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Consumers Guide To Health Reform

By Phil Galewitz

KHN Staff Writer

Mar 26, 2010

The health-insurance overhaul package signed into law by President Obama is the most far-reaching health legislation since the creation of the Medicare and Medicaid programs.

The following is a look at the impact of the law, which will extend insurance coverage to 32 million additional Americans by 2019, but which will also have an effect on almost every citizen.

Here’s how you might be affected:

Q: I don’t have health insurance. Will I have to get it, and what happens if I don’t?

A: Under the legislation, most Americans will have to have insurance by 2014 or pay a penalty. The penalty would start at $95, or up to 1 percent of income, whichever is greater, and rise to $695, or 2.5 percent of income, by 2016. This is an individual limit; families have a limit of $2,085. Some people can be exempted from the insurance requirement, called an individual mandate, because of financial hardship or religious beliefs or if they are American Indians, for example.

Q: I want health insurance, but I can’t afford it. What do I do?

A: Depending on your income, you might be eligible for Medicaid, the state-federal program for the poor and disabled, which will be expanded sharply beginning in 2014. Low-income adults, including those without children, will be eligible, as long as their incomes didn’t exceed 133 percent of the federal poverty level, or $14,404 for individuals and $29,326 for a family of four, according to current poverty guidelines.

Q: What if I make too much for Medicaid but still can’t afford coverage?

A: You might be eligible for government subsidies to help you pay for private insurance that would be sold in the new state-based insurance marketplaces, called exchanges, slated to begin operation in 2014.

Premium subsidies will be available for individuals and families with incomes between 133 percent and 400 percent of the poverty level, or $14,404 to $43,320 for individuals and $29,326 to $88,200 for a family of four.

The subsidies will be on a sliding scale. For example, a family of four earning 150 percent of the poverty level, or $33,075 a year, will have to pay 4 percent of its income, or $1,323, on premiums. A family with income of 400 percent of the poverty level will have to pay 9.5 percent, or $8,379.

In addition, if your income is below 400 percent of the poverty level, your out-of-pocket health expenses will be limited.

Q: How will the legislation affect the kind of insurance I can buy? Will it make it easier for me to get coverage, even if I have health problems?

A: If you have a medical condition, the law will make it easier for you to get coverage; insurers will be barred from rejecting applicants based on health status once the exchanges are operating in 2014.

In the meantime, the law will create a temporary high-risk insurance pool for people with medical problems who have been rejected by insurers and have been uninsured at least six months. This will occur this year.

And starting later this year, insurers can no longer exclude coverage for specific medical problems for children with pre-existing conditions, nor can they any longer set lifetime coverage limits for adults and kids.  The Obama administration insists that the law also would bar insurers this year from turning away children with pre-existing conditions. But some insurers and children’s advocates say the law isn’t clear on that point, and the administration has said it will draft clarifying regulations.

In 2014, annual limits on coverage will be banned.

New policies sold on the exchanges will be required to cover a range of benefits, including hospitalizations, doctor visits, prescription drugs, maternity care and certain preventive tests.

Q: How will the legislation affect young adults?

A: If you’re an unmarried adult younger than 26, you can stay on your parent’s insurance coverage as long as you are not offered health coverage at work. This benefit will begin later this year, but will require regulations clearly spelling out eligibility criteria.

In addition, people in their 20s will be given the option of buying a “catastrophic” plan that will have lower premiums. The coverage will largely only kick in after the individual has $6,000 in out-of-pocket expenses.

Q: I own a small business. Will I have to buy insurance for my workers? What help can I get?

A: It depends on the size of your firm. Companies with fewer than 50 workers won’t face any penalties if they don’t didn’t offer insurance.

Companies can get tax credits to help buy insurance if they have 25 or fewer employees and a workforce with an average wage of up to $50,000. Tax credits of up to 35 percent of the cost of premiums will be available this year and will reach 50 percent in 2014. The full credits are for the smallest firms with low-wage workers; the subsidies shrink as companies’ workforces and average wages rise.

Firms with more than 50 employees that do not offer coverage will have to pay a fee of up to $2,000 per full-time employee if any of their workers get government-subsidized insurance coverage in the exchanges. The first 30 workers will be excluded from the assessment.

Q: I’m over 65. How will the legislation affect seniors?

A: The Medicare prescription-drug benefit will be improved substantially. This year, seniors who enter the Part D coverage gap, known as the “doughnut hole,” will get $250 to help pay for their medications.

Beyond that, drug company- discounts on brand-name drugs and federal subsidies and discounts for all drugs will gradually reduce the gap, eliminating it by 2020. That means that seniors, who now pay 100percent of their drug costs once they hit the doughnut hole, will pay 25 percent.

