Author Archive | John Barrett

Looking to the Affordable Care Act For Help


Now that 2010 is complete, I can see what kind of help Obamacare — sorry, the Patient Protection and Affordable Care Act — will give me with my health insurance bills. I mentioned in a previous post that my insurance rates for 2011 were a little lower than they had been in 2010 (although I expect them to resume their regular upward march next year). I own a small, struggling manufacturing company that has been providing health care to my people even though it’s a stretch. Surely the Affordable Care Act will come to my rescue! But the devil is always in the details, particularly when Congress decides to “help.” So the first thing to check: Am I eligible for the tax credit? Here’s what I found in the guidelines issued by the Internal Revenue Service:

“In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (‘F.T.E.’s) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per F.T.E., and (3) the employer must pay the premiums under a ‘qualifying arrangement’ described in Q/A-7.”

Hmmm. This might not be so simple. Let’s take these one step at a time:

How many full time employees do I have? I ended the year with 12 on the payroll, including myself, but I started the year with eight. So here’s the guideline: “The number of an employer’s F.T.E.’s is determined by dividing (1) the total hours of service for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080.” This raises a question: Do I include myself? The answer is no:

“A sole proprietor, a partner in a partnership, a shareholder owning more than 2 percent of an S corporation, and any owner of more than 5 percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of F.T.E.’s or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.”

O.K., that’s clear. I don’t count. And if I had any family on the payroll, they wouldn’t either. As usual, the guy who pays the bills is excluded from any tax break for health insurance.

On to the employees. They get personal days and holidays and overtime, and the guys who have been working all year have well more than 2,080 hours each. But the hours exceeding 2,080 won’t count toward the total, as we saw. What about the others? There’s a large clump of verbiage in section 16 of the I.R.S. document that  boils down to this: If the employee worked or was paid for less than 2,080 hours a year (including vacation and holidays), add the actual hours to the total. If salaried, add 40 hours for each week worked or paid for. If it’s an hourly worker, and you paid for more than 2,080 hours, just add 2,080. Then divide all of that by 2,080 to get your F.T.E.’s. And don’t forget to round down to the next whole number. That’s right: 4.99 F.T.E.’s is rounded down to 4. Which might help you if you are trying to scrape under the 25 F.T.E. limit, and might hurt you when you calculate average wages.

I paid for 21,168 hours of work in 2010, including overtime, personal days and holidays. When I subtract hours in excess of 2,080 per employee, that leaves me with a total of 19,008. Dividing by 2,080, I get 9.13 F.T.E.’s. Round that down to 9. Looks like I’m under the 25 limit. So far, so good.

On to the average wage calculation. What’s included? The I.R.S. says:

“The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer during the employer’s tax year to employees who perform services for the employer during the tax year by (2) the number of the employer’s F.T.E.’s for the year, as calculated under Q/A-16.”

Uh oh. The total wages will include what I paid for all of the overtime, holidays and personal days, even if that exceeds 2,080 hours. Since many of my highest-paid shop guys work the most hours, that means the average is going to be bumped way, way up. I paid $451,662.50 in wages and salaries. Divide that by 9 F.T.E.’s and I get $50,184.72 per employee, which is just over the $50,000 per F.T.E. limit to qualify for the tax credit. I’m cooked.

The Affordable Care Act will not help me. I will have to deal with the burden of health insurance costs on my own. Some further thoughts:

  • I understand the concept of means testing for government benefits. However, the means being tested by the Act are probably the wrong ones. The ability of the employer to pay for health insurance isn’t considered at all. After going through the calculation I have to conclude that I would be a heck of a lot better off if I cut my people’s pay dramatically. Not only would I save on the wages, but also I would get some help with the costs of insurance. Was the Affordable Care Act intended to be an assault on middle class wages? It does incentivize the hiring of more lower paid workers instead of increasing the productivity and pay of a smaller work force. But how does that work if you have high pay, high skill workers? Of course, I could sidestep all of this by shipping production to China.
  • I now have every reason to dramatically increase the amount that my employees contribute to their insurance costs. The Affordable Care Act pegs the tax credits available to the amount of employee co-pays — but since I don’t qualify anyway, there’s no reason to hold back. I don’t see why I shouldn’t raise their portion from the current 33 percent contribution to 50 percent or more, with the eventual goal of getting rid of the health insurance benefit entirely. Every dollar they contribute would increase the profit of the company and by extension my own pay. After 25 years of being a generous boss, my willingness to insulate my workers from the broader shifts in the economy is almost gone. Maybe if we’d been profitable for years I would feel differently, but I’m ready to put the financial health of my company before the rewards of being Mr. Nice Guy.
  • If health insurance costs were falling, rather than rising, we wouldn’t be having this discussion. Even though the Affordable Care Act will not help me immediately, I support it. As far as I know, it has provisions that are intended to rein in the continuing growth of medical spending. The existing system, if unmodified, will put me in the same bind, probably faster. Keep in mind that my insurance costs have risen an average of 10 percent a year for every year I have offered insurance. The Act also promises to create a market for individuals and families to purchase their insurance themselves, at reasonable cost to them, so I can get out of the health insurance business entirely. I look forward to that day.

