Author Archive | John Barrett

HSAs may benefit from mandates for companies

But higher withdrawal penalties could make the accounts less attractive

By Darla Mercado March 28, 2010

Employers and individuals may take a closer look at using health savings accounts in conjunction with high-deductible health plans because the health care reform legislation includes mandates that employers with more than 50 workers purchase health care insurance, HSA proponents say.

“Those who will be subject to mandates in the future are looking for ways to control their costs before they get locked into something down the road,” said Roy Ramthum, president of HSA Consulting Services. “Employers are already moving to HSAs.” HSA deposits will top $14 billion this year, up from about $1 billion in 2006, according to estimates from Devenir LLC, a firm that manages HSA investments.

Aside from encouraging the use of HSAs with high-deductible plans, proponents of the accounts predict that health care reform will make HSAs available to individuals who wouldn’t ordinarily buy them. A 2008 study by the Government Accountability Office concluded that HSA participants were mostly high earners. The account holders had an average annual adjusted gross income of $139,000. But health care reform might add to the number of lower-income users.

“The pool of people who are entering the market for health insurance may or may not be your typical HSA customer,” said Eric Remjeske, president of Devenir. “Some will either join out of self-selection or through their employers.”


Still, the reform legislation isn’t all good news for HSAs.

For instance, the new law increases penalties for account withdrawals for non-medical purposes to 20%, from 10%, and it would keep people from using their HSAs to cover over-the-counter drugs unless they have been prescribed.

Those two factors would harm the HSA industry, said Ryan Ellis, tax policy director for Americans for Tax Reform.

“If you’re under age 65 and you buy the proverbial flat-screen TV, then you have to pay taxes plus 20%,” Mr. Ellis said. “I’m not endorsing people using the money for non-medical purposes, but why is the penalty there?”

Prior to the law, the penalties for inappropriate withdrawals from an HSA were comparable to those for early withdrawals from an individual retirement account.

The increase in the penalty may encourage account holders to place their money in different vehicles instead.

“The HSA is less accessible when you put the money in, and for that reason it would be the last thing you would fund,” Mr. Ellis said.

Not so, said Kevin McKechnie, executive director of the American Bankers Association’s HSA Council. “It’s probably an appropriate policy move to make the withdrawal a little harsher so that funds are used for intended purposes,” he said.

Members of the group’s board — which represents 80% of the HSAs administered in the United States — have a very optimistic view of what the new health care reform law would mean for their business. They expect enrollments in HSAs to rise by more than 100% within a year.

“We’re optimistic because we’re the lifeboat for this whole program,” Mr. McKechnie said. “If you’re going to order Americans to buy health insurance, then you have to give them something affordable.”

Mr. McKechnie disagrees with the restrictions on paying for over-the-counter drugs but said that it probably wouldn’t hurt the HSA industry, noting it would be an aggravation for account holders.

“The point of the reform was to give people more access to coverage and make it cheaper and to give people access to the medication they need to be healthy,” he said.

“The prohibition isn’t in the spirit of what this law is supposed to be about. This isn’t the insurance company’s money; it’s your money,” Mr. McKechnie said.


Health care overhaul spawns mass confusion for public

By Margaret Talev | McClatchy Newspapers

WASHINGTON — Two weeks after President Barack Obama signed the big health care overhaul into law, Americans are struggling to understand how — and when — the sweeping measure will affect them.

Questions reflecting confusion have flooded insurance companies, doctors’ offices, human resources departments and business groups.

“They’re saying, ‘Where do we get the free Obama care, and how do I sign up for that?’ ” said Carrie McLean, a licensed agent for The California-based company sells coverage from 185 health insurance carriers in 50 states.

McLean said the call center had been inundated by uninsured consumers who were hoping that the overhaul would translate into instant, affordable coverage. That widespread misconception may have originated in part from distorted rhetoric about the legislation bubbling up from the hyper-partisan debate about it in Washington and some media outlets, such as when opponents denounced it as socialism.

“We tell them it’s not free, that there are going to be things in place that help people who are low-income, but that ultimately most of that is not going to be taking place until 2014,” McLean said.

