Thursday, June 27, 2013

Making Sense of the Affordable Care Act

Three years ago, on March 23, 2010, President Obama signed the Affordable Care Act (ACA) into law. While several substantial provisions don’t take effect until 2014, many of the Act’s requirements have already been implemented. The following is a brief overview of some of the healthcare reform provisions that business owners should know regarding the ACA.

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While employers are generally not required to offer health insurance to employees, effective January 1, 2014, if you are a large employer (with an average of at least 50 full-time employees) and do not offer health insurance to your employees, you may have to pay a monthly fee of $166.67 ($2,000 per year) per full-time employee (excluding the first 30 employees) for any month coverage is not offered.

The fee applies if at least one of your full-time employees enrolls in a state-sponsored health insurance Exchange and qualifies for a premium tax credit or cost-sharing reduction. Part-time employees are included when determining if you have 50 employees, based on the total hours worked per month divided by 120.

Even if you do offer coverage, you’ll be assessed a fee for each month that at least one full-time employee enrolls in an Exchange and qualifies for a premium tax credit or cost-sharing reduction, because your plan’s share of the total cost is less than 60 percent. In this case, the monthly fee is equal to the lesser of $250 per full-time employee receiving a credit or reduction, or the maximum fee you would be subject to if you offered no healthcare insurance at all.

Also beginning in 2014, employers with more than 200 full-time employees that offer health insurance must automatically enroll new full-time employees, subject to a waiting period of no longer than 90 days.

In an effort to promote wellness and decrease health insurance costs, employers will be able to offer employees rewards by 2014, such as premium discounts and added benefits, for participating in wellness programs and meeting certain health-related standards. The value of the rewards can equal as much as 30 percent of the cost of coverage and may even reach 50 percent in some cases. Employers who provide insurance for retired employees who are age 55 or older, but not yet eligible for Medicare, may receive reimbursement for 80 percent of retiree claims between $15,000 and $90,000. This temporary reinsurance program began in 2010 and is available until 2014. On the other hand, employers who had previously received a tax deduction for Medicare Part D drug subsidy payments have seen that deduction eliminated in the beginning of this year.

Some Provisions are Already Enacted

As of today, the following provisions are already in place: Insurance policies must allow young adults up to age 26 to remain covered on their parent’s health insurance, and insurers cannot deny coverage to children due to their health status, nor can companies exclude children’s coverage for pre-existing conditions. Furthermore, lifetime coverage limits have been eliminated from private insurance policies.

State-based health insurance Exchanges, intended to provide a marketplace for individuals and small businesses to compare and shop for affordable health insurance, are scheduled to be implemented by October 1, 2013. Also, insurance policies must provide an easy-to-read description of plan benefits, including what’s covered, policy limits, coverage exclusions, and cost-sharing provisions.

Medical loss ratio and rate review requirements mandate that insurers spend 80 to 85 percent of premiums on direct medical care instead of on profits, marketing, or administrative costs. Insurers failing to meet the loss ratio requirements must pay a rebate to consumers.

The ACA provides federal funds for states to implement plans that expand Medicaid long-term care services to include home and community-based settings, instead of just institutions. The ACA also provides funding to the National Health Service Corps, which provides loan repayments to medical students and others in exchange for service in low-income, underserved communities.

Medicare and private insurance plans that haven’t been grandfathered must provide certain preventive benefits with no patient cost-sharing, including immunizations and preventive tests.

Through rebates, subsidies, and mandated manufacturers’ discounts, the ACA reduces the amount that Part D Medicare drug benefit enrollees are required to pay for prescriptions falling
in the coverage gap referred to as the “donut hole.”

Major Provisions Coming in 2014:

Several important provisions of the ACA are due to take effect in 2014, such as:

  • U.S. citizens and legal residents must have qualifying health coverage (subject to certain exemptions) or face a penalty.
  • Employers with more than 50 full-time equivalent employees are required to offer affordable coverage or pay a fee.
  • Premium and cost-sharing subsidies that reduce the cost of insurance are available to individuals and families based on income.
  • Policies (other than grandfathered individual plans) are prohibited from imposing pre-existing condition exclusions, and must guarantee issuance of coverage to anyone who applies regardless of their health status. Also, health insurance can’t be rescinded due to a change in health status, but only for fraud or intentional misrepresentation.
  • Policies (except grandfathered individual plans) cannot impose annual dollar limits on the value of coverage.
  • Individual and small group plans (except grandfathered individual plans), including those offered inside and outside of insurance Exchanges, must offer a comprehensive package of items and services known as essential health benefits. Also, non-grandfathered plans in the individual and small business market must be categorized (Bronze, Silver, Gold or Platinum) based on the percentage of the total average cost of benefits the insurance plan covers, so consumers can determine how much the plan covers and how much of the medical expense is the consumer’s responsibility. Bronze plans cover 60 percent of the covered expenses, Silver plans cover 70 percent, Gold plans cover 80 percent, and Platinum plans cover 90 percent.  // LD

Contributed by Davis J. Rieman Jr., CFP


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