchase insurance would be to raise the fines.  However, the Affordable Care Act passed the test of constitutionality by being a tax not a penalty.  So the fines have to stay in the tax range and may not be enough pressure for broad compliance.

Those on Medicare are only remotely affected by the Affordable Care Act.  They have already seen the results from the passage of this law.  They receive preventative care without cost such as colonoscopy.  The insurance companies have to pay out 80% of premiums in benefits or refund the monies to the insured.  Also modification to the ‘donut hole’ for drug coverage has benefited seniors.

But these were tweaks to a system already running relatively smoothly.  The rest of the Affordable Care Act appears doomed to fail.

 

Securities and advisory services are through KMS Financial Services,Inc.

Information regarding the ACA has been obtained from what appear to be reliable sources, but cannot be guaranteed.  I recommend you consider consulting with an insurance advisor before making any decisions regarding your coverage.