Adults with pre-existing conditions are frustrated to learn that insurers won’t have to cover them until 2014 (though those under 18 will be protected in late September); then they become both hopeful and confused upon learning that a federal high-risk pool for them will be established in the next few months. “Health insurance is so confusing. You add this on top of it and it makes it even more confusing,” McLean said.

The Obama administration is embarking on a years-long public education campaign about the overhaul, including a Web component. However, much of the guidance will depend on Department of Health and Human Services regulations that are still being developed.

Parents of young adults, including those who are preparing to graduate from college this spring, have heard that the overhaul will let them keep their children on their insurance plans until they reach age 26. That starts in September, however; they have to determine how to cover them until then.

A new wave of inquiries could come next month as federal COBRA subsidies for laid-off workers dry up.

Ann Wooten of Austin, Texas, a breast cancer survivor, said she didn’t understand whether the health insurance overhaul law meant that she should try to access private coverage again someday. She was diagnosed with breast cancer in 2008 after she lost her insurance in a divorce, and soon after she lost her job at a convenience store as a result of the economic crisis.

Medicaid has covered her treatments but she must apply regularly to renew the coverage. She went back to school to learn hotel management and is seeking a good-paying job with benefits. She doesn’t know how the health overhaul will affect her options, and hasn’t yet found the time or energy to investigate.

Americans who already have good coverage aren’t so worried about the immediate implications, but some admit that they’re plenty confused.

“Why does it take so long for certain health care things to take effect?” said Sandra Preston, a state employee in Paterson, N.J.

Ben Wiesen, a software engineer who works for a small company in Tarrytown, N.Y., said he’d read up on the overhaul but remained concerned about the unknowns.

“The timelines have been pretty clearly stated,” he said. “It’s the execution and the details: How are they really going to roll out the changes, and who ultimately will be the arbiter and decision-maker?”

Actor Sam Robards, the son of Lauren Bacall and the late Jason Robards, was visiting Washington last week with his children and Danish-born wife. Chatting in front of the White House gate, he said he tried to follow news coverage of the overhaul but conceded that “I’m not totally clear” on the details. He said he was glad that he got good coverage through the Screen Actors Guild so he didn’t have to worry about it.

The couple previously lived in Denmark, which has universal health coverage. They applauded the overhaul’s aim of extending coverage to nearly all Americans.

Many small business owners are nervous about requirements being phased in.

“Members are still trying to wrap their head around everything that’s in this law,” said Michelle Dimarob, the manager of legislative affairs for the National Federation of Independent Business, the small-business lobby.

Dimarob said the lobby’s primary concern was that its costs would rise over the next four years as a result of fees, taxes and coverage mandates related to the overhaul.

“The next question that comes out of their mouths is: ‘What do I have to do right now?’ They need to start talking with their accountant, depending on how they’re organized, what industry they’re in and whether they’re offering insurance now and what kind they’re offering. We’re suggesting they talk to their agent or broker.”

Suntan businesses face a new excise tax starting in July as part of the overhaul. Other business owners are trying to understand new Internal Revenue Service reporting requirements related to business-to-business transactions that will kick in as a result of the new law. Others are looking ahead to coverage mandates for 2014 and calculating how many part-time versus full-time employees they should have to best contain costs.

While Obama has been touting a tax credit for small businesses that offer employees health coverage, Dimarob said many small businesses wouldn’t be able to participate. First they must do research to see whether they qualify. “It requires them to understand the intricacies,” she said.

The president has begun traveling the country to talk about the new law to ordinary Americans. In Maine last week, he explained many highlights of the four-year phase-in. However, Obama’s remarks were laced with enough political rhetoric to dilute his policy message.

Many organizations have produced timelines explaining when provisions are to be phased in. Still, it’s confusing for consumers, and until the administration issues more regulations, many details can’t be pinned down.

“The first meeting the president held with the team post-passage was on implementation,” White House Press Secretary Robert Gibbs said. “Obviously this is a big task, and a campaign to ensure that people understand what benefits are coming online when obviously will be tremendously important.”


