Affordable Care Act, Benefits, Flexible Spending Accounts (FSA's), Health Care, Health Insurance, Uncategorized

Scoring the Impact & Compromise for Passage

With a vote expected this week on the Republican proposal to end many Obamacare provisions, detractors have enjoyed great press about the “ills” of change. The most persuasive to leave well enough alone came surprisingly from the CBO (Congressional Budget Office) when they scored the bill. Headlines about 24 million Americans losing coverage over the next decade sounds a dire alarm.

For those who read the details though, assumptions by this non partisan group of futurists starts with 14 million dropping current coverage in 2018 because the legal mandate to be insured ends. Since there are 10 million now insured through the MarketPlace, the assumptions include Americans also dropping their Medicaid coverage. Since Medicaid requires no premium payment responsibility, the forecast for 2018 is puzzling.

While worrisome if the CBO projections come true, their track record forecasting health care change has missed the mark in the recent past as follows:

A. The CBO forecast that 26 million Americans would have health insurance through the MarketPlace by now, and the number is 10 million.
B. The CBO forecast Medicare Part D, which provides prescription coverage for senior citizens, to be 40% higher than the actual cost.

These misses show how very hard it is using assumptions to project value, cost, acceptance and rejection for insurance decisions and usage.

As mentioned in my last posting, the greatest challenge to assuage enough politicians to agree to support the bill referred to a AHCA, comes down to Medicaid funding. Another hurdle is that insurance will become more costly for seniors. Since available tax credits will be tied to age, this is likely not as major a cause for concern as postulated. And, returning to the pre-Obamacare five tier rating system will make health insurance lower in cost for younger Americans who incur fewer medical expenses.

Besides eliminating Obamacare taxes and bureaucratic obligations imposed on American businesses, the AHCA is trying to accomplish a radical new funding approach for Medicaid. Per capita block grants will place more cost pressure on states than the current percentage of expense sharing approach. Since the politicians are elected by the citizens in their state, it is not a surprise that some believe it is critical to get it “right” now. Reality is that adequate funding will continue to be a moving target, and will vary state to state.

With adequate compromise this week, expect the House of Representatives to approve the AHCA bill. It is then up to the Senate.

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Affordable Care Act, Benefits, Flexible Spending Accounts (FSA's), Health Care, Health Insurance, Uncategorized

Scoring the Impact & Adequate Compromise for Passage

With a vote expected this week on the Republican proposal to end many Obamacare provisions, detractors have enjoyed great press about the “ills” of change. The most persuasive to leave well enough alone came surprisingly from the CBO (Congressional Budget Office) when they scored the bill. Headlines about 24 million Americans losing coverage over the next decade sounds a dire alarm.

For those who read the details though, assumptions by this non partisan group of futurists starts with 14 million dropping current coverage in 2018 because the legal mandate to be insured ends. Since there are 10 million now insured through the MarketPlace, the assumptions include Americans also dropping their Medicaid coverage. Since Medicaid requires no premium payment responsibility, the forecast for 2018 is puzzling.

While worrisome if the CBO projections come true, their track record forecasting health care change has missed the mark in the recent past as follows:

A. The CBO forecast that 26 million Americans would have health insurance through the MarketPlace by now, and the number is 10 million.
B. The CBO forecast Medicare Part D, which provides prescription coverage for senior citizens, to be 40% higher than the actual cost.

These misses show how very hard it is using assumptions to project value, cost, acceptance and rejection for insurance decisions and usage.

As mentioned in my last posting, the greatest challenge to assuage enough politicians to agree to support the bill referred to a AHCA, comes down to Medicaid funding. Another hurdle is that insurance will become more costly for seniors. Since available tax credits will be tied to age, this is likely not as major a cause for concern as postulated. And, returning to the pre-Obamacare five tier rating system will make health insurance lower in cost for younger Americans who incur fewer medical expenses.

Besides eliminating Obamacare taxes and bureaucratic obligations imposed on American businesses, the AHCA is trying to accomplish a radical new funding approach for Medicaid. Per capita block grants will place more cost pressure on states than the current percentage of expense sharing approach. Since the politicians are elected by the citizens in their state, it is not a surprise that some believe it is critical to get it “right” now. Reality is that adequate funding will continue to be a moving target, and will vary state to state.

With adequate compromise this week, expect the House of Representatives to approve the AHCA bill. It is then up to the Senate.

