At the NARI Fall Leadership Summit 2013, Jack Cook, CLU, ChFC, RHU, of Cook and Kocher Insurance Group Inc., led a session on the Affordable Care Act, also known as Obamacare. NARI members peppered him with questions throughout the lively presentation.
Noting that the U.S. has seen health care costs increase more than 200 percent since 1999, Cook pointed to the U.S. Supreme Court’s June 2012 decision as pivotal: “Can the government to require a citizen to purchase an insurance product? “Yes, it can, according to this decision,” he says. “You can disagree all you want, but Obamacare is here, and we have to learn how to deal with it and move forward.”
According to Cook, health care reform had three goals:
- Give Americans greater access to health care. Currently 37 million are without health insurance.
- Add more consumer benefits and protections.
- Reduce the rising costs of health care.
Because the 2,900-page law specifies how the first two goals will be carried out, Cook believes they will be successful. “There are no specifics in the law about how costs will be reduced, so I think we’re going to miss that goal,” he says. “Costs will stay high.”
Cook points out that Obamacare will produce its share of winners and losers. The winners include the uninsured, the insurance companies (37 million new customers!) and hospitals, which previously had to absorb the cost of treating uninsured patients.
Those who stand to lose under the new law include the elderly as Medicare cuts kick in over the next decade, healthy young adults who were uninsured by choice and patients in general, who can expect to have less time with their practitioners as those 37 million new patients enter the system without an equal increase in the number of health care providers.
Cook urges NARI members to become familiar with the medical loss ratio regulations the new health care law imposes on insurance companies. Simply put, each insurer must audit its own performance each August and return any overage in premiums to its subscribing employers and employees. Insurers that fail their audit three consecutive years will no longer be allowed to sell insurance in that state. Insurers are taking medical loss ratio audits seriously, to the tune of $3 billion refunded nationwide in 2012 and 2013.
Then there are the new Health Insurance Exchanges, which opened for enrollment on Oct. 1, 2013, and will be fully operational by Jan. 1, 2014. The District of Columbia and 17 states have created their own exchanges. Seven are planning a partnership exchange and 26 states are defaulting to the federal exchange.
Cook shared what information must be included in the Notice of Exchange, a document he says employers that are subject to the Fair Labor Standards Act (FLSA) must provide to new and current employees as of Oct. 1, 2013, informing them about the exchanges and the services they provide. “The exchanges are now mainly for people without employer-sponsored plans, so the idea behind the Notice of Exchange is to reach non-employees who don’t have insurance,” he notes, adding that the exchanges are currently rather limited. “In Illinois, we have 700 hospitals, but only 53 are in-network on the exchange, for example.”
According to Cook, the government does want employers to continue to offer their employees health insurance, so it has built some incentives into the law. Individuals and small employers—defined as having up to 50 employees—can purchase coverage through an exchange.
Individuals can be eligible for subsidies based on their income and government program eligibility. These subsidies do not have an expiration date, either. And, although employees can choose to reject employer-offered insurance and pay 100 percent of the plan premium on their exchange, the reverse is not true: companies with more than 50 employees cannot require their employees to purchase insurance on the exchange.
Cook also addressed the individual mandate. Effective Jan. 1, 2014, individuals must enroll in health coverage or pay a penalty. That penalty is either a flat dollar amount or a percentage of income, whichever is greater:
- 2014 = $95 or 1 percent
- 2015 = $325 or 2 percent
- 2016 = $695 or 2.5 percent
The fines will be withheld from the individual’s tax return each year, which means the Internal Revenue Service will be the enforcing agency.
Employers with 50 or more full-time employees (at least 30 hours of service per week in the prior calendar year) will be subject to “play-or-pay” rules beginning in 2015. Penalties of $2,000 per full-time employee may apply if the employer fails to offer minimal essential coverage to all full-time employees and dependents or offers coverage that is not affordable or does not provide minimum value. (The penalty excludes the first 30 employees.)
Cook closed his presentation with a brief discussion of the so-called Cadillac Plan Tax, scheduled to go into effect in 2018. This is a 40 percent excise tax on high-cost health plans. The tax will be based on value of employer-provided health coverage that is more than $10,200 for single employees and $27,500 for family coverage.
To be paid by coverage providers:
- Fully insured plans = health insurer
- HAS/Archer MSA = employer
- Self-insured plans = plan administrator
“The Cadillac Plan Tax will be the hardest part of Obamacare for small businesses,” Cook says. “But the good news is that this may be the part of the law that gets thrown out in court. Only time will tell.”
None of the NARI members present had more than 50 full-time employees, meaning that providing health insurance has been and will remain optional for them even under the new health care law. The often-heated buzz of conversation, questions and commentary indicates that members want to treat their employees well but are intensely concerned about Obamacare’s impact on their bottom lines. What’s most clear from the session is that the details and implications of the new law remain unclear to many small business owners and the public at large and that there is a pressing need for more education.—Darcy Lewis
To download the slides from this presentation, click here.