I’m curious if anyone else has done this calculation — and what you found for your own company.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.


Comprehensive List of Tax Hikes in Obamacare

From Ryan Ellis on Friday, January 14, 2011 6:00 AM

Next week, the U.S. House of Representatives will be voting on an historic repeal of the Obamacare law.  While there are many reasons to oppose this flawed government health insurance law, it is important to remember that Obamacare is also one of the largest tax increases in American history.  Below is a comprehensive list of the two dozen new or higher taxes that pay for Obamcare’s expansion of government spending and interference between doctors and patients.

Individual Mandate Excise Tax(Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following

1 Adult 2 Adults 3+ Adults
2014 1% AGI/$95 1% AGI/$190 1% AGI/$285
2015 2% AGI/$325 2% AGI/$650 2% AGI/$975
2016 + 2.5% AGI/$695 2.5% AGI/$1390 2.5% AGI/$2085

Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS)

Employer Mandate Tax(Jan 2014):  If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees.  This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).

Combined score of individual and employer mandate tax penalty: $65 billion/10 years

Surtax on Investment Income ($123 billion/Jan. 2013):  This increase involves the creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single).  This would result in the following top tax rates on investment income

Capital Gains Dividends Other*
2010-2012 15% 15% 35%
2013+ (current law) 23.8% 43.4% 43.4%
2013+ (Obama budget) 23.8% 23.8% 43.4%
*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations.  It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income.  It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans.  The 3.8% surtax does not apply to non-resident aliens.

Excise Tax on Comprehensive Health Insurance Plans($32 bil/Jan 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family). For early retirees and high-risk professions exists a higher threshold ($11,500 single/$29,450 family).  CPI +1 percentage point indexed.

Hike in Medicare Payroll Tax($86.8 bil/Jan 2013): Current law and changes:

First $200,000
($250,000 Married)
All Remaining Wages
Current Law 1.45%/1.45%
2.9% self-employed
2.9% self-employed
Obamacare Tax Hike 1.45%/1.45%
2.9% self-employed
3.8% self-employed

Medicine Cabinet Tax($5 bil/Jan 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin)

HSA Withdrawal Tax Hike($1.4 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Flexible Spending Account Cap – aka“Special Needs Kids Tax”($13 bil/Jan 2013): Imposes cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited). . There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education.

Tax on Medical Device Manufacturers($20 bil/Jan 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax.  Exemptions include items retailing for less than $100.

Raise “Haircut” for Medical Itemized Deduction from 7.5% to 10% of AGI($15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI).  The new provision imposes a threshold of 10 percent of AGI; it is waived for 65+ taxpayers in 2013-2016 only.

Tax on Indoor Tanning Services($2.7 billion/July 1, 2010): New 10 percent excise tax on Americans using indoor tanning salons

Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D($4.5 bil/Jan 2013)

Blue Cross/Blue Shield Tax Hike($0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services

Excise Tax on Charitable Hospitals(Min$/immediate): $50,000 per hospital if they fail to meet new “community health assessment needs,” “financial assistance,” and “billing and collection” rules set by HHS

Tax on Innovator Drug Companies($22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.

Tax on Health Insurers($60.1 bil/Jan 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. The stipulation phases in gradually until 2018, and is fully-imposed on firms with $50 million in profits.

$500,000 Annual Executive Compensation Limit for Health Insurance Executives($0.6 bil/Jan 2013)

Employer Reporting of Insurance on W-2(Min$/Jan 2011): Preamble to taxing health benefits on individual tax returns.

Corporate 1099-MISC Information Reporting($17.1 bil/Jan 2012): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers

“Black liquor” tax hike(Tax hike of $23.6 billion).  This is a tax increase on a type of bio-fuel.

Codification of the “economic substance doctrine”(Tax hike of $4.5 billion).  This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed.


The Real Impact of the Healthcare Law

Meet Chad Baus. He is the owner of Car1, a used car dealership in Archbold, Ohio. Like most small business owners, he works hard to keep his business going and his employees happy.

But things have gotten a lot harder for Mr. Baus since the new healthcare law was enacted last year. His insurance provider stopped selling the PPO plan he offered his employees, and the new coverage – the cheapest he could find – costs 40 percent more. The increased costs and uncertainty mean that the dealership will forego hiring.

The same goes for businesses around the country, such as Cottman Corp. out of Willow Grove, Pennsylvania, and Medical Imaging Technologies in Colorado Springs. Both saw double-digit increases in the cost of their health insurance after the new healthcare proposal became law. Neither of these companies will be hiring additional employees anytime soon.

Country Insurance in Illinois and Rainbow Logistics in Alabama are also putting off hiring new employees due to uncertainty surrounding the new health care law.

And the list goes on.