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Uncategorized

Just Another Replacement Proposal or the “Real Deal”

Our new president promised to move quickly to repeal and replace the Affordable Care Act, known as Obamacare. Proposed legislation just released is quite interesting in how reversionary it is, comparing to the time before 2010.

It is only a proposal and that needs to be understood in that negotiations to achieve enough votes for passage will necessitates changes and compromise, plus “scoring” by the CBO (Congressional Budget Office). Americans with coverage through their employer will appreciate the following:

1. Eliminating the FSA (Flexible Spending Account) tax deductible deferral maximum of $2,600, plus allowing Over-The-Counter medications to again be paid using FSA dollars
2. Increasing the HSA (Health Savings Account) tax deductible deferral maximum to $6,550 single and $13,100 with dependents, which equals the current maximum annual out of pocket exposure, plus allowing Over-The-Counter medications to again be paid using HSA dollars
3. Allows new HSA account owners to deduct health care expenses incurred in the 60 day period prior to opening their HSA
4. Allows both spouses, if age 55 or more to make catch up contributions to the same HSA; these amounts are currently capped at $1,000 for the account owner
5. Maintains coverage for pre-existing conditions. In order to address adverse selection costs, if not insured for more than two months then up to a 30% penalty may be added to normal premium rates when applying for coverage
6. Maintains coverage eligibility for children on their parents plan until age 26
7. Returns the adjusted gross income threshold to 7.5% for tax deductible health care expenses which Obamacare increased to 10%

Changes that businesses and higher income earners will appreciate include:

A. Elimination of the penalty for employers with 50 or more employees that do not offer health insurance to fulltime workers, which means no more excessively bureaucratic Section 6055/6056 reporting
B. A return of to tax deductibility the subsidies employers who provide retiree prescription benefits receive from the government; known as RDS (Retiree Drug Subsidy)
C. Elimination of the 2.3% Medical Device Tax which is scheduled to start in 2018
D. Elimination of the 10% Tanning Parlor Tax, which is an easy one to forget
E. Delay of the 40% Cadillac Tax through 2024; in the author’s opinion excess premium amounts should simply be subject to income taxation
F. Elimination of the .9% Medicare tax increase for higher income earners
G. Elimination of the 3.8% net investment tax for individuals, estates and trusts

All of these changes increase incentives to save for future health care needs as the cost of coverage on top of Medicare becomes increasingly expensive. Changes thankfully also simplify the tax system.

Smart move that the current subsidy arrangement for lower income earners will remain in place until 2020, and yet what may be most controversial is changing how to help pay for insurance protection. The bill replaces subsidies for premiums with advanceable tax credits. On its face upfront tax credits sound reasonable, and the amounts available scale between $2,000 to $14,000 for people with incomes up to $75,000 or $150,000. Amounts are available to individuals and families who have no access to coverage through an employer, COBRA, or a government plan. Hard nose conservatives will consider this just another entitlement. Concerns will also be raised about people falling through the cracks because they earn too much to qualify for Medicaid but receive too low a tax credit. The size of the credit is sensitive to age and income.

The issue of paying for Medicaid is also filled with challenges as just 31 of the 50 states approved the expansion of Medicaid benefits under Obamacare, and federal government funding changes to a system that supports the states are proposed to move to a per person, or per capita basis.

I often am asked if I supported the passage of Obamacare. I actually did because of the risk faced in America by people who became too ill to work and then had to bankrupt themselves to qualify for Medicaid. That is just not right and yet growing in understanding about the complexity of the current law makes me a supporter for change. It will be exciting to follow the process, and nothing changes to the current system until a new law is passes both House and Senate, then signed by the president. Eerily familiar to the Democrats controlling the Congressional majority seven years ago with a Democratic in the White House. The PPACA, known as ACA and Obamacare was signed into law on March 23, 2010. Any bets on a signature on new legislation in April 2017?

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Uncategorized

What Does “Access” to Health Care Mean?

At the crux of repealing and replacing Obamacare is reducing health insurance premiums without cutting benefits. Supporters of the current law wonder how this can ever be accomplished while continuing to pay health care costs for Americans who are chronically in need of very expensive care.

What Obamacare put in place was rolling the cost of pre-existing condition care needs into premiums paid for by those not enrolled in government insurance – Medicaid, Medicare, CHIP (Children’s Health Insurance Plans) and the Military . Before the Affordable Care Act, in 35 states there existed “High Risk Pools” for the seriously ill. Government funded, less than perfect programs existed with waiting lists and pre-existing condition limitations. Besides these problems, Americans living in 15 states had no “High Risk Pool” option.

