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Friday, March 26, 2010

Insurance Changes from the Patient Protection and Affordable Care Act

How Insurance Companies, Employers, and Insureds will fare under the PPAC Act
Some of the legislators think the healthcare reform bill, signed by President Obama is a catastrophe, but from this angle it looks like a big win for the insurance industry. Though lots of things are missing from the bill, such as cost containment, this is the single biggest health care reform since Medicare was enacted in 1965. This article reviews how the current Patient Protection and Affordable Care Act impacts the insurance industry and its offerings.
Top 10 changes to the Insurance Industry with the PPACA law
1. Creation of the Federal Supplementary Medical Insurance Trust, funded through a panoply of new taxes to provide subsidies and expansion of health insurance programs, both government and private sector for the uninsured.
2. Medical insurance is now required for most U.S.A. residents (AKA lots of new customers!!!)
3. Removal of excessive waiting periods prior to commencement of insurance coverage
4. Removal of lifetime limits on benefits for medical insurance contracts
5. Insurers Required to post a Minimum Loss Ratio if participating in federal health plans like Medicare Advantage plans.
6. Extension of healthcare benefits for children to age 26
7. Closure of the prescription drug "donut hole" exclusion for Medicare recipients
8. Drug Rebates are provided for oral medicines that are re-formulations of existing drugs in an attempt to lower the cost of certain prescription medications
9. Establishment of health insurance exchanges and drug purchasing cooperatives
10. No changes in Cafeteria Plans until December 31, 2013