Health Care Reform: Tax Changes for Small Businesses

Wednesday 4/7/10 by Insurance Newscast

Healthcare laws and health insurance have long been areas of contention for small businesses. The expense of issuing health care insurance would often be the factor small businesses would consider before hiring a permanent employee versus a temporary contract employee.

Now, healthcare laws have changed and reform has arrived. And the Obama Administration promises to take the pain out of healthcare insurance for small businesses.

Two pieces of legislation were passed to that extent: The Patient Protection and Affordable Care Act (PL 111-148) and the Health Care and Education Reconciliation Act of 2010 (PL 111-152). The budget reconciliation process essentially amended certain provisions of the first act and added some new provisions of its own.

The thing about budget reconciliation is this: The budget reconciliation act must deal with budgetary issues. As such, it’s no surprise to anyone that the new health care laws will have an impact on the Internal Revenue Code. But how does all this shape up for the business owner?

Let’s have a look:

Employers must offer coverage. After December 31, 2013, certain large employers who fail to offer adequate health coverage for their full-time employees could face penalties. This applies to employers who have at least 50 full time employees within the preceding calendar year.

Tax credits for small businesses. For the 2010 tax year up until the 2013 tax year, the credit will gradually be phased in. Businesses with fewer than 26 employees and average annual wages under $50,000 will eventually be eligible for credit in an amount up to 50% of nonelective contributions that the business makes, on behalf of its employees, for insurance premiums. Here’s the good news for tax exempt nonprofit organizations: They would get a 35% credit against payroll taxes!

Employers with ten or fewer employees and average wages below $25,000 ill have better luck under these new rules. They will benefit from a 100% credit. Leased employees will be counted as employees, although 2% S corporation shareholders will not be included in the definition of employee.

New reporting requirements. If an employer self-insures its employees, the employer must report certain information, including details on each individual obtaining the coverage, their coverage dates and various other information. These reporting requirements will become effective after 2013.

Furthermore, starting in January 2011, employers will be required to disclose, on each employee’s Form W2, the value of the individual employee’s health insurance coverage, sponsored by the employer.


Verizon, Exelon Are Latest to Record Charge

By JOHN KELL – Wall Street Journal

Verizon Communications Inc. said Thursday it expects to record a one-time noncash charge of $970 million in the first quarter, to account for the anticipated impact of the recently enacted U.S. health-care overhaul.

Recording an Impact

Charges firms are taking to account for the effect of the health bill on retiree drug benefits.

Company $ in millions
AT&T 1,000
Verizon 970
John Deere 150
Boeing 150
Caterpillar 100
Prudential Financial 100
Lockheed Martin 96
3M 85-90
Illinois Tool Works 22
Xcel Energy 17
AK Steel 31
Valero 15-20
Honeywell 13
Goodrich 10
Allegheny Technologies 5

Source: Dow Jones Newswires

The telecommunication company, which disclosed the charge in a Securities and Exchange Commission filing, is the latest company to take a charge to account for increased costs related to changes that will come from the health-care law. Specifically, the overhaul prevents companies from deducting tax-free subsidies it receives from the federal government for providing retirees with prescription-drug benefits.

Last week, rival AT&T Inc. said it planned to take a one-time noncash charge of $1 billion. The charges are more significant for companies with a large retiree base.

In a separate SEC filing Thursday, electric and gas utility Exelon Corp. disclosed it expects to record a noncash charge of about $65 million in the first quarter, also related to the health-care overhaul. Exelon said the reduction of the tax deductions was estimated to increase the company’s total annual income tax expense by about $10 million to $15 million.

The companies are taking the charges now even though changes in the health-care law don’t take effect until 2013. Administration officials have said companies are exaggerating the impact of the loss of the deduction because of their general opposition to the new law.


Health overhaul to hit corporate profits

Tue Mar 30, 2010 2:42pm EDT

(Reuters) – U.S. companies have started to tally up the financial hit they say they will take as a result of the U.S. healthcare overhaul signed into law last week by President Barack Obama.