The healthcare law is hindering job growth, but don’t take it from me. Take it from Chad Baus, Cottman Corp., and the thousands of other small business owners who have been impacted by the law. We have heard loud and clear from businesses around the country that they want the law repealed. In fact, more than 90 percent of our members favor repeal.

Small businesses have been clear that they would welcome reform that drives down costs. Healthcare costs are constantly increasing with no end in sight, and reform that helps contain costs and provide options for employers would be welcome relief to thousands of small businesses. But the healthcare law we have today only makes things more expensive to operate a small business.

That is why NFIB is leading the charge calling on Congress to make its first order of business to repeal this harmful and convoluted law. I commend the House of Representatives on its fast action to take up legislation to repeal the law. The Senate should follow suit. It is what’s best for the economy, and it’s what the American people want.

Small businesses aren’t just suffering under increased and new healthcare expenses, they are also being crushed by endless new taxes and fees included in the law. For example,
a new tax on the insurance plans most small businesses buy will go into effect in 2014 and ramps up to more than $14.3 billion per year.

There are other new taxes – including two new Medicare taxes, and a tax on tanning services that will hit more than 18,000 businesses nationwide. A costly new paperwork requirement requires businesses to file Form 1099s for every business transaction totaling $600 or more. With every new tax and every new paperwork burden, small businesses will be forced to spend more and more of their time and money on expensive health plans, tax compliance and accountants and less on creating jobs and growing our economy.

Increasing healthcare costs is the number one problem facing small businesses, and small businesses have been clear that they want reform that lowers costs and provides affordable coverage options. Instead, the healthcare law added new taxes, fees and mandates. This isn’t the reform small businesses asked for, and it will not help them overcome the ever-increasing cost of healthcare. It makes things even worse than before in a very difficult economy.

Something needs to be done, and repeal of this law is the best option. Small business owners like Chad Baus are already subject to a barrage of taxes and regulatory burdens as they work to be successful and grow their business. We should make it easier, not harder, for Baus and others to create jobs and grow our economy.

The first and most obvious step is to repeal the healthcare law. Congress should do the right thing and repeal the law to help our nation’s economy get back on its feet and allow small businesses to grow and thrive.

Danner is President and CEO of the National Federation of Independent Business.


Has Massachusetts Experience Put ObamaCare On A Path To Repeal?

The new GOP majority plans to introduce a bill to repeal ObamaCare soon. What the Republicans are trying to prevent is what is already happening in Massachusetts, where a similar health care bill was enacted in April 2006. It is already imploding.

Unless ObamaCare is repealed, we’re on a path to Massachusetts’ future.

Eager politicians from former Gov. Mitt Romney to current Gov. Deval Patrick marketed Massachusetts’ health care plan, like Obama’s, with a series of distortions:

• The uninsured — especially young invincibles — were costing hospitals money that could be redirected to insurance premiums.

• They promised government efficiency.

• They focused on the assertion that primary care would replace emergency room use.

• They claimed both in Massachusetts and Washington, D.C., that we could build all this government health care bureaucracy and hand out these new benefits without new taxes while actually reducing long-term costs.

“Every uninsured citizen in Massachusetts will soon have affordable health insurance, and the cost of health care will be reduced,” then-Republican Gov. Romney wrote in the Wall Street Journal in 2006. “And we need no new taxes, no employer mandate and no government takeover to make this happen.”

Proponents of the Massachusetts plan now pretend that it never sought cost control. “The goal of the law was covering people,” says MIT economist and Massachusetts plan architect Jonathan Gruber, who also consulted on ObamaCare.

“It couldn’t have gone better,” he told the Washington Post. And the Post’s lead health-reform cheerleader, Ezra Klein, wrote, as if it’s fact, that the Massachusetts law “was not designed to control costs.”

The only measure by which Massachusetts can be judged a success is the number of people enrolled in Medicaid and other government-subsidized insurance plans. Of the 410,000 newly insured in Massachusetts, three in four are either paying nothing or very little for their insurance. They’ve also been successful in continuing to pull down massive subsidies from Washington to support the overhaul.

Spending has exploded. Medicaid, a problem in every state, is destroying Massachusetts. The health overhaul was really Medicaid expansion, and with the rolls up nearly 25% since 2006, Massachusetts is struggling to pay the bills.

The other promises turned out to be bogus as well. Despite the near-universal insurance, the state still spends $414 million on uncompensated care, an expense that Romney and his architects promised would disappear. Emergency-room use has not dropped as predicted. From 2006 to 2008, emergency room use under Mass Care increased by 9%. And private employer insurance costs, far from dropping, have continued to increase

A 2010 study published in the Forum for Health Economics & Policy found that health insurance premiums in Massachusetts, prior to its overhaul, increased at a rate 3.7% slower than the national average. Post-overhaul, they are increasing 5.8% faster.

The individual mandate, as onerous as it is, is set at a level to encourage gaming the system. A family with an income of $55,000 in 2014 will face the choice of paying $4,428 a year for health insurance or a $550 fine. Given that insurance will be available on demand, it’s rational to pay the fine until a serious illness strikes.

