Health Care Reform Reconciliation Bill's Key Components

I would like to take this opportunity to provide you with a summary of the key components of the Health Care Reform Reconciliation Bill. I expect that given the number of years that it will take to fully rollout these reforms, there will continue to be changes to the legislation. I will keep you informed of important modifications during this process.

The current Bill will:

• Mandate that everyone must have insurance or pay a penalty of $95 in 2014, or up to 1% of income, whichever is greater. This will rise to $695 in 2016 or 2.5% of income. The penalties will be capped at $2,250.
• Result in more than 30 million additional people becoming insured.
• Provide for subsidized coverage for those with low earnings. Incomes of $14,404 to $43,320 for an individual and $29,526 to $88,200 for a family of four will be eligible for a sliding scale subsidy. The premium for a family of 4 earning $44,075 is to be no more than 4% of income ($1,323). The premium for a family of 4 earning $88,200 is to be no more than 9.5% of income ($8,379).
• Make cuts to Medicare Advantage Plans and change their payment formula.
• Make many changes to the way insurance companies do business including waiving pre-existing conditions limitations and encouraging preventive medicine.
• Make available a Long Term Care Insurance program. CLASS will provide a voluntary, guaranteed issue benefit.

Many of these elements are phased in over the next eight years. Those that are most immediate and are expected to occur in 2010 are:

• Business with fewer that 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35% of the cost of employees’ premiums.
• Dependant coverage for children will continue until age 26. (Note that NY currently has Age 29 provisions.)
• Creation of a temporary reinsurance program to provide coverage for retirees over 55 who are not eligible for Medicare.
• Creation of a temporary national high risk insurance pool. Those with preexisting conditions who have been uninsured for 6 months will be eligible.
• Prohibition of lifetime limits on benefit payments.
  

The real impact on the health insurance system will not occur until the year 2014. During the interim, there will be a phase-in of additional new taxes that will provide added government revenue to pay for these changes.

Three significant changes occurring by 2014 are:

• Insurers will be required to accept all applicants.
• Tax credits to help pay premiums will start flowing to middle-class working families. Help with co-payments and deductibles will be available.
• Insurance exchanges will be created to help administer subsidies for those individuals that require them.

Issues affecting Seniors:

• Closing the Medicare D “doughnut hole” by providing immediate tax credits for Medicare patients who face a gap in prescription drug coverage. A $250 rebate will be paid to seniors in the gap (which starts after $2,830 of covered drugs). The doughnut hole will be entirely closed by 2020.
• Providing recipients in the doughnut hole with a 50% discount on brand name drugs.

Tax implications:

• Individuals with adjusted modified gross income over $200,000 and joint filers with over $250,000, will be required to pay a Medicare surtax of 3.8% on investment and other passive income, including rents, interest, dividends, royalties, capital gains and income from annuities.
• Individuals with adjusted modified gross income over $200,000 and joint filers with over $250,000 will pay a Medicare payroll tax of 2.35% – an increase of 0.9%.
• The availability of a Long Term Care Insurance program. CLASS will provide a guaranteed issue LTCI for Home Care and Nursing Care. This will be a voluntary option.
• Reduced payments to Medicare Advantage Plans (Medicare C).
• The threshold for claiming itemized tax documentation for medical expenses rises from 7.5% to 10% of adjusted gross income. Seniors can still deduct medical expenses above 7.5% through 2016.

