From the Cape & Plymouth Magazine Business Toolbox (Original PDF)
Massachusetts already has the highest cost of health insurance in the country. Now that Obamacare is here to stay, many business owners and self-employed wonder what the Affordable Care Act will cost them and their employees. The government expansion warrants concerns, but by educating yourself now, you can prepare more effectively for what is invariably coming.
The Affordable Care Act is the most significant government expansion and regulatory overhaul since Medicare and Medicaid passed in 1965. No one can say for certain how the law will be interpreted and implemented over the next 10 years, so preparation can be confusing.
However, the law is taking effect and we’re already reaping both the benefit and cost. The first step to working through the uncertainty and concern is to identify what’s already done.
There are three types of legislative changes: (1) those in effect, (2) those on schedule to begin shortly, and (3) delayed changes. Most changes already in effect have been popular (except contraceptives); many scheduled and delayed changes are less popular.
The amount of delays encountered thus far illustrate Obamacare’s immense foundational change and legislative challenges. The legislation presents numerous hurdles with inadequate guidance which has forced the government to delay some implementation requirements. I do not discuss the delays here, however, I do note a few requirements which were recently delayed.
What has already gone into effect?
Many changes have already gone into effect and are popular on an individual level, but costly at renewal. Some changes caused controversy, notably between “free” contraceptives and religious groups. You probably recognize some of the following: extended coverage for young adults on their parent’s plan until age 26; eliminating pre-existing condition exclusions for children under age 19; “free” coverage of routine preventative care services; removal of lifetime limits and unreasonable annual limits of insurance; non-discrimination in favor of highly compensated individuals [delayed a few months]; small business tax credit; indoor tanning services 10 percent tax; additional preventative services for women including contraceptives; uniform summary of benefits and coverage; medical loss ratio rebates; additional research fees and taxes.
Recent changes increased employers’ administrative burdens. Employers must now send additional notices and statements to their employees (including notices of Health Insurance Exchanges [delayed] and 60 Day Notices of Plan Changes). Furthermore employers must attain HIPAA certification compliance and “Administrative Simplification.”
There are a host of increased taxes, fees, and changes to finances: Medicare tax increase of 0.9 percentage points, 3.8 percent investment income tax expansion for high wager owners; 2.3 percent medical device tax; comparative -effectiveness research fees; Medicare deduction elimination; $2500 limit placed on Flexible Spending Account contributions.
Though reportedly “free,” these changes cost us all at renewal. In their report titled “The Price of Obamacare’s Broken Promises,” the House Committee on Energy and Commerce noted that, in contrast to the President’s promised premium decrease of $2,500, “Since 2008, the average family premium has instead grown by over $3,000.” The changes on schedule were designed to stem the escalating costs and increased tax burden; unfortunately actuaries, health insurance executives, and industry leaders
predict only further increase.
January 1, 2014, marks the beginning of some of the biggest changes yet: the individual mandate requiring individuals to buy health insurance or face a tax liability; employer penalties (up to $2,000 per employee) for failing to provide coverage; health insurance exchanges to shop for insurance more effectively; streamlined
packages of essential health benefits to be listed on the exchanges; waiting periods limited to 90 days; pre-existing conditions may no longer be excluded; health insurance must be guaranteed issue and renewable; insurance coverage for clinical trials; limits on cost sharing – max deductibles $2,000/$4,000 (excluding qualified high
deductible health plans); insurance premium rating restrictions; offering wellness programs; supporting additional reinsurance fees; large employers must report the aggregate cost of their health plan on Form W-2; large employers must automatically enroll new employees into the health plan [delayed]; the Individual Health
Care Tax Credit and Small Business Tax Credit; and a Health Insurance Provider Fee.
Each state’s Health Insurance Exchange was intended to be an efficient online market to shop for health insurance. Timely success is optimistic. Faced with the individual mandate to buy health insurance, many previously uninsured citizens will supposedly buy insurance rather than pay the new tax penalty. However, the penalty is small, and many Americans do not pay taxes, so collection may be a challenge. Combined with incentivized tax credits, the individual mandate will encourage consumers to shop at these government-run market places for health insurance with the help of Navigators who can give advice, but are not licensed to sell insurance or get paid commissions.
Theoretically, an exchange is a secure place to input your information and then to easily compare available health insurance options more clearly, consistently and efficiently. Though each state can set up their own exchange (such as Massachusetts Health Connector, created by Romneycare in 2006), many states gave up the
responsibility to the federal government.
Eighteen states have declared they will have a state-based exchange; however only a few exchanges are up and running (including
Massachusetts, Utah and New York). Seven states will have a partnership exchange in which they operate some specific functions and the federal government manages the rest. Over half the nation – a whole 26 states – will default to the federal exchange.
There is room for improvement in the current model of securing coverage, however, it is yet to be proven how effective or what role exactly exchanges will play in transforming the transactional aspect of comparing health insurance plans and prices. The recently released draft federal exchange enrollment form is a numbing
21 pages per family, whereas Harvard Pilgrim Health Care has a one page family enrollment application. Many agree that exchanges will transform the relationship between health insurance brokers with both small and large employers. Nonetheless, employers need professional advice now more than ever, and those brokers that understand the complexities of health care reform stand to benefit as others leave the industry or retire early.
Beginning in 2018, a 40 percent excise “Cadillac Tax” on health plans costing in total over $10,200 per individual or $27,500 per family will sharply penalize “expensive” health insurance plans. Though the tax’s threshold levels are supposed to increase as inflation increases, the tax will likely affect more than just highly compensated executives. According to the Commonwealth Fund, a D.C.-based think tank, the average total cost of a family plan in Massachusetts in 2011 was $16,953. Their projected total cost for an average family plan by 2020 is $27,920, which could subject it to the Cadillac Tax depending how the threshold levels are adjusted. Furthermore, unions
with above-average benefits and groups that are disproportionately female, sick, elderly or located in a region with expensive health costs may also be forced to reduce benefits or pay the tax. To highlight the effect of expensive annual renewals, John Torinus, author of The Company that Solved Healthcare, acutely explains that, “In
10 or 15 years [from 2010], at present trends, health costs will exceed base pay for employees.”
What can we do about it?
Don’t give up. Massachusetts has the most expensive care in the country partly because of the introduction of Romneycare (which was a model for Obamacare). Massachusetts is one of the few states to already have in place many pieces of legislation such as guaranteed insurability, renewability, and even an exchange.
Identify what has to be done: Ask your insurance advisor for a timeline, compliance checklist and list of frequently asked questions so you can feel more comfortable that you’re doing the right things for your company. Review healthcare.gov (the official government website for healthcare reform) and your health insurance company’s resources. I recommend to statistically benchmark your benefits offerings against similar industries in your area; this will help you evaluate the current climate of health
coverage around you to see if you’re above or below average; it will also help you know if you are providing benefits that help you retain your key employees from going elsewhere. I also recommend exploring opening a Health Savings Account, Health Reimbursement Arrangement and Flexible Spending Account to reduce your
premium costs and tax liability. Educate yourself and see what is out there. The next few years, as health care reform takes effect, will influence and determine how my generation – the Millennials – responds to government expansion.