Indeed, there is no strong demand for insurance among the uninsured. The individual market has existed for years and is lightly subscribed. The new high-risk pools created by ObamaCare are very undersubscribed. Bureaucrats projected that 375,000 would sign up by now. The actual number is 8,000.

The lie that Massachusetts never promised to control costs is amplified by the belief that Obama’s plan would do so. Other than price controls, commissions recommending best practices and a stealth HMO program for Medicare renamed Accountable Care Organizations, there’s little to control costs in the near term.

This brings us back to the Bay State, where politicians, bureaucrats and health policy sages have embarked on what they bill as phase two of the health care overhaul. Now that nearly everyone is insured, the effort is to replace the decentralized reimbursement system with a global budget.

In other words, give hospitals and doctors a pool of money and tell them to make do. Change the incentive from providing the best possible care to the best care the bureaucrats can possibly afford.

“Clearly we are going to have less resources,” Gary Gottlieb, CEO of Partners Health Care in Massachusetts, recently told a medical conference. “The most extraordinary ICU and the most extraordinary technology, without necessarily the evidence that it extends life … is not going to be accessible to us.”

A government-run HMO. Welcome to your future.

• Pipes is president, CEO and Taube fellow in health care studies at the Pacific Research Institute. Her latest book is “The Truth About Obamacare” (Regnery 2010).



Kaiser Daily Health News –

Jan. 10: Supporters of the health law are lamenting how the nickname “ObamaCare” has achieved wider purchase than the law’s official title. More egregious, though, is how supporters have successfully misbranded ObamaCare’s health insurance regulations as “consumer protections.”

In anticipation of the (now-postponed) House vote to repeal ObamaCare, for example, three Obama cabinet officials last week warned House Speaker John Boehner, R-Ohio, about the consequences of eliminating the law’s “consumer protections.”

Major media outlets routinely play along. The New York Times reports, “Many of the law’s consumer protections take effect [January 1]. Health plans generally must allow adult children up to age 26 to stay on their parents’ policies and cannot charge co-payments for preventive services or impose a lifetime limit on benefits.

Other “consumer protections” already in place limit the percentage of revenues insurers can spend on administrative expenses and prohibit them from turning away children with pre-existing conditions. Who could object to such rules? As it happens, an awful lot of people.

These supposed consumer protections are hurting millions of Americans by increasing the cost of insurance, increasing the cost of hiring and driving insurers out of business.

At the same time Secretary of Health and Human Services Kathleen Sebelius was threatening to bankrupt insurers who claim ObamaCare is increasing premiums by more than 1 percent, her own employees estimated that one of the law’s regulations the requirement to purchase unlimited annual coverage will increase some people’s premiums by 7 percent or more when fully implemented.

A Connecticut insurer estimated that just the provisions taking effect last year would increase some premiums by 20-30 percent. Such mandates force consumers to divert income from food, housing, and education to pay for the additional coverage. That can leave consumers worse off, even threaten their health. They can also force employers to reduce hiring, leaving some Americans with neither a job nor health insurance. This reality led McDonald’s to seek a waiver from the unlimited annual coverage mandate, among other rules.

The ban on discriminating against children with pre-existing conditions has caused insurers to stop selling child-only policies in dozens of states. The dependent-coverage mandate was cited as one of the reasons spurring a Service Employees International Union local in New York City to eliminate coverage for 6,000 dependent children.

In 2008, Congress passed a similar mandate that supporters said would expand coverage for mental-health and substance-abuse services. Instead, that mandate spurred the Screen Actors Guild to eliminate mental-health coverage for 12,000 of its lower-paid members. It had the same effect on 3,500 members of the Chicago’s Plumbers Welfare Fund, and 2,200 employees of Woodman’s Food Market in Wisconsin. Other employers are curtailing access to mental-health services thanks to this mandate, and some insurers have stopped selling such coverage altogether.

The list goes on. ObamaCare now forces insurers to spend no more than 20 percent of revenues – 15 percent for large employers – on administrative expenses. Similar state laws have done nothing to slow the growth of premiums.

ObamaCare’s rule spurred Principal Financial Group to stop selling health insurance before it even took effect, leaving nearly 1 million consumers to find new coverage and threatening their continuity of care. Experts expect more consumers to suffer the same fate. This supposed consumer protection also punishes efforts to reduce fraud and improve quality by reviewing claims. Thus, in addition to increasing premiums, it may expose patients to unnecessary and even harmful services.

Consumers, insurers, employers, unions and state officials are begging for protection from these so-called protections. Sebelius has so far issued 222 waivers, which raises the question: if these were really consumer protections, why waive them?

These rules may end up helping somebody, and that should count in the law’s favor. Yet rules that were supposed to protect children have stripped sick kids of their health insurance and made it harder for parents to find coverage for kids who may soon fall ill.