The government continues to pay subsidies to large companies, including AT&T Inc, Caterpillar Inc and Deere & Co, to help pay for prescription drug benefits for their large ranks of retirees.

However, the revamped law no longer allows companies to deduct the amount of the subsidies from their taxable income. Corporate America complains that the change amounts to a tax hike, while the White House says it essentially closes a tax loophole.

Not all big companies are warning of trouble. General Electric Co, for example, says it does not expect a “significant material impact” on its first-quarter results.

But a number of large U.S. employers have started detailing the expected hit to their bottom line. The latest warnings came from Prudential Financial Inc, which said on Monday that it would take a $100 million charge in the first quarter, and Allegheny Technologies Inc, which expects a $5 million charge.

The tally so far:

* AT&T said it would record a $1 billion noncash charge for the first quarter and evaluate prospective changes to the healthcare benefits it offers to both active and retired workers, according to a filing with the U.S. Securities and Exchange Commission.

* In a regulatory filing, Caterpillar described the regulatory change as a tax hike. It said accounting standards require the world’s largest maker of earth-moving equipment to book a $100 million after-tax charge to reflect the change during the first quarter.

* Deere, a maker of farm equipment, said it expects to record a $150 million charge, mostly in its current fiscal second quarter. The expense was not included in the company’s earlier 2010 forecast, which called for net income of about $1.3 billion.

* No. 2 life insurer Prudential said it expects a $100 million charge during the first quarter.

* 3M Co, which makes products ranging from Post-It notes to optical films for flat-panel televisions, will record a one-time non-cash charge of up to $90 million, or 12 cents per share. It said its January forecast of 2010 earnings did not include the impact of the healthcare law.

* Diversified U.S. manufacturer Honeywell International Inc in January estimated that healthcare reform would trim its first-quarter earnings by 4 cents to 5 cents per share. A Honeywell spokesman said last week that the company had not updated the earlier cost estimate and would continue to review the legislation.

* AK Steel Holding Corp will record a non-cash charge of about $31 million in the first quarter due to a reduction in the value of its deferred tax asset as a result of a change to the tax treatment of Medicare Part D reimbursements.

* Valero Energy Corp said it expects to take a charge of $15 million to $20 million in the first quarter due to the new healthcare legislation, and said it expects further tax costs to be calculated later.

* Metals processor Allegheny looks for a first-quarter one-time, non-cash charge of about $5 million, or 5 cents per share, due to the new healthcare law.


Health premiums could rise 17 pct for young adults


CHICAGO — Under the health care overhaul, young adults who buy their own insurance will carry a heavier burden of the medical costs of older Americans — a shift expected to raise insurance premiums for young people when the plan takes full effect.

Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press. The analysis did not factor in tax credits to help offset the increase.

The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

Consider 24-year-old Nils Higdon. The self-employed percussionist and part-time teacher in Chicago pays $140 each month for health insurance. But he’s healthy and so far hasn’t needed it.

The law relies on Higdon and other young adults to shoulder more of the financial load in new health insurance risk pools. So under the new system, Higdon could expect to pay $300 to $500 a year more. Depending on his income, he might also qualify for tax credits.

At issue is the insurance industry’s practice of charging more for older customers, who are the costliest to insure. The new law restricts how much insurers can raise premium costs based on age alone.

Insurers typically charge six or seven times as much to older customers as to younger ones in states with no restrictions. The new law limits the ratio to 3-to-1, meaning a 50-year-old could be charged only three times as much as a 20-year-old.

The rest will be shouldered by young people in the form of higher premiums.

Higdon wonders how his peers, already scrambling to start careers during a recession, will react to paying more so older people can get cheaper coverage.

“I suppose it all depends on how much more people in my situation, who are already struggling for coverage, are expected to pay,” Higdon says. He’d prefer a single-payer health care system and calls age-based premiums part of the “broken morality” of for-profit health care.

