From the Oval Office to the board room to the kitchen table, health care reform has ignited debate for years. When President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) on March 23, 2010, the 2,300 pages of legislation became the law of the land. With sweeping changes to the existing health care landscape, some of which were effective immediately while others are to be phased in during the coming years, the PPACA has stimulated another round of detailed and often heated discussion.
Estimates have placed the impact of health care on the U.S. economy at nearly 20 percent of the nation’s gross domestic product, and that percentage is destined to climb even higher in the future. With the Baby Boom generation aging, the cost of medical treatment increasing, and other pressures continue to weigh on the economy— individuals, families, and companies large and small will feel the effects of the PPACA for years to come.
“This is as big a change as President Lyndon Johnson’s Great Society of the 1960s,” observes Rob Huffaker of BB&T Huffaker and Trimble, “because it touches such an enormous part of the economy, and the government has moved expenses to itself that it didn’t previously have. It is a major ordeal. For example, one of the provisions is that dependents up to the age of 26 can stay on their parents’ health plans. It took 66 pages of regulation to clarify that one piece of the legislation.”
While a large portion of the new law remains open to interpretation, refinement of its language and intent will undoubtedly continue in the halls of Congress. Those provisions which have garnered the greatest attention and scrutiny thus far include reforms which:
• Limit the denial of coverage or claims deemed to be preexisting conditions,
• Offer incentives to smaller companies to provide health care for their employees,
• Subsidize individual insurance premiums for lower income Americans — households with income below 400 percent of the federal poverty level,
• Expand eligibility for Medicaid, and
• Establish health care exchanges which will allow individuals and employees of businesses to exercise group purchasing power for better insurance pricing and coverage.
These measures and other provisions are to be paid for through new taxes; the curtailment of certain Medicare programs; the addition of some fees related to pharmaceutical companies and medical devices; the collection of monetary penalties for non-compliance or failure to obtain health insurance; and the implementation of new taxes and fees to be paid by the insurance industry.
Although the Congressional Budget Office initially estimated that the PPACA should decrease the federal budget deficit by $143 billion during the next decade and another $1.2 trillion in the subsequent 10 years, critics have asserted that the new law could in fact have the opposite effect, causing the deficit to increase markedly during the same period and even spark inflation. Of course, only time will tell.
As the PPACA is debated, modified and fine tuned, its lasting effects on the economy and its long-term impact on every American remain somewhat in question. The Congressional Budget Office has further claimed that 32 million Americans, or 94 percent of the country’s population, will be insured as a result of the PPACA.
“The intention is that it will bring costs down,” notes Huffaker. “However, most are saying that costs will actually be going up.”
For business owners, interpreting the PPACA, understanding how it affects their business today, and assessing the prospects for the future present a daunting task. The new legislation has generated concerns over increased costs, potential penalties and even business continuity in the face of government mandated reforms.
Some provisions of the new law were effective with the signing of the bill on March 23. Others are slated to become active on June 23, 2010, while additional legislation will go into effect on the next anniversary date of plan following September 23, 2010. Other components are to become effective during 2011 through 2014 and beyond. Regardless of the size of a business, the PPACA will touch its management and ownership, either individually or in the operation of the company in the future.
According to the Obama Administration, the major benefits to small businesses through the PPACA include the following:
• “Preventive care for healthier workers: Chronic disease costs $1 trillion in lost productivity each year, and small businesses do not have a reserve of workers to call on when someone is sick. Health reform will require insurance plans to provide free preventive services and create a system that manages illness and disease instead of just treating it when it is too late and costs more.
• “End the hidden insurance tax: Nearly three-quarters of small businesses that do not offer benefits cite high premiums as the reason. Premiums are high, in part, because of a hidden insurance tax of more than $1,000 for the unpaid costs of care of the uninsured. Health insurance reform will address this burden by reforming the system and offering affordable insurance options for all Americans.
• “Invest in businesses again: As health care costs continue to rise, other business investments get crowded out. In fact, 40 percent of small businesses say that health care costs have had a negative impact on other parts of their business. By lowering health care costs through more efficient care, more of our nation’s dollars can go toward investments in our economy, enabling businesses to thrive.
• “One-stop shopping – lower administrative costs: Small businesses pay three times the administrative costs of large businesses for health insurance. Health reform will create a health insurance exchange that will significantly reduce administrative costs by reforming the health insurance market, enabling small businesses to easily and simply compare prices, benefits and performance of health plans.
• “More affordable choices and insurance competition: In several states, one health insurance company dominates more than 70 percent of the small group insurance market. With an exchange, competitive private plans and a public option will increase the choices for small businesses and promote competition that holds private insurers accountable.
• “Tax credits to provide health benefits: Health insurance reform will provide small businesses with tax credits to help them provide health insurance for their employees. This will make health care more affordable for small businesses and their workers.
• “Fairness for small business: To level the playing field and help small business, big employers that do not support their workers’ health benefits would share in their costs through an assessment. Given the unique challenges facing the smallest businesses, they will be exempt from such a requirement.”