Other rules have reduced wages and discouraged hiring amid high unemployment. Just as the mental-health mandate is ousting vulnerable patients from their rehab or aromatherapy and cutting off their meds, ObamaCare’s voluminous mandates are threatening even more Americans’ access to care. Theis isn´t giving good results in the medical fields, these patients need there essential oils.

Calling these rules “consumer protections” implies that the people harmed don’t matter, or one has clairvoyance to know that the benefits outweigh the costs. supporters should call these supposed consumer protections what they are: regulations that can hurt even more than they help.


State Court Rules on Calif. Rescission Rules


California Superior Court Judge Michael Kenny has sided with insurers on some issues and with regulators on others in a ruling on tough new California rescission regulations.

The Association of California Life & Health Insurance Companies (ACLHIC), Sacramento, Calif., filed a suit, Association of California Life & Health Insurance Companies vs. California Department of Insurance, et al., Case Number 34-2010-80000637-CU-WM-GDS, in August 2010, an effort to keep California from enforcing anti-rescission regulations that were issued in July 2010.

Kenny, a judge in Sacramento, has ruled that ACLHIC that can bring the suit, and that the California Department of Insurance lacked the statutory authority to define a variety of rescission-related practices as unfair claim settlement practices.

The California department does have the authority to establish deadlines insurers must meet when trying to rescind policies, Kenny says.


A rescission is a procedure that a health insurer uses to rescind, or take back, a health insurance policy and return the former customer and itself to the states they were in before the policy existed.

California regulators have accused health insurers of using rescissions to cancel policies issued to individuals who made innocent mistakes on applications or left out information that was not relevant to their current health problems.

California tried to require insurers to:

– Complete investigations of possible omissions of material information from health insurance applications within 15 days of learning of the omissions.

– Complete investigations within 90 days.

– Send an investigation target a notice about an investigation every 30 days.

– Send the target a written notice about the final determination within 7 days of concluding the investigation.


ACLHIC filed a petition contending that the regulations are too expensive and too difficult to implement, and that former California Insurance Commissioner Steve Poizner exceeded his authority when he developed the regulations.

The California Department of Insurance has questioned whether ACLHIC – an association of insurers, rather than an insurer – has standing to file the suit.

In California, an association can bring a suit if its members have standing to sue in their own right and it is seeking to protect interests that are germane to its purpose, Kenny says.

One section of the proposed regulations would require an insurer to follow specific medical underwriting guidelines if it wants to have the right to rescind a policy or otherwise change the policy terms after an insured files a claim.

The California department does not have the statutory authority to promulgate the section, Kenny says.

The language in the section would define violations of the rescission rules as an unfair claims settlement practice, and the California Legislature already has given a specific description of unfair claims settlement practices and given itself the sole right to define unfair practices, Kenny says.

Another anti-rescission regulation section would require an insurer that wanted the authority to rescind policies to send a complete copy of the application to the insured at the time a policy is delivered. That provision is invalid for the same reason that the medical underwriting requirements section is invalid, Kenny says.

The California department does have statutory authority to establish “reasonable timeframes within which an insurer must conduct a cancellation investigation after submission of a claim,” Kenny says. “The Court cannot conclude that the Department acted arbitrarily, capriciously, or without reasonable or rationale basis” in adopting the section.



Kaiser Health News – Jan. 3:

Opponents of the new health care overhaul law are threatening to repeal, defund and kill it in court, but that isn’t stopping Washington from implementing a number of important provisions in 2011. While many people will welcome the new benefits, some will face higher costs as a result of the law.

Seniors are affected by several of the provisions. They will get big discounts on prescription drugs and free preventive care, but some in Medicare Advantage plans may lose coveted extra benefits such as vision and dental coverage. Everyone will be able to count calories when dining at chain restaurants or sidling up to vending machines. But forget about using pre-tax income in popular flexible spending accounts to pay for over-the-counter medications, unless you get a prescription.

These changes follow a handful of early benefits that debuted in 2010. Already, adult children are allowed to remain on their parents’ policies until the age of 26, for example, and insurers can no longer cancel coverage when people get sick (except in cases of fraud).

The following are nine health law changes to take note of this year.

1. Will you get an insurance rebate?
Starting this year, health insurers must spend at least 80 percent of their premiums on medical care, or face the possibility of giving rebates to consumers. The rule applies to policies purchased by individuals who don’t get coverage through work, and for many policies offered by employers. For policies sold to large employers, insurers must hit an 85 percent spending target. Self-insured employers are exempt from the rule. The goal is to pressure insurers to restrain profits and administrative costs, such as overhead, marketing and executive salaries.

But insurers probably won’t be issuing too many rebates, which would go out in 2012. Of the 75 million people who have insurance that is covered under the rule, the government estimates that 9 million will be eligible for a rebate in 2012. That’s because many insurers reach those target levels now, and the ones that don’t may adjust so they meet the spending limits. Other insurers may drop out of the market.

Under another part of the law, regulators have proposed that beginning July 1 premium increases of 10 percent or more be subject to additional review by states and the federal government. Insurers would have to publicly disclose some of the data supporting their requests – such as how much they’re paying for medical services. The review would determine if the increase is considered unreasonable. Some state regulators have authority to deny an increase, but the law does not grant that power to the federal government.