And, as under current law, once seniors spend a certain amount on medications, they will get “catastrophic” coverage and pay only 5percent of the cost of their medications.

Meanwhile, government payments to Medicare Advantage, the private-plan part of Medicare, will be  frozen starting in 2011 , and cut in the following years. If you’re one of the 10 million enrollees, you could lose extra benefits that many of the plans offer, such as free eyeglasses, hearing aids and gym memberships. To cushion the blow to beneficiaries, the cuts to health plans in high-cost areas of the country such as New York City and South Florida — where seniors have enjoyed the richest benefits — will be phased in over as many as seven years.

Beginning this year, the law will make all Medicare preventive services, such as screenings for colon, prostate and breast cancer, free to beneficiaries.

Q: How much is all this going to cost? Will it increase my taxes?

A: The package is estimated to cost $938 billion over a decade. But because of higher taxes and fees and billions of dollars in Medicare payment cuts to providers, the package will narrow the federal budget deficit by $143 billion over 10 years, according to the Congressional Budget Office.

If you have a high income, you face higher taxes. Starting in 2013, individuals will pay a higher Medicare payroll tax of 2.35 percent on earnings of more than $200,000 a year and couples earning more than $250,000, up from the current 1.45 percent. In addition, you will face an additional 3.8 percent tax on unearned income such as dividends and interest over the threshold.

Starting in 2018, the law will also impose a 40 percent excise tax on the portion of most employer-sponsored health coverage (excluding dental and vision) that exceeds $10,200 a year for individuals and $27,500 for families. The tax is often referred to as a “Cadillac” tax.

The law also will raise the threshold for deducting unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent.

The law also will limit the amount of money you can put in a flexible spending account to pay medical expenses to $2,500 starting in 2013. Those using an indoor tanning salon will pay a 10 percent tax starting this year.

Q: What will happen to my premiums?

A: That’s hard to predict and the subject of much debate. People who are sick might face lower premiums than otherwise because insurers won’t be permitted to charge sick people more; healthier people might pay more. Older people could still be charged more than younger people, but the gap couldn’t be as large.

The bigger question is what happens to rising medical costs, which drive up premiums. Even proponents acknowledge that efforts in the legislation to control health costs, such as a new board to oversee Medicare spending, won’t have much of an effect for several years.

In November, a Congressional Budget Office report on how the legislation — which at that point had a tougher Cadillac tax — would affect premiums said big employers would see premiums stay flat or drop 3 percent compared to today’s rates. It also noted that employees with small-group coverage might see their premiums stay the same. And Americans who received subsidies would see their premiums decline by up to 11 percent, according to the CBO.

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Summary of Health Reform Coverage Provisions

On March 23, President Obama signed the Patient Protection and Affordable Care Act passed by the Senate on December 24, 2009 and by the House of Representatives on March 21, 2010. The House of Representatives also passed the Health Care and Education Reconciliation Act of 2010, which made changes to the Patient Protection and Affordable Care Act and has been sent to the Senate for consideration. References to the legislation here include both the health reform law and the changes made by the House of Representatives that are being considered in the Senate. The following summary explains key health coverage provisions of the legislation.

The legislation passed by the House of Representatives will do the following:

  • Most individuals will be required to have health insurance beginning in 2014.
  • Individuals who do not have access to affordable employer coverage will be able to purchase coverage through a health insurance exchange with premium and cost-sharing credits available to some people to make coverage more affordable. Small businesses will be able to purchase coverage through a separate exchange.
  • Employers will be required to pay penalties for employees who receive tax credits for health insurance through the exchange, with exceptions for small employers.
  • New regulations will be imposed on all health plans that will prevent health insurers from denying coverage to people for any reason, including health status, and from charging higher premiums based on health status and gender.
  • Medicaid will be expanded to 133 percent of the federal poverty level ($14,404 for an individual and $29,327 for a family of four in 2009) for all individuals under age 65.
  • The Congressional Budget Office estimates that the legislation will reduce the number of uninsured by 32 million in 2019 at a net cost of $938 over ten years, while reducing the deficit by $124 billion during this time period.

Individual mandate

All individuals will be required to have health insurance, with some exceptions, beginning in 2014. Those who do not have coverage will be required to pay a yearly financial penalty of the greater of $695 per person (up to a maximum of $2,085 per family), or 2.5 percent of household income, which will be phased-in from 2014-2016.

Exceptions will be given for financial hardship and religious objections; and to American Indians; people who have been uninsured for less than three months; those for whom the lowest cost health plan exceeds 8 percent of income; and if the individual has income below the tax filing threshold ($9,350 for an individual and $18,700 for a married couple in 2009).