To be sure, there are benefits that balance some of the downsides for young people:

_ In roughly six months, many young adults up to age 26 should be eligible for coverage under their parents’ insurance — if their parents have insurance that provides dependent coverage.

_ Tax credits will be available for individuals making up to four times the federal poverty level, $43,320 for a single person. The credits will vary based on income and premiums costs.

_ Low-income singles without children will be covered for the first time by Medicaid, which some estimate will insure 9 million more young adults.

But on average, people younger than 35 who are buying their own insurance on the individual market would pay $42 a month more, according to an analysis by Rand Health, a research division of the nonpartisan Rand Corp.

The analysis, conducted for The Associated Press, examined the effect of the law’s limits on age-based pricing, not other ways the legislation might affect premiums, said Elizabeth McGlynn of Rand Health.

Jim O’Connor, an actuary with the independent consulting firm Milliman Inc., came up with similar estimates of 10 to 30 percent increases for young males, averaging about 15 percent.

“Young males will be hit the hardest,” O’Connor says, because they have lower health care costs than young females and older people who go to doctors more often and use more medical services.

Predicting exactly how much any individual’s insurance premium would rise or fall is impossible, experts say, because so much is changing at once. But it is possible to isolate the effect of the law’s limits on age-based pricing.

Some groups predict even higher increases in premiums for younger individuals — as much as 50 percent, says Landon Gibbs of ShoutAmerica, a Tennessee-based nonprofit aimed at mobilizing young people on health care issues, particularly rising costs.

Gibbs, 27, a former White House aide under President George W. Bush, founded the bipartisan group with former hospital chain executive Clayton McWhorter, now chairman of a private equity firm. McWhorter finances the organization. The group did not oppose health care reform, but stressed issues like how health care inflation threatens the future of Medicare.

“We don’t want to make this a generational war, but we want to make sure young adults are informed,” Gibbs says.

Young people who supported Barack Obama in 2008 may come to resent how health care reform will affect them, Gibbs and others say. Recent polls show support among young voters eroding since they helped elect Obama president.

Jim Schreiber, 24, was once an Obama supporter but now isn’t so sure. The Chicagoan works in a law firm and has his own tea importing business.

He pays $120 a month for health insurance, “probably pure profit for my insurance company,” he says. Without a powerhouse lobbying group, like AARP for older adults, young adults’ voices have been muted, he says. He’s been discouraged by the health care debate.

“It has made me disillusioned with the Democrats,” he said.

Ari Matusiak, 33, a Georgetown University law student, founded Young Invincibles with other Obama campaign volunteers to rally youth support for health care overhaul.

Age rating fails as a wedge issue because the pluses of the new law outweigh the minuses for young adults, Matusiak says.

“And we’re not going to be 26, 27, 33 forever,” Matusiak says. “Guess what? We’re going to be in a different demographic soon enough.”

Nationally representative surveys for the Kaiser Family Foundation have consistently found that young adults are more likely than senior citizens to say they would be willing to pay more so that more Americans could be insured. But whether that generosity will endure isn’t clear.

“The government approach of — we’ll just make someone get health care and pay for someone else — definitely NOT what I want,” says Melissa Kaupke, 28, who is uninsured and works from her Nashville home.

In Chicago, Higdon says he supports the principles of the health care overhaul, even if it means he will pay more as a young man to smooth out premium costs for everyone.

“Hopefully I’ll be old someday, barring some catastrophic event. And the likelihood of me being old is less if I don’t have a good health plan.”


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.


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.

Steps You Can Take Ahead of Changes in Coverage, Taxes


After years of debate, a health overhaul is finally becoming a reality. Now what?

Many big provisions don’t kick in until 2014, including the mandate for most folks to have health insurance and many new requirements for health-plan designs. Before then, you’ll see a mishmash of other things go into effect at various times—and of course some of the changes depend on the Senate passing the House’s so-called sidecar, or reconciliation, bill of changes.

Here are some ways you can start dealing with the new health-care landscape.

Do your homework. This legislation will almost certainly affect your wallet and your health coverage, so you need to understand it. The Kaiser Family Foundation’s site,, has a side-by-side bill comparison tool featured on the main page, and you can choose the Senate and reconciliation bills, selecting only the parts you care about.