The proposed rule would affect policies sold to individuals and small businesses.

2. Lower Rx costs for seniors
Prescription drug costs could shrink $700 for a typical Medicare beneficiary in 2011, as the law begins to close the notorious doughnut hole – the gap in prescription coverage when millions of seniors must pay full price at the pharmacy – according to the seniors group AARP. The National Council on Aging estimates the savings could reach $1,800 for some. Starting in January, drug companies will give seniors 50 percent off brand drugs while in the gap, excluding those low-income people who already get subsidies. Generics will also be cheaper. “It’s quite significant,” said AARP’s John Rother. “People stop filling prescriptions when they hit the doughnut hole.” The National Council on Aging estimates that about 4 million Medicare beneficiaries will face the gap this year.

3. It has how many calories?

How many calories are in that Outback Steakhouse’s blooming onion? (1,551) Or Pizzeria Uno’s individual-size Chicago style deep-dish pizza? (2,310).

Beginning soon after the Food and Drug Administration finalizes rules in 2011, chain restaurants with 20 or more locations, and owners of 20 or more vending machines, will have to display calorie information on menus, menu boards and drive-thru signs. Restaurants must also provide diners with a brochure that includes detailed nutritional information, like the fat content of their dishes. Consumer advocate Jeff Cronin of the nonprofit Center for Science in the Public Interest says it will put “eating into context.”

4. Higher Medicare Premiums

Medicare premiums in 2011 will take a bigger bite from wealthier beneficiaries. Since 2007, this group has paid more than the standard premium for Part B, which covers physician and outpatient services. But the income threshold was indexed to prevent inflation from moving more people into the affected group. The health law freezes the threshold at the current level: incomes of $85,000 or above for individuals and $170,000 for couples. With that step, beneficiaries paying higher premiums will rise from 2.4 million in 2011 to 7.8 million in 2019, according to an analysis by the Kaiser Family Foundation. (KHN is part of the foundation.) Their monthly premiums this year will be between $161.50 and $369.10, while the standard premium will be $115.40. Also, premiums for Medicare Part D, which covers prescription drugs, for the first time will be linked to income. The thresholds will be the same as those for Part B and will not be linked to inflation. About 1.2 million beneficiaries will pay the income-related Part D premium this year, rising to 4.2 million beneficiaries in 2019.

6. Restrictions on medical savings accounts

Consumers with flexible spending accounts (FSAs), in which pre-tax income can be used for medical purchases, can no longer spend the money on over-the-counter drugs, including ones that treat fevers or allergies and acne, unless they have a doctor’s prescription. The new restrictions, which lawmakers included in the health overhaul to raise more revenue, also apply to health reimbursement arrangements (HRAs), health savings accounts (HSAs) and Archer medical savings accounts (MSAs). Starting this year, those with HSA or MSA accounts who spend money inappropriately will not only owe taxes on it, but also face a tax penalty of 20 percent, double what it was. For all pre-tax accounts, medical devices such as eyeglasses and crutches, and co-pays and deductibles still qualify for the accounts. Insulin obtained without a prescription is also eligible.

6. Bolstering seniors’ access to primary care

Medicare is bumping up payments for primary care by 10 percent from Jan. 1 through the end of 2015. It’s an incentive for doctors and others who specialize in primary care – including nurses, nurse practitioners and physician assistants – to see the swelling numbers of seniors and disabled people covered by the program. Health practitioners will qualify for the bonus only if 60 percent or more of the services they provide are for primary care. General surgeons also will receive an increase if they’re practicing in areas where there are doctor shortages. Experts agree there’s a growing shortage of primary care providers, a big problem considering that the health law is expected to expand coverage to 32 million more Americans by 2019. The bonus won’t cure the problem, but many see it as a start. “It’s significant, but it’s not the end all,” said Dr. Roland Goertz, president of the American Academy of Family Physicians, emphasizing that the bonus will end in 2015.

7. Staying healthy
Several provisions of the law promote prevention of disease, especially for seniors. Medicare enrollees will be able to get many preventive health services – such as vaccinations and cancer screenings – for free starting in January. Specifically, the law eliminates any cost-sharing such as copayments or deductibles for Medicare-covered preventive services that are recommended (rated A or B by the U.S. Preventive Services Task Force). Also starting in January, Medicare beneficiaries can get a free annual “wellness exam” from their doctors who will set up a “personalized prevention plan” for them. The plan includes a review of the individuals’ medical history and a screening schedule for the next decade. The law also eliminates any cost sharing for the “Welcome to Medicare” physical exam, which previously included a 20 percent co-pay. And people working for small employers will get some help.

The law authorizes the federal government to issue grants totaling $200 million for companies with fewer than 100 workers that start wellness programs focused on nutrition, smoking cessation, physical fitness and stress management.