Issues affecting Employers:

• Employer-provided group health plans will be required to extend coverage for uninsured adult unmarried children up to age 26, unless they are eligible under another group plan (for years before 2014). This coverage will be non-taxable.
• Employer health plans will be prohibited from rescinding or canceling health coverage, except in case of fraud.
• Employer-provided coverage will be required to eliminate lifetime limits on essential benefits.
• The employer’s group health plan will be required to eliminate the pre-existing condition exclusions for children (2010) and adults (2014). The plans also have to eliminate annual limits on essential benefits coverage for adults.
• Employers will be required to eliminate waiting periods beyond 90 days when enrolling employees in a group health plan.
• No later than March 1, 2013, employers will be required to give a notice, "free choice vouchers”, to their employees that they may be eligible to participate in one of the state-based health-insurance exchanges. Employees with incomes below 400% of the Federal Poverty Level will contribute no more then 8-9.8% of income.
• Penalties will be assessed on employers with 50 or more employees who do not offer coverage to their employees. The fine of $2,000 per full-time employee will be assessed if even one-employee obtains a federal subsidy to buy health coverage from one of the new state-based health-insurance exchanges. The first 30 employees are exempt from the calculation of the penalty.
• By 2014, the Act requires states to create health-insurance exchanges, which would offer four different levels of qualified health insurance plans. It also would mandate individuals at this time to purchase coverage and provide subsidies for certain individuals to do so.
  

Flexible Spending

• Over-the-counter medicines will no longer be eligible for purchase with funds from Flexible Spending Accounts, Health Savings Accounts or Health Reimbursement Arrangements, unless a prescription is provided. The penalty for use of funds from a Health Savings Account for non-qualified medical expenses will increase - doubling the additional tax on these types of withdrawals from 10% to 20% for anyone under the age of 65.
• A statutory cap of $2,500 will be placed on the amount of funds an employee can save in a Flexible Spending Account. The limit will be adjusted annually in accordance with the U.S. Consumer Price Index.

Tax Implications for Business

• The 35% tax credit that goes into effect in 2010 for businesses with fewer than 25 employees and average wages of less than $50,000 increases to up to 50% of the cost of employees’ premiums.
• Excise tax on high-value health plans; a 40% excise tax will be applied to the excess value of a health plan above a statutory threshold. For most health plans, the threshold in the law will be established at $10,200 for individual health plans and $27,500 for family coverage. The threshold for the new excise tax will be adjusted annually for general inflation.
• An employer’s deduction for retiree prescription drug coverage is disallowed to the extent the employer receives the Retiree Drug Subsidy for providing coverage that is as good as or better than Medicare Part D coverage.
• Employers who employ more than 200 employees must automatically enroll new full-time employees in coverage. Employers must also provide employees with an opportunity to opt-out of coverage. Clarification on the effective date of this provision is forthcoming.
• A health plan W-2 reporting requirement will be imposed, requiring employers to report the aggregate value of medical benefits, vision, dental and supplemental insurance coverage. It is expected that this requirement would apply to Forms W-2 for the year 2011 that are made available in January 2012.
• Employers who provides coverage will pay either: an “assessment” of $3,000 for each employee who qualifies for subsidized coverage from an exchange either because the employer pays less than 60% of the full actuarial value of the coverage provided or because the employee’s cost is greater than 9.8% of their adjusted gross income; or $2,000 per full-time employee, whichever is less.

As mentioned, I will to continue to keep you updated about any modifications in our health care system. Please feel free to e-mail me at Risrael@optonline.net or call me at 516-682-8400 with any questions regarding this legislation or any of your insurance needs. You can also check my website at www.liplanning.com.

COBRA Subsidy Extended Again

On March 2, 2010, President Obama signed legislation that once again extends the eligibility period for the COBRA subsidy provided in the American Recovery and Reinvestment Act (ARRA). The Temporary Extension Act of 2010, H.R. 4691, extends the eligibility date for the 65% COBRA subsidy by an additional month, from February 28, 2010 to March 31, 2010.

As originally enacted, an assistance eligible individual was one who was involuntarily terminated between September 1, 2008 and December 31, 2009. In December 2009, the eligibility date was extended to February 28, 2010 and the subsidy period was increased from 9 months to 15 months. The eligibility date has now been extended to March 31, 2010 and the subsidy period remains at 15 months.

For more information on the Temporary Extension Act of 2010, visti the U.S. Department of Labor at http://www.dol.gov/ebsa/cobra.html