Health Care Reform after the Supreme Court Ruling

1. August 23, 2012
Jim Wisdom, CFP
James L. Wisdom Insurance Services

2.  Introduction
 Summary of Supreme Court Ruling
 Impact of „12 Election on Health Care Reform
 What to expect prior to 1/1/14
 The Main Event: What to expect after 1/1/14
 Impact on Employers/Providers/Insurers/Brokers
 Key Benefits of Health Care Reform
 Trends / Consequences of Health Care Reform
 Impact on your firm
 What can you do to assist your clients?
 Q&A

3.  Employed in the Insurance/Financial Services
Industry since 1985
 Insurance Broker/Consultant since 1996
 Started James L. Wisdom Insurance Services in
2003
 Goal: To share my perspective/opinions in
hopes that we can more effectively serve our
clients in the coming years.
 Note: We do not provide tax or legal advice

4.  Individual mandate deemed unconstitutional
under the Commerce Clause
 Individual mandate (effective 1/1/14) deemed
constitutional under taxing power
 States can‟t be compelled to comply with
enhancements to Medicaid effective 1/1/14

5.  Health Care Reform likely to stay regardless
of our next President
 Any chance of GOP Repeal efforts would
require 1) keeping the House; 2) winning the
White House; and 3) a filibuster proof (60+)
majority in the Senate
 Budget reconciliation a possibility for certain
provisions

6.  Certain provisions already in effect
 Insurance carriers will avoid rate increases
greater than10% per year (bad P.R.)
 Carriers will control health care claims costs
via reduced benefits, tiered networks and
more pre-authorization
 New taxes to pay for PPACA

7.  Reduced benefits
 Increased Out-of-Pocket Maximums
 Increased Deductibles
 Separate buckets for Network and Non-
Network Deductibles
 Separate buckets for Network and Non-
Network Out-of-Pocket Maximums
 Increased Coinsurance % paid by insureds

8.  Ways that carriers can use tiered networks:
 Create a subset of their existing HMO
networks (“most cost-effective providers”)
 Ditto for existing PPO networks
 The bottom line: reduction in patient access
to providers

9.  Employees: +.9% Medicare tax on earnings
($200K for singles; $250K for joint filers)
 3.8% tax on net investment income (not
indexed for inflation)
 Flex Spending Accounts capped at $2,500/yr.
 2.3% excise tax on Medical Device
manufacturers
 Itemized deduction threshold for
unreimbursed medical expenses rises to 10%
of AGI from 7.5% of AGI
◦ This tax postponed for those over 65 until 2017

10.  It‟s a whole new ball game
 State Based Exchanges start up
 Individual mandate kicks in
 Guaranteed Issue applies
 Employer “pay or play” provision applies
 3:1 ratio in pricing between youngest and
oldest age bands
 40% “Cadillac Tax” effective 1/1/18
◦ This tax is not indexed for inflation

11.  To be up and running by 1/1/14
 CA is leading the way
 Exchanges are state-created marketplaces
where insurance products can be easily
compared.
 Available to individuals and small groups
 Some states are creating exchanges, others
are not
 Fed. Govt. can establish a state-based
exchange if the state doesn‟t do so

12.  16 states have created exchanges as of
August 1, 2012
 Subsidies in the form of tax credits available
to people who earn up to 400% of FPL
◦ In 2012, 400% of FPL= $44,680 (individual) and
$92,200 (family of four)

13.  Some individuals who obtain Exchange
coverage eligible for federal subsidies
 Subsidies available for Exchanges established
by states
 It is unclear if subsidies will be available in
federally-run state Exchanges.
◦ If no, then no penalty may apply

14.  Individuals must prove they purchased
minimum essential coverage or face a penalty
 Penalty increases from 2014 to the greater of
$695/year or 2.5% of income (indexed
thereafter)
 Federal premium subsidies available on a
sliding scale for individuals up to 400% of FPL
as described earlier (available only through
Exchanges)

15.  Health Insurers must take all applicants
 No Pre-Existing Conditions
 No Underwriting

16.  Applies to employers with 50+ Full Time
Employees (and their Dependents) or 50+Full
Time Equivalent Employees (and their
Dependents)
 Employer must offer minimum essential
coverage to all Employees and Dependents

17.  Annual Tax of $2,000 for each F/T Employee
(less the first 30), if at least one F/T
Employee obtains federally subsidized
coverage through an “Exchange”

18.  If one F/T Employee obtains federally
subsidized coverage through an Exchange,
the employer must pay an annual tax of the
lesser of (1) $3,000 per subsidized F/T
Employee; or (2) $2,000 for each F/T
Employee (less the first 30 F/T Employees)