8. Trimming Medicare Advantage

The health law puts the squeeze on private health plans that provide Medicare coverage to about a quarter of beneficiaries. Payment for these Medicare Advantage plans is being restructured. Rates this year will be frozen at 2010 levels and lower rates will be phased in beginning in 2012. Medicare says the reductions are fair because the plans are paid $1,000 more per person on average than the traditional fee-for-service program spends on a typical senior. Dan Mendelson, president and CEO of Avalere Health, a consulting firm based in Washington, says some plans will respond by cutting ancillary benefits, such as vision and dental care. But he calls this “a transition year” and says more significant changes will come in 2012, when in addition to the rate reductions, the government begins offering bonuses to top-performing Advantage plans based on quality measurements.

9. Fighting hospital infections

About 1.7 million patients pick up life-threatening, but preventable, infections at hospitals, according to a study earlier this year in the Archives of Internal Medicine. In July, Medicaid will say “enough.” The federal government – which shares the cost of this program for the poor with states – will stop paying for treatment of some hospital-acquired infections. The Medicare program for the elderly and disabled and many private insurers already ban payments for treating many of these infections.



Market Wire –

Dec. 16: Mountain View, CA – The leading online source of health insurance for individuals, families and small businesses, released a series of tips to help health insurance consumers find affordable coverage and get the most for their health insurance dollars in 2011.

In 2010, families with employer-based health insurance saw a 14% average increase in coverage costs compared to 2009(1). Those who went through their employer’s open-enrollment period at the end of 2010 on ‘auto-pilot’ (without paying careful attention to their choices) may find that their current health plan is simply unaffordable when new rates take effect in January 2011.

Others who do have the right health plan for their needs may not know how to best take advantage of their coverage in order to save money over the course of the year.

Five Health Insurance Tips for 2011:

1.  Don’t get stuck with a lemon. Lots of health insurance companies make changes to rates and benefits at the beginning of the new year. By mid to late January, you may be getting your first taste of what these changes mean for you and your family. If employer-based health insurance is no longer affordable, check with your Human Resources department and get to know your options in the non-group market. Keep in mind, however, that until 2014 you may still be turned down for individual and family coverage due to a pre-existing medical condition.

2.  Check out new health reform-compliant plans. Health insurance companies are introducing new plans to comply with health reform rules that make some preventive care free and do away with lifetime coverage limits. Some older plans may not have to meet these requirements. If you want to take advantage of new health reform protections, work with a licensed online agent.

3.  Be sure your old plan still fits
. Like old cars or houses, an old health plan can feel pretty comfortable, but that doesn’t mean it’s still a good match for you and your family. If you were married or divorced, had children, or gained or lost income this past year, you may be able to save money on medical costs by starting the year with a plan better suited to your needs.

4.  Don’t pay two deductibles. Many health insurance plans come with calendar-year deductibles. If you’re planning a move or other life changes in 2011 and know you’ll have to switch health insurance plans mid-year, it may be smarter to find a new plan early. Since certain medical claims are only paid by the insurance company after the deductible is met, moving to a new health insurance plan in January or February may help you avoid paying deductibles twice in a single year.

5.  Fund your HSA early. If you have a Health Savings Account (HSA) and want to get the most out of it, fund it to the maximum amount early in the year. That will allow you to use pre-tax dollars for copayments and deductibles while allowing unused money to collect interest for more of the year. Also, remember that in 2011, HSA (and FSA) funds can no longer be used to pay for most over-the-counter medications.

NOTE: Keep in mind that when you switch plans or apply for a new individual or family health insurance plan, you may be subject to medical underwriting. If you have an individual or family plan and developed medical conditions recently, you may need to stay on that plan to keep your coverage secured.



The Sacramento Bee –

Dec. 10: As health insurers again increase premiums on thousands of subscribers, the industry is seeking to shift the debate over escalating health care costs to the rising price of hospital care.

In California, hospital prices jumped 150 percent since 2000, according to a study of state hospital data conducted by America’s Health Insurance Plans, the industry’s trade association.

“What this data shows is that there needs to be much greater focus on the underlying cost of medical care that is driving those premium increases,” said Robert Zirkelbach, a spokesman for the group.

“At some point, people will have to address these underlying cost drivers if health care costs are going to come down.”

To gauge prices, AHIP used inpatient revenue self- reported by California hospitals to the Office of Statewide Health Planning and Development.

In California, the prices charged to commercial health plans rose by 159 percent from 2000-2009 — more than twice the rate of increase for Medicare, which serves mostly seniors, and more than eight times that for Medi-Cal, the government insurance program for the poor.

“The report’s focus on California hospital costs just reinforces what we have been saying the past couple of years. Steep increases in medical costs must be addressed. Our country and state cannot sustain this kind of growth,” said Patrick Johnston, president of California Association of Health Plans.

The health insurers’ group acknowledged the challenges faced by hospitals and other medical providers as they provide free care to those without insurance or those too poor to pay.

Meager reimbursements from governme nt insurance programs such as Medi-Cal and Medicare haven’t helped hospitals’ bottom lines. As a result, hospitals make up lost revenue by shifting costs to patients with private insurance.