The broad definition of a small business as it relates to health care reform is that which employs fewer than 50 full-time people. Those employing over 50 are considered large employers.
“An employer with less than 50 employees does not have to offer health insurance and will not be penalized. So, he does not have to do something he was not doing before,” comments Huffaker. “Nobody is making him provide health insurance. If he is currently offering health insurance, he can keep it or drop it. By 2014, there is supposed to be an insurance exchange where they (small businesses and individuals) can go and buy insurance from a variety of insurance carriers with no medical questions asked and no preexisting conditions excluded.”
Conversely, large employers which have offered employees a reasonable and competitive health insurance plan in the past and intend to continue doing so may feel only minimal impact in regard to the costs of their plans. However, those companies employing more than 50 people who do not offer coverage will begin paying a penalty per employee in 2014. Those whose coverage plans are deemed not to be affordable, will also see a substantial change in costs if their employees leave their group health care plans and purchase tax subsidized coverage from an exchange.
“These companies with more than 50 employees who don’t offer a plan will pay $2,000 per full-time employee per year,” relates Huffaker. “A [large employer] company which has a worker that goes to the exchange and qualifies for a federal subsidy will pay a $3,000 penalty per employee per year if the company’s coverage is deemed ‘not affordable.’”
The determination of affordability is somewhat complicated and is dependent on the following:
• An employee’s share of a work health care premium exceeds 9.5 percent of his or her total household income, and
• The employee’s total household income is between 133 percent and 400 percent of the federal poverty level.
Quick Review of PPACA
Acknowledging that a comprehensive assessment of legislation so complex as the PPACA is difficult to condense in one article, a few highlights of the new law along with their dates of implementation include:
Plan Years Beginning on or After September 23, 2010
• Dependent children may remain on the insurance plan of a parent until age 26.
• Lifetime maximums on medical benefit plans will no longer be allowed.
• All annual limits on “essential benefits” will have to be eliminated. Regulations will clarify specific limitations to be allowed.
• Employers will no longer be allowed to discriminate on eligibility or benefits of health coverage unless their plan is grandfathered. (Note: Before business owners make any change to a group health plan, it is important that they consult with a professional advisor on the value of a grandfathered status. Once changes are made to plans, business owners automatically lose their opportunity to be grandfathered).
• There can be no preexisting conditions for individuals under the age of 19.
• Insurance companies may not charge co-pays or co-insurance for certain types of preventive care and medical screenings.
January 1, 2011
• All businesses will be required to include the aggregated costs of employer sponsored health benefits on W-2 forms.
• Insurers are mandated to spend 80 percent of small group or individual insurance premiums and 85 percent of large group premiums on health care or improvement of health care quality. Otherwise, the remainder of the premium is to be rebated to the client.
January 2012-2013
• No changes will be allowed to group health plans until 60 days following notice given to employees.
January 1, 2013
• New federal health care taxes begin on premiums associated with policies written following December 12, 2012.
January 1, 2014
• Business owners whose health plans are deemed to be not affordable will be penalized when an employee purchases federally subsidized insurance from an exchange.
• Insurers may not discriminate against individuals or charge higher premiums on the basis of preexisting conditions.
• Health insurance exchanges will be in place.
• Employers whose companies have more than 50 full-time workers and choose not to offer health insurance will pay a $2,000 annual penalty per employee.
• Individuals who do not obtain insurance coverage will be assessed a penalty of $95 or up to one percent of income, whichever is greater, and this will rise to $695 or 2.5 percent of income by the year 2016. The limit for a family penalty is currently $2,085.
Still more provisions will become operational after 2014, and these will doubtless affect individuals and businesses small and large. “Insurance costs will be passed back to the employer and then to the employee,” says Huffaker. “I tell my clients that this is going to cost them. How much, it is very difficult to say. Large employers that have been generous in their contributions to health care will not be impacted to a large degree by these changes. Other large employers who have greatly reduced their share of health care premiums or eliminated them will experience significant changes to their costs as a result of this bill.”
Some company insurance plans may be grandfathered, and therefore exempt from some of the provisions of the PPACA. However, a great deal of clarification is expected on the grandfather clause, potentially rendering it unattractive. Overhead expenses will be impacted, particularly in the administration of claims and customer service. The incomes of some professionals in the insurance and health care industries are destined to be impacted as well – potentially in a substantially negative way. In the meantime, many business owners are simply overwhelmed by the scope of the PPACA.
“What they have tried to do, and we will see if it will work, is require that every American have health insurance,” concludes Huffaker. “With the penalties that are there, both to employers and employees, they have tried to fix the problem with the uninsured population. The goal of this bill is to increase the number covered and reduce the cost per head. How did they do that? They said that everybody has got to have insurance or pay a penalty. All large employers have to provide insurance or pay a penalty. Then, they created exchanges where anybody can come and buy insurance and not be turned down or penalized because of their health.”
While the debate continues, it does appear that large employers who have built the cost of health care into their business models are likely to fare well. Others, who have not done the same, may have to make difficult decisions in the near future. For any business owner or individual, consulting with a professional is the first step toward an informed health care decision.