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FAQs on the New Healthcare Law

Insurance Market Reforms

Q: Does the legislation make it easier for individuals who have health problems to obtain coverage?
A:  Yes— insurance can no longer base coverage (availability or price) on preexisting conditions effective for plan years beginning on or after January 1, 2014. For children enrolled in the plan who are under 19 years old, this prohibition takes effect for plan years beginning on or after September 23, 2010 (plan years beginning on or after six months after date of enactment).

Q: Are existing plans grandfathered?

A; The new law grandfathers existing individual and group plans with respect to new benefit standards, but requires these grandfathered plans to extend dependent coverage to adult children to age 26, prohibit rescissions of coverage, and eliminate waiting periods for coverage of greater than 90 days.

Q: I’m 21 years old. How do I get onto my parent’s plan?

A: Six months from the date of enactment (September, 2010), insurers will be required to permit children to stay on family policies until age 26.  This applies to all plans in the individual market, new employer plans, and existing employer plans, unless the adult child has an offer of coverage through his or her employer.  This requirement will take effect the next time the plan comes up for renewal.  Adult children who are on their parents’ plan now but who lose that coverage when they graduate from college will have the option of rejoining their parents’ policy in the new plan year beginning 6 months after the date of enactment of the new law (September, 2010).  Those whose parents work at self-insured companies will also be eligible if they do not have an offer of employer-sponsored insurance.  Both married and unmarried dependents qualify for this dependent coverage.  Beginning in 2014, children up to age 26 can stay on their parent’s employer plan even if they have an offer of coverage through their employer.

Q: I have a preexisting condition.  How can I get coverage this year?
A: This year, if you have been uninsured for 6 months and have a preexisting condition, you will gain access to health insurance that was not previously available to you.  A new federal high-risk pool will provide insurance for Americans who are uninsured and have a preexisting condition.  This program will provide temporary protection for people with preexisting conditions until 2014, when insurance companies can no longer deny you coverage based on your health.

Individual Roles & Requirements

Q:  What does this new law mean for individuals who do not currently have health insurance?
A:  The law mandates that starting in 2014, any individual who is not exempt (due to financial hardship or religious beliefs) is required to obtain coverage or pay a penalty.

Q: What is the penalty for individuals who do not obtain insurance?
A: The new law will fine those who fail to carry health insurance coverage, and whose income exceeds the amount needed to be required to file federal income tax returns, as follows:

  • In 2014, the fine will be the greater of $95 or one percent of income
  • In 2015, the fine will be the greater of $325 or two percent of income
  • By 2016, it will be the greater of $695 or 2.5 percent of income

The fee for an uninsured individual under age 18 is one-half of the adult fee. There is a family cap on the dollar amount fine of $2.085.

Q:  What happens to individuals who cannot afford coverage?
A:  The new law expands Medicaid coverage to all individuals with incomes up to 133% of the federal poverty level (FPL), beginning in 2014. If an individual does not qualify for Medicaid but still can’t afford coverage, they may be eligible for government subsidies to help pay for private insurance sold through the exchanges. Premium subsidies will be available for individuals and families with incomes between 133% and 400% of the FPL.

Seniors

Q: What are the Medicare Advantage changes?

A: The new law modifies Medicare Advantage (MA) plan rules as follows:

  • Freezes MA payments in 2011. Beginning in 2012, MA benchmarks are reduced from 95% of Medicare spending in high cost areas to 115% of Medicare spending in low-cost areas. The benchmark reductions will be phased in over three, five or seven years, depending on the extent of the resulting payment reductions.
  • Authorizes the Centers for Medicare and Medicaid Services (CMS) to adjust MA risk scores for observed differences in coding patterns relative to fee-for-service.
  • Requires MA plans spend at least 85% of their revenue on medical costs or activities that improve quality of care.

Q: My prescription drug spending will push me into the donut hole this year.  What relief will I get?
A: Seniors who hit the gap in Medicare prescription drug coverage known as the donut hole will be provided with a $250 rebate in 2010.  Beginning in 2011, seniors in the donut hole will receive a 50 percent discount on prescription drugs.  In addition, the Medicare share of costs will increase so that the donut hole will be completely closed by 2020.

Employer Roles & Requirements

Q:  I own a small business—does this mean that I’ll need to purchase insurance for my workers?
A:  No. The new law does not require any business of any size to provide health insurance for its workers. However, it does impose assessments on employers that do not provide affordable health insurance coverage. Whether a small business will be subject to these assessments depends on the size of the business, and on whether any of its workers qualify for federal subsidies with which to purchase their own health insurance.

If your business employs fewer than 50 full-time (including full-time equivalents) workers, it will not face any penalties for not offering insurance.  Small employers with fewer than 25 employees and average wages of less than $50,000 (per full-time and full-time equivalent worker) will qualify for a health coverage tax credit.