Pay or Play Provisions for Taxing Employers Who Don’t Offer Health Insurance
The Patient Protection and Affordable Care Act amended section 4980H of the Internal Revenue Code to provide tax assessment penalties for employers with fifty or more employees, who do not offer health insurance for their employees. The penalty will be between $2,000 and $3,000 per eligible employee, depending on the size of the employer. For some employers, it will still be worth it to avoid the expense of a medical insurance plan, which would cost over $5000 per employee and over $12,000 per family. According to the Kaiser Foundation’s, the cost for a single employee’s health insurance was $4,386 and the cost for a family was $12,298 in Washington State in 2008. But no matter how you look at this provision, it mandates more people buy medical insurance, which is a HUGE win for the insurance sector.
Funding of Insurance Mandates
The healthcare reform bill uses health insurance as a means to improve access to health care services for individuals and as such, provides federal tax credits to taxpayers to assist with the cost of the health insurance premiums.
For hospital systems, if more patients have access to insurance, there will be less uninsured services provided, which is a stabilizing factor for the health care industry. What remains to be seen, is how many of the 48,000,000 uninsured will be able to afford insurance for their families and will actually enroll, although the Obama Administration forecasts an additional 32,000,000 will obtain some form of health insurance, either government or private sector with this bill. To encourage participation, the law stipulates a tax penalty for those residents who don’t enroll in an insurance plan.
Medicaid Changes
Medicaid changes are a bright spot for healthcare providers as more people will be eligible for Medicaid, versus having no healthcare coverage now, which should reduce the stress on the under-funded population pass-through costs to private sector insurance participants. Granted Medicaid reimbursement is marginal, it is still better than no reimbursement, so this will increase viability of some hospitals, especially in the cities. The healthcare reform bill increases the allowance for the Federal Medical Assistance Percentage or FMAP for Medicaid Managed Care Plans.
Under fee-for-service reimbursement plans, family medicine, general internal medicine, and pediatric practitioners will also have increased reimbursement for primary care services.
Healthcare Purchasing Subsidy for Low Income Residents
For individuals who are not eligible for Medicaid or Medicare, but qualify for subsidized insurance purchasing, here is the subsidy range under the Patient Protection and Affordability Act, section 1402:
Household Income/ Insured’s Responsibility/ Subsidy
133% of FPL/ 3%/ 97%
Up to 400% of FPL/ 9.5%/ 91.5%
Individual Penalties for Residents who do not Obtain Health Insurance
Section 4980H of the Internal Revenue Code also provides that individuals who do not elect health insurance will be subject to a tax penalty, which would run between $325 and $695, depending on modified adjusted gross income levels. Many people may choose to pay the penalty rather than buy insurance because it is less expensive to pay the tax.
The combination of insurance tax subsidies, coerced employer contributions, and required individual insurance plan participation should help reduce some of the uninsured expenses which health systems experience, although it is difficult to forecast the level at this time. According to Hewitt Associates, when the COBRA subsidy kicked-in, enrollment increased by 20% for those beneficiaries. Also, individual participation in regional purchasing cooperatives is going to depend on how well those plans are communicated and ultimately, the cost of the plans.
Insurance Company Tax
Insurers will be assessed a premium tax to help pay for the provisions of health care under the Patient Protection and Affordability Act. Basically there is a formula that excludes certain activities from tax, has an offset, and has provisions for insurers that derive 80% or more of their revenue from low-income (re. Molina Healthcare), elderly (Medicare supplements), and disabled populations.
Health Insurance Luxury Plan Tax
High cost or "luxury" health plans will have to pay an excise tax up to 40%(yikes), based on an expected premium, with risk adjustments for that area. If the cost of your health insurance exceeds that threshold a tax will be assessed on the residual. The formula for determining which plans are high cost will be based on a per employee factor derived from Blue Cross/Blue Shield industry standards, which are age/risk/sex adjusted. Currently this threshold is $10,200 for an individual and $27,500 for a family, which is indexed for medical inflation. It is difficult to understand how this will help lower health costs, it seems to me it will just encourage employers to pass more costs onto their work force, who are already financially strapped. What are we doing, punishing the good guys who have great healthcare? Why not just mandate design elements with co-payments as opposed to only addressing the spend factor? This tax may force some plans to reduce some benefit levels to comply.
Medicare Changes
Medicare enrollees benefit by the following changes in reimbursements:
1. Closure of the prescription drug "donut hole" exclusion under Medicare Part D
Medicare enrollees who have used all of their prescription drug allowance will be reimbursed up to $250 to close this loophole. This reimbursement will be allowed once per year per enrollee for Medicare Part D drugs.
2. Changes in Medicare Advantage (HMO) payments
Qualifying counties will receive increased allowances, based on enrollment.
3. Quality rankings will impact Medicare Payments
Healthcare facilities with a quality ranking of four or higher will receive increased reimbursement from Medicare. Reimbursements will also depend on Medicare Advantage plan enrollment by county.
4. Transparency about plan expenses and administration costs
Under the Public Health Services Act, Medicare Advantage plans are required to have a claims loss ratio of 85% of premiums or the plan will have to pay a penalty to the government.
5. Physician Ownership Referral (Medical Home Provision)
This provision requires provider agreements to be signed for patients, designating a medical home status. This is part of Medicare’s efforts to improve primary care for Medicare patients by strengthening the primary care relationship.
Medicare Tax Increase
It should come as no surprise that there is an increase in the Medicare payroll tax, from 2.9% of total payroll to 3.80%, split evenly between the employee and the employer. Given the state of the Medicare fund, a bigger tax increase is warranted, and is probably on its way.
Other New Taxes
Medical Device Excise Tax
Medical devices, meaning cardiac pacemakers and such, will now be taxed at 2.9% of the purchase price. Orthopedic devices presumably are included in this category. Exceptions to the tax include; hearing aids, glasses, contacts, and over-the-counter devices purchased at the drug store. This tax will simply make these devices more expensive and will be passed directly through to the ratepayers and healthcare consumers. Also, in a nod to medical tourism, since this is an excise tax, even if you obtain healthcare outside of the United States, the device, if manufactured in this country, you will pay the tax.
Estate and Trust Tax
A tax equal to 3.8% will be levied on estates and trusts
Administrative Changes
Durable Medical Equipment Oversight
Durable Medical Equipment suppliers will be subject to an additional 90-day period of claim review, due to a high degree of suspected fraudulent activity in this supply sector. So, I guess this means they will be getting paid later.
Fraud Detection
The Commission of Medical Services in HHS is going to compare notes with the Internal Revenue Service as an enhanced Medicare fraud detection procedure.
Any semblance of privacy we had was lost with the post-911 anti-terrorist provisions, so lets just add this to the list of big brother invasiveness.
On a closing note, the Public Health Services Act imposes a slew of new taxes on corporations, individuals with investment income, and trusts. I just hope there is transparency in the spending of those funds and that is does actually go towards health care for those who need it.
This article was written by Roberta E. Winter, MHA, MPA, an independent healthcare consultant in the Pacific Northwest region of the United States, and may be reprinted with her permission.


Norman Smith said...

I want my family to be comfortable enough with their financial needs even if I am dead and my decision is to get an insurance.

healthpolicymaven said...

Sounds prudent norm, but insurance only provides reimbursement, it does not purvey health care. To learn more about choosing and assessing quality health care, read my column.

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