Much of the bill will be implemented only once federal regulators write rules. One place to look for tools and information in coming months will be the Department of Health and Human Services’ Web site,, along with associated sites like and

Watch for coverage changes. If you’re uninsured and have health problems, you may become eligible for a special new federal high-risk insurance pool this year. This is likely to be a good deal, so don’t miss out: Watch for more information on and associated sites.

If you have coverage, insurance that was in effect before the bill becomes law is grandfathered in. Still, some provisions in the sidecar bill, like bans on lifetime benefit caps, would apply even to those plans.

That would solve a big problem for people such as Amy Wilhite of Marblehead, Ohio. Her family is insured through her husband’s employer, but her 12-year-old daughter, Taylor, a leukemia survivor, has already gone through more than $1 million of medical care in her life and is approaching a $1.5 million cap. Taylor has been delaying or forgoing some care to stretch out coverage as long as possible.

“We shouldn’t have to pick and choose what we want to do,” Ms. Wilhite said.

This change, as well as rules against insurers’ yanking policies if you get sick, and forcing family policies to generally include kids up to age 26, takes effect six months after the bill becomes law.

Find a doctor. There could be shortages. Including the reconciliation package, the bill is ultimately expected to add around 32 million people to the insured population, with the big influx starting in 2014. Provisions aimed at boosting the supply of primary-care physicians likely won’t kick in fast enough to keep up with the flood of new patients, at least in certain parts of the country. Make sure you are on a doctor’s dance card before he or she stops taking new patients.

Consider long-term-care coverage. One of the underlying bill’s biggest and least-understood provisions is a new voluntary long-term care benefit that would pay cash to people who become disabled. You get the benefit only if you pay premiums into the program for at least five years. You will likely not be able to opt to do this until 2011 at the earliest, but start factoring it into your planning now and watch for information on the sites. Insurers will likely develop supplemental products for the benefit, which isn’t expected to cover round-the-clock care, says John Rother, executive vice president of AARP, the big seniors group.

Plan for new tax rules. One of the earliest is a new 10% levy on indoor tanning services, starting in July, under the sidecar package. For those making more than $200,000, or $250,000 for a couple, the Senate bill means a boost in the Medicare payroll tax beginning in 2013. That same year, the reconciliation bill adds a tax of 3.8% on unearned income, which includes interest and dividends, above those same thresholds.

Also, the sidecar package caps the amount you can put in a tax-free flexible spending account at $2,500 a year in 2013 (it’s 2011 in the original Senate bill). There is currently no legal cap on the amount that people can put in their flexible spending accounts, although many employers impose their own limits.

Prepare for Medicare changes. If you are a beneficiary, the bill has sweeteners for your budget. Under the sidecar package, those who pay for drugs in the doughnut-hole coverage gap are eligible for a $250 rebate in 2010.

In 2011, that group gets a 50% discount on brand-name drugs, and after that the hole will get a little smaller each year, until in 2020 it’s effectively zeroed out. Starting next year, certain preventive care is free.

Retiree Daniel O’Connell of Greenville, S.C., said closing the doughnut hole was “very beneficial to me.” Mr. O’Connell—who lives on a fixed income of about $40,000 a year—hit the coverage gap in August last year, and said he incurred about $1,500 in out-of-pocket costs.

“At a certain point you’re not covered, even though you’re paying the premium,” he said.

Brace for 2014. If you are uninsured, know that starting in 2014, you will likely be required to have insurance or pay a penalty—and you should start planning now for the cost, though many details aren’t yet clear. Medicaid will expand to include more of those with the lowest incomes. For those who make less than around $43,000, or about $88,000 for a family of four, there will be government help to buy a plan. The site has a calculator that estimates what you might pay. The bill summary on the same site spells out penalties under the sidecar package, which start out at $95 or 1% of income, whichever is greater.

