NEWS AND RESOURCES

Financial Planning for December 2012

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Health Care Under Obama

Now that President Obama has been re-elected, the debate over repealing his Obamacare legislation has ended and plans are under way to meet the law’s mandates by their respective dates. The following is a recap of the Patient Protection and Affordable Care Act of 2010 as it pertains to general mandates and employer coverage, cost and credits.

Coverage Mandates

Health care plans may no longer deny coverage due to pre-existing conditions or impose annual or lifetime limits on coverage. In addition, plans must cover basic preventive screenings such as checkups, mammograms and colonoscopies; coverage may not be cancelled after a member gets sick; and adult children may remain on their parent’s plan until age 26 (even if married or living away from home). Starting in 2014, the new rules require that all Americans purchase health insurance or pay a penalty tax.

Employer Coverage

Also starting in 2014, small businesses with less than 100 employees (96 percent of U.S. firms) will be able to take advantage of volume buying via insurance exchanges. According to data on healthcare.gov, small businesses currently pay an average of 18 percent more than large business for the same plan. But by creating a pool of individuals and small business employees, these exchanges will be able to offer more competitive pricing for plans that meet certain benefits and cost standards. In fact, members of Congress will receive their health care insurance through exchanges.

Employers with more than 50 full-time employees (averaging 30 hours per week) will be required to pay a shared responsibility fee ($2,000 each for all but 30 employees) if they do not provide affordable coverage relative to an employee’s household income.

Health insurers will be allowed to adjust rates based only on family members, age, tobacco use and employer location, which should help eliminate high premium increases from year to year.

A recent study by the Urban Institute asserts that had the Affordable Care Act requirements been in effect in 2012, overall they would have had a negligible impact on total employer-sponsored coverage and costs. In summary:

  • Small businesses (less than 50 workers) would be exempt from penalties yet eligible for premium tax credits. Likewise, employers with 100 or fewer workers would also be eligible for credits. If these employer groups had offered coverage, the average cost per insured would have been reduced by 7.3 percent and spending by 1.4 percent due to tax credits and competitive insurance exchanges.
  • Mid-size businesses (101 to 1,000 employees) would experience the highest cost, since many of these companies do not currently offer coverage. Including penalties for an estimated 5 percent of companies that would continue not to offer health insurance, new enrollment for coverage would increase spending by about 9.5 percent.
  • The cost for large employers (1,000 or more employees) would be impacted only by higher employee enrollment rates, which would increase total spending by about 4.3 percent.

Credits

Through 2013, business owners that provide health insurance for up to 25 employees who earn an average annual wage of less than $50,000 may qualify for a small business tax credit of up to 35 percent (up to 25 percent for nonprofits) to offset the cost of providing that insurance. The credit will increase to 50 percent and 35 percent respectively, effective January 1, 2014. Employers must contribute at least 50 percent of premiums in order to be eligible for the credit, which will also apply to dental and vision coverage. The maximum credit will be available to employers with 10 or fewer full-time equivalent employees with average annual wages of less than $25,000.

Clearly, the new health care laws are complex. The benefits or disadvantages will vary on a case-by-case basis for individuals and especially small to medium-sized businesses. Ultimately the goal is to provide health insurance for all. In turn, this coverage will hopefully eliminate the rising costs of providing medical care to the 50 million Americans (nearly one in six people) who are uninsured today.

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