Healthcare – everyone should have it but how to pay for it?
“Everyone should have access to healthcare, the question is how do we pay for it? The ACT has provisions to cut the costs of healthcare, but things like wellness and preventive care, which have the potential to reduce costs, will take years for a return on the investment.”
Are you looking for a practical explanation of the Affordable Care Act? Many of us are and I believe that Mr. James McGahee, Jr. has done a nice job in this article. Our friends at AzaleaHealth have many great articles on their blog.
(The Implementation of the ACT began October 1, 2013)
Authored by: James McGahee, Jr.
The Affordable Care Act requires all eligible Americans to be covered by health insurance. Simultaneously it provides a way for that to happen by providing incentives, penalties, and options to individuals, and small and large employers, including tax exempt employers. As of October 1, 2013, the ACT requires that people who do not have health insurance, regardless of reason, apply for health insurance coverage either through their employer, an insurance company, or through an exchange established by the Federal Government. Coverage for those who apply no later than December 15, 2013 and are approved, will begin January 1, 2014. Open enrollment is available through March 31,2014. Working individuals who do not have insurance and have not enrolled in a health plan by March 31, 2014 will be required to pay a 1% income tax on their adjusted gross income for 2014 and continuing as long as they are non-covered. An individual will be exempted from the 1% tax if their income is below 133% of the Federal Poverty Level which for 2013 is $15,282 for a single person and $31,322 for a family of four. In fact if the individual’s income is below the Federal Poverty Level they will qualify for Medicaid and receive healthcare coverage free.
For individuals who have health insurance coverage as of October 1, 2013, either through an individual policy or an employer’s policy, the Affordable Care Act recommends these individuals compare their plan to the plans being offered through the Governmental Exchanges to verify that their plan meets the essential benefits that are required by the Affordable Care Act. The essential benefits required by the ACT include, coverage for dependent children up to age 26, no denials for pre-existing conditions, no lifetime limit on coverage, no co-pay for prevention and wellness programs. The ACT also recommends that the covered individuals compare the cost of their plans to the costs of the Governmental Exchange Plans. If individuals are covered by Medicare or Medicaid they do not have to do anything. As stated above, if an individual does not have health insurance coverage and does not apply for coverage by March 31, 2014, his or her income, if above 133% of the Federal Poverty Level, will be subject to a 1% income tax penalty. Individuals considering applying for health coverage through the Governmental Exchanges need to compare the premiums, deductibles and co-pays to non-governmental plans and employer plans. The Governmental Exchanges offer 4 different plans. The least expensive plan is called the Bronze plan. It pays 60% of the individual’s healthcare costs. The second plan is called the Silver plan and it pays 70% of the individual’s healthcare costs. It is more expensive than the bronze plan. The third plan is called the Gold plan. It pays 80% of the covered individual’s healthcare costs and is more expensive than the first and second plan. The fourth plan is called the Platinum plan and it pays 90% of the individual’s healthcare costs. It the most expensive plan. The actual costs (premiums) for each of these plans depends on the ages of the covered individuals, the size of the family, the location where they live and their medical history. For Individuals making no more than 400% of the Federal Poverty levels, which for 2013 is $45,960 for an individual and $94,200 for a family of four, the premiums can not exceed 9.5% of their income. As an example, for a person earning $45,960 annually, their premium can not exceed $4336 per year. For an individual earning more than 400% of the annual Federal Poverty Level but less than $200,000 annually the premiums are market based. For Individuals making over $200,000 their premiums are also market based but they have to pay a .9% tax on income above $200,000. These Individuals will also be subject to a 3.8% tax on interest and dividend income, and on capital gains, including any gain exceeding $250,000 on the sale of their home. The .9% tax and the 3.8% tax will be assessed on individuals making over $200,000 beginning in 2013 and thereafter no matter what insurance plan they are covered by.
The Affordable Care Act also includes provisions for small employers and large employers. A small employer is defined as a business with less than fifty employees. A large employer is defined as a business with 50 or more full-time equivalent employees. Only a few provisions of the ACT apply to large employers. Beginning in 2015 large employers must provide affordable heath insurance that provides minimum value to all employees or pay a tax of $2,000 per employee (for all employees except the first 30). Large employers, beginning in 2015, must file a comprehensive report with the IRS verifying, first and foremost, that they are providing health insurance. The employer’s plan must meet the ACT required essential benefits including the affordable care cost formula which sets thresholds on how much the employer can charge the employee for premiums, deductibles, and co-pays. Large Employers can opt out of providing health insurance to their employees by allowing them to join a Governmental Exchange. The employer will have to pay the $2,000 per employee tax if they do so! There is no guarantee that the Exchange premiums will be less than the employer’s plan premiums.