19.  Employer pays $2,000 X the number of F/T
employees, if at least one F/T employee
obtains subsidized health coverage in an
Exchange
 Employer can subtract the first 30 employees
from this calculation
 Annual Penalty = (51 Employees – 30
Employees) X $2,000= $42,000
 1/12 of penalty assessed monthly

20.  Employer offers minimum essential coverage
 Three employees purchase subsidized health
coverage through the Exchange
 Employer pays the lesser of (1) $3,000 X
number of F/T employees who received
subsidized coverage through the exchange
OR (2) $2,000 X the number of F/T
employees.
 Employer can subtract the first 30 employees
from this calculation

21.  Employer pays the lesser of:
 $3,000 X 3 Employees= $9,000
 $2,000 X (51Employees – 30 Employees) =
$42,000
 Employer pays $9,000 per year
 1/12 of penalty assessed monthly

22. Young adults not only have to buy coverage,
but their premiums may double or triple.
 Example: 2012 Age Rating (6:1 Ratio)
 62 yr. old - $600/month
 28 yr. old- $100/month
 2014 Example (3:1 Ratio)
 62 yr. old- $600/month
 28 yr. old- $200/month

23.  For industries that haven‟t offered Health
Insurance- premiums likely to increase
significantly.
 Industries that have offered Health Insurance
◦ Unknown: The rates/benefits of the CA Exchange
◦ Employers offering H.S.A. plans may be forced to
offer lower deductible plans (increased premiums)
◦ Guarantee Issue Underwriting is likely to drive up
premiums

24.  For industries that haven‟t offered Health
Insurance - Costs likely to increase
significantly
 For industries that have offered Health
Insurance-
◦ Incentive to reduce # of F/T Employees below 50 to
avoid penalties
◦ Guarantee Issue should raise premiums
◦ Unknown: The rates/benefits of the CA Exchange

25.  35 Million More Insureds
 Supply of providers fairly constant
 Demand for services likely to increase
substantially
 Expect longer wait times
 Examples: Canada, Massachusetts
 More doctors may forgo insurance and
practice concierge medicine

26.  More customers= more premiums
 However, profits regulated due to Medical
Loss Ratio (Medical Loss Ratio) requirements
 After 2014 (Guaranteed Issue), maintaining
profitability may prove to be difficult

27.  Ranks of Agents specializing in individual
health insurance is declining
 Commissions likely to be reduced
 Agents/Brokers are diversifying their books
of business prior to 1/1/4
 Unclear of whether Agents/Brokers will have a
role in the Exchanges

28.  You may be able to buy insurance you cannot
now afford
 If you have a pre-existing condition, you will be
able to buy insurance for the same premium as
that paid by people in good health
 If you have a very expensive, ongoing health
problem, there will be no annual limitation for
your health coverage
 No charge for routine preventive care
 35 Million more Americans will be insured
 Strong incentives for employers to adopt a
company sponsored wellness program

29.  Value Based Plans will gain popularity
 Ditto for Company Sponsored Wellness Programs
 Enrollment in Health Savings Accounts will decline
somewhat
 Costs may escalate due to many factors: more
insureds, guarantee issue, watered down penalty
 Young adults will be forced to buy coverage at a high
rate to subsidize the older folks
 The Exchanges are an unknown at this point
 Certain industries will shrink and/or raise prices
substantially
 Some employers may drop health coverage and pay
the penalty
 IPAB could prove to be controversial

30.  You will probably start getting more
questions on this topic (if not already)
 A lot of confusion about this comprehensive,
complex law
 This law will be fully implemented in 2018
 A number of new taxes- however, they won‟t
apply to many Americans
 There will be administrative requirements
◦ Example: Employee notice of benefit summary

31.  Pay particular attention to employers who
may be subject to a penalty (50+ employees)
 Your clients will have questions-we can assist
 Develop a business relationship with a
broker/agent that is knowledgeable about
this law
 Keep your broker/agent informed of what
CPA‟s are being told regarding Health Care
Reform
 The regulations are still being written

32.  Jim Wisdom, CFP
 James L. Wisdom Insurance Services
 4607 Lakeview Canyon Road - Suite 482
 Westlake Village, CA 91361
 Work: (805)497-9264
 Cell: (818)469-6640
 E-Mail: jim@wisdomhealthplans.com
 Web Site: www.wisdomhealthplans.com
 Blog: www.jimwisdom.wordpress.com
 Also on Linked In, Twitter and Facebook