Expansion of public programs

Medicaid will be expanded to all individuals under age 65 with incomes up to 133percent of the federal poverty level ($14,404 for an individual and $29,327 for a family of four in 2009) based on modified adjusted gross income. This expansion will create a uniform minimum Medicaid eligibility threshold across states and will eliminate a limitation of the program that prohibits most adults without dependent children from enrolling in the program today (though as under current law, undocumented immigrants will not be eligible for Medicaid). Eligibility for

Medicaid and the Children’s Health Insurance Program (CHIP) for children will continue at their current eligibility levels until 2019. People with incomes above 133 percent of the poverty level who do not have access to employer-sponsored insurance will obtain coverage through the newly created state health insurance exchanges.

  • The federal government will provide 100 percent federal funding for the costs of those who become newly eligible for Medicaid for years 2014 through 2016, 95 percent federal funding for 2017, 94 percent federal funding for 2018, 93 percent federal funding for 2019, and 90 percent federal funding for 2020 and subsequent years.
  • States that have already expanded adult eligibility to 100 percent of the poverty level will receive a phased-in increase in the FMAP for non-pregnant childless adults.
  • Medicaid payments to primary care doctors for primary care services will be increased to 100 percent of Medicare payment rates in 2013 and 2014 with 100 percent federal financing.

American health benefit exchanges

States will create American Health Benefit Exchanges where individuals can purchase insurance and separate exchanges for small employers to purchase insurance. These new marketplaces will provide consumers with information to enable them to choose among plans. Premium and cost-sharing subsidies will be available to make coverage more affordable.

  • Access to exchanges will be limited to U.S. citizens and legal immigrants. Small businesses with up to 100 employees can purchase coverage through the exchange.
  • Although there will not be a public plan option in the exchanges, the Office of Personnel Management, which administers the Federal Employees Health Benefit Program, will contract with private insurers to offer at least two multi-state plans in each exchange, including at least one offered by a non-profit entity. In addition, funds will be made available to establish non-profit, member-run health insurance CO-OPs in each state.
  • Plans in the exchanges will be required to offer benefits that meet a minimum set of standards. Insurers will offer four levels of coverage that vary based on premiums, out-of-pocket costs, and benefits beyond the minimum required plus a catastrophic coverage plan.
  • Premium subsidies will be provided to families with incomes between 133 percent and 400 percent of the poverty level ($29,327 to $88,200 for a family of four in 2009) to help them purchase insurance through the exchanges. These subsidies will be offered on a sliding scale basis and will limit the cost of the premium to between 2 percent of income for those up to 133 percent of the poverty level and 9.5  percent of income for those between 300 percent and 400 percent of the poverty level.
  • Cost-sharing subsidies will also be available to people with incomes between 133 percent and 400 percent of the poverty level to limit out-of-pocket spending.

Changes to private insurance

New insurance market regulations will prevent health insurers from denying coverage to people for any reason, including their health status, and from charging people more based on their health status and gender. These new rules will also require that all new health plans provide comprehensive coverage that includes at least a minimum set of services, caps annual out-of-pocket spending, does not impose cost-sharing for preventive services, and does not impose annual or lifetime limits on coverage.

  • Health plan premiums will be allowed to vary based on age (by a 3 to 1 ratio), geographic area, tobacco use (by a 1.5 to 1 ratio), and the number of family members.
  • Health insurers will be prohibited from imposing lifetime limits on coverage and will be prohibited from rescinding coverage, except in cases of fraud.
  • Increases in health plan premiums will be subject to review.
  • Young adults will be allowed to remain on their parent’s health insurance up to age 26.
  • States will be allowed to form health care choice compacts that enable insurers to sell policies in any state that participates in the compact.
  • Waiting periods for coverage will be limited to 90 days.
  • Existing individual and employer-sponsored insurance plans will be allowed to remain essentially the same, except that they will be required to extend dependent coverage to age 26, eliminate annual and lifetime limits on coverage, prohibit rescissions of coverage, and eliminate waiting periods for coverage of greater than 90 days.

Employer requirements

There is no employer mandate, but employers with more than 50 employees will be assessed a fee of $2,000 per full-time employee (in excess of 30 employees) if they do not offer coverage and if they have at least one employee who receives a premium credit through an exchange. Employers that do offer coverage but have at least one employee who receives a premium credit through an exchange are required to pay the lesser of $3,000 for each employee who receives a premium credit or $2,000 for each full-time employee.

  • Employers that offer coverage will be required to provide a voucher to employees with incomes below 400 percent of the poverty level if their share of the premium cost is between 8 percent and 9.8 percent of income to enable them to enroll in the exchange. Employers that offer a free choice voucher will not be subject to the above penalty.
  • Large employers that offer coverage will be required to automatically enroll employees into the employer’s lowest cost premium plan if the employee does not sign up for employer coverage or does not opt out of coverage.
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