Insurance companies say they are merely passing on those increased costs to
their customers. But a group representing hospitals criticized the insurance industry study as a political attempt to shift blame for rising insurance rates. “It’s the continuing saga of AHIP pointing fingers at the hospital industry.

It’s really tough for a pot to call a kettle black,” said Scott Seamons, regional vice president for the Hospital Council of Northern and Central California. “I don’t know what their objective is here, but it smells,” he said.

For years, the insurance industry has been under scrutiny for surges in premiums and has fought a losing battle to garner sympathy from the public and policymakers.

“Unfortunately, for political reasons, people have been reluctant to address underlying medical costs and focus only on insurance premiums,” Zirkelbach said.

It’s easy to see why insurers have been under fire, particularly among the millions of Americans who buy health coverage on their own.

While insurance premiums are expected to rise by an average of 9 percent next year, rates for people buying coverage in the individual market are seeing steeper increases. Those customers are also paying higher deductibles.

Jamie Court, president of Consumer Watchdog, a left-leaning advocacy group based in Santa Monica, accused insurers of attempting to sow confusion expressing concern about rising costs while simultaneously increasing premiums.

“It’s been very clear to us that insurance companies have been scapegoating the president’s health insurance reform plan for everything that is wrong with health care in this country and using it as an excuse to raise premiums,” Court said. “Consumers have been left in a lurch.”



San Francisco Chronicle –

Dec. 9: Some health insurers are bumping up rates yet again to reflect changes mandated by the new federal health overhaul law as well as state reforms that will go into effect Jan. 1.

Blue Shield of California, for example, has sent letters informing customers with individual policies that their premiums will go up in the low single digits because of the federal law.

Some of those same policyholders also could see their rates go up as much as an additional 17.7 percent to account for a new state law that will prohibit insurers from charging women more for insurance than men.

For consumers, many of whom already have been hit this year with hefty premium increases to accommodate higher medical costs, the additional raise attributed to health reform will further strain their budgets.

Scott Morgan, a Blue Shield customer in San Francisco, saw his premium rise by 29 percent in June, so he was stunned to get another rate increase, this time for 34 percent. That means the same coverage he was paying $335 a month for at the end of May will cost him $581 a month come January.

“The federal reform is going to add 3.4 percent. That’s fair. But do I believe that means my rates should go up another 30 percent above that?” said Morgan, 52, a self-employed consultant for corporate meetings. “I think what they’re doing is they’re getting their licks in while they can.”

Since the federal health care overhaul legislation was passed in March, several provisions have taken effect, including the elimination of lifetime and some annual coverage limits. Children are allowed to stay on their parents’ health policies until the age of 26 and insurers can no longer deny coverage to children with pre-existing health conditions.

‘Gender rating’

Starting next year, insurers in the individual and small group markets will be required to spend at least 80 percent of their premium dollars on medical care, while those covering large groups will have to spend a minimum of 85 percent on those purposes.

On the state level, a law taking effect Jan. 1 will ban the practice known as “gender rating,” in which women were typically charged more than men for health insurance. While women tend to use more services in their younger years, the difference often evens out as people age.

“The new federal law that applies to policies written after Oct. 1 does incur costs,” said Patrick Johnston, president and chief executive officer of the California Association of Health Plans, the trade group for the state’s insurers. “Those are in the range of 3 percent to 10 percent, varying with the policy and the purchaser.”

Blue Shield has calculated the reforms under the federal health law will require premiums to go up more than 4 percent for some policies.

About 80 percent of Blue Shield’s 340,000 individual policyholders are getting a rate change effective Jan. 1 – and about a third of those members already had a change in October, said Tom Epstein, a vice president with the San Francisco health insurer. While the vast majority will get an increase, some will actually see their rates cut, he said.

“We do not expect to make any money in the individual market this year, despite these rate increases,” he said.

Unfair justification

Consumer groups say it’s unfair to use health reform to justify rate increases.

“These types of rate increases have been happening for years now,” said Sondra Roberto, staff attorney with Consumers Union. “We really need more scrutiny in how they’re coming up with these rate increases.”

Premium increases proposed this year by Anthem Blue Cross of as much as 39 percent in the California individual market not only jumpstarted the debate over the federal health law but also prompted increased scrutiny by state regulators as well as a new state law designed to add a layer of consumer protection.

In addition, federal regulators have called for state and federal reviews of “unreasonable” rate increases, but have yet to define what such an increase is.

“Beyond unaffordable” is how another Blue Shield customer, Terry Seligman, described the 4.83 percent rate increase she will have to pay on Jan. 1, which comes on top of the 13 percent hike she’s paid since Oct. 1. The combined increases reflect a jump in premiums of nearly 19 percent since Sept. 30.

“I never thought I’d be happy to say this, but next year I’ll be on Medicare,” said Seligman, 64, who runs a travel insurance business in San Francisco and has been a Blue Shield customer for 26 years. “And not a moment too soon.”