Anticipate with Repeal and Replace that “Access” to health care for the seriously ill will have their care paid by newly minted High Risk Pools in all 50 states. Carving out these costs from private insurance plans accomplishes to things:

1. It extricates hundreds of millions of dollars of costs from private insurer risk pools, allowing underwriters to price and develop lower premium, comprehensive plans

2. It provides the government with another lever to negotiate favorable pricing deals with hospital networks providing expensive, tertiary care services. Government leverage about price is how Medicare and Medicaid work.

Expensive care is provided to approximately 500,000 Americans annually and needs to be paid for. It is reasonable to cover the expense by increasing the Medicare tax all workers pay from earnings, matched by their employer. How much of an increase above the current 2.9% tax merits study. With current Medicare taxes generating $300 billion and annual American health care spending of $3 trillion, a tax increase of 1.5% generates an additional $155 billion; an average of $310,000 per high cost patient. The monthly tax increase per worker translates to about $30, matched by $30 from their employer. Stated another way, the new “Health Care” tax becomes 4.4%, with 2.2% paid by workers and 2.2% by employers.

Back in the 1960s when Medicare was started, the most expensive care resulted from senior citizens convalescing in hospital rooms. That has all changed with technology and life saving services original Medicare planners could not contemplate. Older Americans are no longer the only patients with high cost care episodes. And serious pre-existing conditions expense is a predictable liability, impacting just 1.5% of our country’s privately insured population annually.

Spreading this cost to all workers through payroll is an alternative to the Obamacare approach, which has failed to convince enough healthy individuals to voluntarily buy and maintain health insurance. It is also a slam dunk if regular income tax rates can be reduced as part of fundamental tax reform.

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Affordable Care Act, Benefits, Health Care, Health Insurance

HEALTH CARE 2017 – WHERE MAY WE GO FROM HERE?

Did you know that Highmark, the largest Blue Cross Blue Shield plan in Pennsylvania, filed a $223 million lawsuit against the Federal Government in May 2016? The suit results from the government’s refusal to pay amounts promised to insurers as part of the Affordable Care Act. Highmark received just $27 million to cover $250 million in risk corridor losses from 2014 pre-existing condition claims on newly insured individuals in the MarketPlace. Rates had to rise as insurers are forced to accept a greater cost than anticipated. As the Affordable Care Act is increasingly considered a failure, this is further exemplified by Pennsylvanians being shocked by 30% to 60% health insurance premium increases this year. And five county Philadelphia stands out as the largest population center in the country with only one MarketPlace health insurer. No competition confirms Obamacare problems are real and local.

A friend who is generous and philanthropic runs a successful legal practice in the Lehigh Valley. When he learned his 2017 family plan premium will increase by more than 50% he exclaimed, “Something needs to be done about this craziness!” He is right and yet I admit my consolation included a retort that health insurance is now too expensive unless you need it, just like a good lawyer.

Our employer system for health insurance grew in popularity during the 1940’s when businesses wanted to increase compensation during World War II at a time of wage and price controls over workers to battle inflation resulting from a scarcity of products and services. It was inexpensive then and remained so for the next 30 years into the 1970s. Since then, the Federal Government has passed law after law designed to protect an increasing number of Americans with health care needs. An example is COBRA added in the 1980s which increased premium rates by 15%.

At the same time medical businesses, pharmaceutical firms, hospitals and physicians have rolled out amazing innovations extending how long we all live. Health care has become a right in the minds of many and the most highly valued form of financial protection offered by employers and the government. Good coverage is crazy expensive and unaffordable unless an employer or the government pay a majority of the premium cost. Adding to the problem is the current MarketPlace for individual health insurance. It has failed healthy working Americans, as not enough of them are voluntarily purchasing and maintaining coverage even when premiums are government subsidized.

High cost premium payment responsibility with no perceived immediate return of value is a functional problem all insurers face. Car owners maintain rarely used auto insurance knowing the lack of coverage results in losing the legal right to drive one’s car. And since driving is necessary for most of us to get to and from work or go to the movies, we accept we must pay for auto insurance. Not only can health insurance be more expensive than auto insurance, the penalty for not maintaining health insurance under Obamacare results in a comparatively nominal reduction to a tax refund. Plus if not invincible and in need of getting patched up, hospitals and doctors are required to provide basic care.