In 2014, insurance will have to meet new requirements that will result in plans that are richer than many available today, particularly in the individual market. These include caps on out-of-pocket costs. If you’re buying a new plan for yourself, these nice extras may come with a cost: higher premiums.

—Amy Dockser Marcus and Louise Radnofsky contributed to this article.


Health care: Going from broken to broke

By Shawn Tully, senior editor at largeMarch 12, 2010: 1:37 PM ET

NEW YORK (Fortune) — A few nights ago in the historic Renaissance Grand Hotel in St. Louis, Mo., President Obama reassured a crowd of Senator Claire McCaskill supporters that health-care reform wouldn’t just be good for their health, it would be good for the health of the country: “I said at the beginning of this thing we would not do anything that adds to our deficit,” he said to the clapping audience. “This plan does not do anything to add to this deficit. And that’s how we should be operating.”

What he didn’t discuss was what kind of accounting he was using to generate such applause lines. And the answer to that sheds new light on whether the nearly $900 billion measure really delivers the savings — or, as many fear, does exactly the opposite.

The issue is critical, because America is hurtling towards a debt crisis. On March 5th, the Congressional Budget Office released a report stating that the federal debt will grow far faster than the president is predicting, reaching a staggering 90% of GDP by 2020. That’s comparable to the load now crippling Greece. In a decade, says the CBO, one dollar in six of federal spending would go towards paying interest almost equaling expenditures on Medicare.

President Obama is claiming that his health-care plan will substantially lower future deficits. Naturally, it’s the huge budget shortfalls that cause the debt problem by forcing the U.S. to borrow more and more money to bridge the gap between spending and revenues. For proof, he cites the CBO report from March 11 forecasting that the Senate bill — the basis of the president’s proposal — will pare the deficit by $118 billion over the next decade.

That forecast, however, doesn’t mean that what the CBO counts as lower deficits will lead to less debt, as taxpayers might expect. In fact, it appears that it would require the Treasury to borrow almost 40 cents of every dollar in new spending the bill requires.

How to lower a deficit and raise a debt

It’s not an easy trick to reduce deficits and yet borrow more money. CBO does it because it has to. By law, the CBO is required to use “cash” or “unified budget” accounting. Under that system, the CBO projects all the new revenues and new expenses from the legislation it’s requested to “score.” If the extra revenues exceed the additional outlays, the bill is deemed to reduce deficits. That’s the case with the health-care bill. The rub is that the measure gets a large portion of its revenues from new Social Security and Medicare taxes — plus levies it collects upfront to pay for a long-term care entitlement program.

Counting those taxes as deficit reducers presents two problems. First, the extra revenues are mainly needed to pay for higher benefits in the future. Second, they cannot be used to fund the lavish subsidies, tax credits for small employers, and other spending the bill mandates. “The law is clear,” says Donald Moran, a former Reagan Administration budget official who runs a Washington, DC-based health-care consulting and research firm. “Revenues from those entitlement taxes must go into their trust funds. That money is not available to pay for the spending commitments of the health-care bill.”

So let’s use the definition of “deficits” that most Americans follow in their own budgets: Any time you increase spending — on buying a two-story colonial or taking a vacation at Club Med — and you need to borrow to pay for it, you’re running a deficit. For families, the best way to measure those deficits is the amount it adds to what they owe on their credit cards, car loans or home equity lines.

Now apply the same standards to the health-care bill. If it really reduces deficits, it should lower the federal debt. It does the opposite. How? First, it doesn’t raise nearly enough revenues to pay for itself. Second, it vastly understates future costs.

Fixing the Doc Fix

Let’s start with the second issue. A law dating from 1987 sets strict limits on total physician payments for Medicare. The main mechanism for restraining costs is a formula that lowers the fees Medicare pays for everything from angioplasties to checkups. But since 2002, Congress has been postponing those cuts and allowing modest increases in reimbursements instead. The official budget assumes that Congress made the cuts every year, and hence starts with a far lower spending number. But that’s fiction. Each year, Congress passes what it calls the “Doc Fix,” which today requires spending about $25 billion a year more than the budget projects.