As of October 1, 2013, small employers who provide health insurance to their employees, cover at least 50% their full-time employee’s premiums, and have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the Small Business Health Care Tax Credit. The credit for 2013 is 35% of premiums paid and is scheduled to increase to 50% in 2014, but in 2014, to qualify for the credit the small employer’s employees must be enrolled in a qualified health plan offered through a Small Business Health Options (SHOP) Exchange. If the small business employer qualifies for the tax credit and has no taxes due, the credit is refundable. Basically small business employers have an incentive to enroll their employees in a SHOP governmental plan by agreeing to pay half their premiums and receiving a tax credit of 50% of the costs of the premium. Between now and March 31, 2014 , the ACT focuses on getting people who do not have health insurance to get coverage. Those that do not, unless exempted by unemployment or Federal Poverty Levels, will pay a tax penalty. Individuals whose incomes are less than 4 times the Federal Poverty Levels will get subsidies or tax credits thus receiving a discounted premium. Those with incomes greater than 4 times the Poverty Levels up to $200,000 of income will pay market rate premiums. Individuals with income exceeding $200,000 will pay market rates plus an additional .9% employment tax, collected by the IRS.
Large business employers can access the Governmental Exchanges for their employees beginning the first of 2015. Large employers who opt to provide health insurance coverage to their employees through non-governmental markets have to be able to prove that their plans meet the Essential Benefits and Affordable Costs requirements of the ACT by the first of 2015 or else be prepared to receive significant penalties and taxes. Amendments and changes to the ACT will likely happen in 2014 but it is unlikely that the ACT will be overturned. The goals of the Affordable Care ACT are to provide health care insurance coverage to every eligible person in America while reducing the total health care costs. The Government is confident the Affordable Care Plans will help them achieve their goals. Looking at the average annual per person health care cost back in 2010 when the ACT was passed, it was $8402 per person in the U.S., according to the Kaiser Foundation. It is the number the Government will have to compare itself to in order to determine if the ACT has successfully reduced the cost of health care in the United States. Most employer plans historically have paid about 60% of the annual per person costs with the employee paying the other 40% through premiums, deductibles, and co-pays. Using these historical numbers, and assuming the average employer plan covers 100 employees, the combined health insurance costs for the employer and employee would be $8402 times 100. This plan would cost $840,200, with the employer paying $504,100 and the employees paying $336,080. If this employer decides to transfer his employees to a governmental plan and no longer offer a health care insurance benefit, the employer will be subject to an annual tax penalty of $2,000 per employee, resulting in a cost of $200,000 to the employer. In other words the bottom line of the employer’s business would increase $304,120. If it is the intent of the Government to hold the employee’s future insurance coverage costs comparable to the employee’s current costs the Government will have to subsidize the total costs of $840,200 minus the employer’s contribution off $200,000 and minus the employees’ costs of $336,080, to the tune of $304,120. Without the subsidy, the total health care costs per person of $8402 will have to be reduced 36%. Without this cost reduction, the Government has only four options. raise the employer’s contribution (penalty), raise the employee’s contribution (premiums, deductibles and co-pays), implement additional employment taxes on the employer and employees, or some combination of all of the above.
Everyone should have access to healthcare, the question is how do we pay for it? The ACT has provisions to cut the costs of healthcare, but things like wellness and preventive care, which have the potential to reduce costs, will take years for a return on the investment. Based on what is buried in the 2,700 page Law (the ACT) it is almost certain that all of the four options mentioned above have already been planned for.
About the Author
James McGahee, Jr. recently retired as Chief Executive Officer of South Georgia Medical Center, is a leader in the community. Mr. McGahee is a past member of the board for Valdosta-Lowndes County Chamber of Commerce, Healthcare Financial Management Association, American Institute of Certified Public Accountants, Georgia Hospital Association, and the American College of Healthcare Executives.
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