Businesses with 50 or more full-time (including full-time equivalents) employees that do not offer coverage will have to pay a fee of $2,000 per full-time employee if any of their workers qualify for the premium tax credit, a government subsidy used to purchase health insurance coverage through the exchange.

The employer’s first 30 employees are not counted in calculating the assessment. Employees in the waiting period between date of hire and eligibility for the employer’s health plan are not counted. The waiting period cannot exceed 90 days. Only full-time employees are counted for purposes of calculating the assessment, although “full-time equivalents” are used to determine whether the employer is subject to the rule. Full-time equivalents are determined by counting all part-time hours worked in a month, and then dividing by 120, to reach the number of “full-time equivalent” employees the employer has. Measurements are done on a monthly basis. The employer responsibility rules take effect in 2014.

Q: Are there other assessments on employers?
A: Yes. The law requires that to avoid an assessment, the employer-offered insurance must be “affordable.” That means the worker cannot be required to pay more than 9.5 percent (and in some cases much less—as low as two percent) of his/her household income for insurance. If the employer’s insurance plan is “not affordable, “the employer is subject to a $3,000 per affected full-time worker assessment. This rule also takes effect in 2014.

Q: Does “affordable insurance “include only individual coverage, or does it also include dependent coverage?
A: The cost of dependent coverage is included in calculating whether the employer-offered health insurance is “affordable.”

Q: What is the small business tax credit and how do I know if I am eligible?

A: Effective January 1, 2010, tax credits are available to qualifying small businesses that offer health insurance to their employees. So if your business qualifies for a tax credit, you are eligible right now.

The tax credit is worth up to 35 percent of the premiums your business pays to cover its workers – 25 percent for nonprofit firms.  In 2014, the value of the credit will increase to 50 percent – 35 percent for nonprofits.

Your business qualifies for the credit if you cover at least 50 percent of the cost of health care coverage for your workers, pay average annual wages below $50,000, and have less than the equivalent of 25 full-time workers (for example, a firm with fewer than 50 half-time workers would be eligible).

The size of the credit depends on your average wages and the number of employees you have.  The full credit is available to firms with average wages below $25,000 and less than 10 full-time equivalent workers.  It phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Q: Is the credit payable in advance or refundable?
A; The credit is not payable in advance to the taxpayer nor is it refundable. The credit is only available to offset actual tax liability and is claimed on the employer’s tax return.

Taxes and Assessments to pay for the new law are as follows:

2010

  • 10% tax on indoor UV tanning (7/1/10)

2011

  • Insurance companies must hit desired loss ratio requirements or issue rebates to insureds
  • Wealthier seniors (individuals with modified adjusted gross income of $85,000/individual or $170,000/married filing jointly or more begin paying higher Part D premiums. (Income amounts are not indexed for inflation in Parts B/D)
  • Impose new annual tax (based on annual sales) on brand name pharmaceutical companies
  • Penalties for nonqualified HSA and Archer MSA distributions double (to 20%)
  • New tax ($2 per enrollee) on all private health insurance policies (including self-insured plans) to pay for comparative effectiveness research (plan years beginning FY12)

2013

  • Increase Medicare wage tax by 0.9% and impose a new 3.8% tax on investment income including annuities for high income taxpayers (those earning $200,000 (individual)/$250,000 (married filing jointly) or more. No indexing is provided.
  • Impose $2,500 annual cap on FSA contributions (indexed to CPI)
  • Generally, establishes that medical expenses are deductible only to the extent they exceed 10 percent of adjusted gross income (up from 7.5 percent). There are temporary exceptions to this increase for older taxpayers.
  • Eliminate of the deduction for employers’ Part D retiree drug subsidy
  • Impose 2.3% excise tax on medical devices
  • $500,000 deduction cap on compensation paid to insurance company employees and officers

2014

  • Individuals without government-approved coverage are subject to a fine of the greater of $95 or 1.0% of income. The fine phases up to the greater of $325 or 2.0 percent of income in 2015 and to $695 or 2.5 percent of income in 2016.
  • Employers who fail to offer “affordable” coverage would pay a $3,000 assessment  for each employee who receives a federal subsidy (premium credit) with which to buy health insurance through the exchange
  • Employers that do not offer insurance must pay an assessment of $2,000 for every full-time employee—employers with fewer than 50 full-time (including full-time equivalent) employees are exempt from this assessment.
  • Impose tax on nearly all private health insurance plans ($8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, $14.3 billion in 2018, and indexed to medical cost growth thereafter); based upon firm’s market share starting in 2013

2018

  • Impose “Cadillac tax” on “high cost” plans– 40% tax on the aggregated benefit value above $10,200 for individual coverage, and $27,500 for family coverage, annually.

Medical Malpractice

Q:  Does the new law reform tort/medical malpractice law?
A:  No, but it does authorize grants to states to test alternatives to civil tort litigation. It also requires the federal government to evaluate these alternatives’ effectiveness.

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