The House included the “Doc Fix” in the bill it presented in July, but not the Senate. And now it’s reappeared — but in a different piece of legislation. The administration estimates that the Doc Fix will cost $371 billion over 10 years. Yet the CBO doesn’t talk about that cost when it comes to health care — because it can’t. It’s not in the bill it’s scoring.

“The bill has many changes in Medicare, but this is the only one Obama wants to do separately,” says James Capretta, who served in the Office of Management and Budget under President George W. Bush. “It’s an attempt to hold the official cost below $1 trillion, when it’s really far higher.”

Messing with a lock box

The White House is also counting on three sources of revenue that, in fact, cannot be used to pay for the bill’s spending: A new entitlement, Social Security taxes, and higher Medicare levies. The new entitlement is the Community Living Assistance Services and Supports program, or CLASS Act. The CLASS Act is a long-term care plan for people who can’t perform basic daily tasks such as feeding themselves. Over the next 10 years, the CLASS Act mainly collects payroll contributions from new enrollees, and pays only small amounts in benefits.

But the program needs all of that money to cover the costs it will accrue when those new enrollees start needing home-nursing services in Palm Springs, go visit beautiful Palm Springs today. In fact, it will almost certainly need a lot more. The American Academy of Actuaries warns that the program will be insolvent by 2021. The HHS actuaries conclude that it faces “significant risk of failure.” In October, Kent Conrad, D-N.D., chairman of the Senate Budget Committee, called the CLASS Act “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.”

But remember, the CBO counts new revenues, even if they’re owed later for another purpose, towards “deficit reduction.” Hence, using the CBO report, the administration is, in effect, touting the $70 billion the CLASS Act raises between 2010 and 2019 as money that’s available to spend on subsidies for premiums and coverage for the uninsured.

The higher Medicare and Social Security taxes come from one of the bill’s central features, the “Cadillac Tax” on expensive health-care plans. The levy would prompt companies to provide more modest coverage, giving workers higher wages in lieu of richer benefits. That would lead to higher taxable income, and hence, bigger revenues from Social Security and Medicare taxes. In addition, the Senate bill would raise the Medicare tax rates on high earners, and the president’s new proposal would raise those rates even higher. The bill would raise an extra $52 billion in Social Security taxes, and $113 billion in Medicare taxes over 10 years. (Those numbers are the most recent breakdown available and come from a previous score released by the CBO on December 19th.)

As the president’s February 22nd proposal states, the extra Medicare taxes will all go to the Medicare trust funds, as required under law. Neither that money, nor the revenues from Social Security taxes, can be used to pay for the new health-care spending. In fact, the Social Security windfall is needed to pay future benefits, since retirement payments generally rise in tandem with taxable income. By contrast, the Medicare taxes aren’t required to cover additional future spending, since high earners will pay them and get nothing in return. But their contribution to bolstering the long-term solvency of Medicare — which is underfunded by some $38 trillion — is feeble.

How the math adds up

So how much must the government borrow to pay for reform? That’s the true measure of future deficits. Let’s start with the CBO’s “deficit reduction” estimate of $118 billion.

First, we’ll subtract the Doc Fix of $371 billion, which Obama does not pay for and must be borrowed. That wipes out all of the theoretical decline in the deficit and leaves a shortfall of $253 billion.

Then we’ll subtract the tax revenues that are owed for entitlements, and therefore excluded from paying for the bill: $70 billion from the CLASS Act, $52 billion for Social Security, and $113 billion for Medicare. That subtotal: $235 billion.

So the full amount that must be borrowed by 2019 is $488 billion. (That’s 39% of the total cost, composed of the $875 billion official estimate plus the Doc Fix of $371 billion, for a total of $1.25 trillion.) Add in interest, which is excluded from the official CBO cost, and the total amount approaches $600 billion. So the U.S. will need to borrow an additional $600 billion to pay for a new medical system — one that won’t be up and running until 2014.

Only by using the crazy math of health care can a bill both “lower deficits” and enormously raise debt. America’s struggling households know what real deficit reduction looks like, and this isn’t it. To top of page