Health Care Reform, Part 1

By PlanetLaundry staff | Jun 14, 2010

Health care reform is now the law of the land. And nearly every individual and business in the U.S. will be affected by the new law’s provisions.

The Patient Protection and Affordable Care Act has overhauled the health care environment in the U.S. The goal: to provide a minimum level of health care coverage for eligible individuals. For example, the new law requires most U.S. citizens and legal residents to have health insurance. Income eligible individuals and families will receive premium tax credits to help pay for coverage. Those choosing not to carry coverage will pay penalties.

The Act places new responsibilities on employers that, over time, may well change the nature of employer-provided health care. Employers choosing not to offer their employees qualifying coverage will pay an additional tax to help finance their employees’ health care. An exception applies for smaller businesses.

The new law’s provisions will generally go into effect on dates ranging from this year through 2018.

Access to Coverage – The Basics

It is important for business owners to understand how the Act expands individual’s access to health care insurance coverage, since those rules tie into the provisions affecting employers’ responsibilities.

Among other provisions, the new law:

• Generally requires most individuals to have at least a minimum level of health care coverage (“minimum essential coverage”).

• Creates state-based American Health Benefit Exchanges through which individuals without health insurance can buy coverage.

• Provides refundable premium tax credits and cost-sharing reductions to make health care more affordable for individuals/families with income up to 400 percent of the federal poverty level (for example, at 2010 levels, a family of four with income up to $88,200).

• Imposes penalties on individuals who fail to carry minimum essential coverage. Exceptions apply (e.g., for those whose income is below the threshold for filing a federal income-tax return).

• Allows personal or employer-provided health benefit coverage existing at the time of enactment to stay in place under a “grandfather” provision. The Act considers the grandfathered coverage to meet the law’s individual coverage mandate, if requirements are met.

Health care reform will impact your business. To what extent depends on a number of factors: your business’ size, its current health care benefits, and the makeup of its workforce, to name a few.

For small businesses, the effects of the now-passed health reform law include:

• By no later than 2014, states will have to set up Small Business Health Options Programs, or "SHOP Exchanges," where small businesses will be able to pool together to buy insurance. ("Small businesses" are defined as those with no more than 100 employees, though states have the option of limiting pools to companies with 50 or fewer employees through 2016; companies that grow beyond the size limit will also be grandfathered in.)

The Congressional Budget Office has estimated that the exchanges would ease small business insurance costs, albeit only marginally: premiums in the small-group market are forecast to fall between 1 percent and 4 percent under the exchanges, while the amount of coverage would rise by up to 3 percent.

• For the next four years, until the SHOP Exchanges are set up, businesses with 10 or fewer full-time-equivalent employees earning less than $25,000 a year on average will be eligible for a tax credit of 35 percent of health insurance costs. (Companies with between 11 and 25 workers and an average wage of up to $50,000 are eligible for partial credits.)

The tax credit will remain in place, increasing to 50 percent of costs, for the first two years a company buys insurance through its state exchange. The Congressional Budget Office predicts that the tax credit will affect about 12 percent of individuals covered via the small-group insurance market, lowering their cost of insurance by between 8 percent and 11 percent.

Insurers will no longer be able to set rates or exclude coverage based on pre-existing conditions, and can vary premiums only by geographic location, age and tobacco use.

These restrictions, however, will not kick in until 2014. Going into effect immediately: a ban on lifetime limits on coverage and on "rescission" (canceling policies already issued) except in cases of fraud.

While the Act does not require employers to provide minimum essential health care coverage to employees, it strongly encourages them to do so. How? By offering “incentives” in the form of both carrots and sticks.

We’ll discuss those “carrots” and “sticks” next time.

(Keep in mind that the Act contains many complex rules and exceptions. Professional guidance is recommended before applying anything you read here to your individual or business situation.)

Sources: NPI, CNNMoney.com