So where do we go from here with the MarketPlace? Ongoing adverse selection should be expected as too often just the chronically ill patients will purchase coverage, knowing they will get more back in care than the cost of their premium. The idea to offer tax credits to pay part of the premium is a good one, but it will not change an individual’s motivation to pay for insurance they are unlikely to use. And yet there is a proven way to increase healthy Americans buying health insurance. Replicate what Medicare retirees signing up for Part D prescription Rx coverage face, which includes a 1% per month penalty tacked on to premiums if a sign up is delayed into the future.

Boosting federal government grants to states for Medicaid plans is a logical approach to help pay for insuring the least economically fortunate. Funding included in Obamacare already exists that can be fine-tuned. Consider that one-half of all Americans already have government insurance plans, and:

70 million Americans under age 65 with Medicaid and CHIP coverage may grow to 90 million by 2020

47 million Americans age 65 and older currently with Medicare coverage is projected to grow to 80 million by 2025

Women who live to age 65 will pass away on average at age 89

Men who live to age 65 will pass away on average at age 84

This growing cost burden may translate to rationing of care, or taxpayers will have to pony up more to pay for Americans on government plans. One way to do so is to increase the current 1.45% Medicare tax on incomes to 3%. Aspects of the Obamacare law designed to temper growth in spending include ACOs (Accountable Care Organizations) made up of hospitals, physicians and health insurers. Designed to reduce health care waste and control growing demand, the question is whether ACO’s can effectively dampen health care demand without being accused of hurtful rationing and litigation by those denied care. Time will tell.

Look forward to 2047 as the time when health care demand declines, as that is when most Baby Boomers will have aged out. Heck, it’s only 30 years from now and plenty of time to spend the sizeable nest egg we have all built up in our HSA (Health Savings Account).

With no guaranteed Silver Bullet to slow premium escalation, funding HSAs coupled with purchasing catastrophic health insurance coverage offers an effective way to help healthy working Americans weather the storm of increasing health care costs. Why:

  1. Only 11% of our population is hospitalized annually, confirming that most of us infrequently need expensive health care.
  2. Employers paying the majority of costs will increasingly offer high deductible plan options, while passing to employees the cost to keep richer coverage.
  3. Future health care laws will continue to include an annual personal responsibility cap per patient of around $7,000, adjusted for inflation.
  4. While healthy, taking savings from lower premium costs and depositing that money into HSAs allows workers to build a reserve they can draw upon when expensive health care is needed.
  5. Building a health care reserve offers peace of mind to afford paying high deductibles, copays and coinsurance.
  6. Unspent money in HSAs rolls over year after year and can be invested in mutual funds earning returns that are not taxed as income.
  7. Deposits to HSAs enjoy the same pre-tax treatment as 401(k) and 403(b) retirement plan deposits, and are more flexible.
  8. Flexibility includes being able to draw money without penalty out of HSAs to pay medical, prescription, dental and vision care during working years.
  9. Certain retiree health care premiums and out of pocket retiree health expenses may be paid from HSAs without being taxed.
  10. Unspent funds in HSAs upon death roll over to a spouse.

More and more healthy workers will plan for their future and accept that lower premium, catastrophic health insurance coverage is good enough. This naturally inures to self-imposed rationing, reduced health care demand and possibly stabilizing premium rates. I started depositing into my own HSA 10 years ago. The balance had grown to $20,000 the year my spouse and I each spent multiple nights in the hospital. Thankfully we had plenty of pre-tax HSA money to pay our high deductible.

Now $50,000 is in the HSA due to improved health in the past five years, in part because it has earned $6,650 in investment returns. In total I have pulled out $16,500 to pay family qualified medical, dental and vision expenses. Long term goal is a strong HSA balance to cover future deductible needs, plus help pay retiree health care costs. Call it planned peace of mind with no option but to accept that America’s health care system, while amazing, is crazy expensive.

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Affordable Care Act, Benefits, Obamacare

Form 1095-C Eligibility for Health Insurance

Catching up from a posting lapse in part due to the next Affordable Care Act – ACA requirement. A new responsibility for larger employers this year just happened that requires them to provide Form 1095-C to employees eligible for health insurance. This is challenging in that it requires tracking historic activity and changes each month per employee using hard to understand codes. Payroll businesses, human resource and benefits consulting firms are assisting employers with compliance.

Questions about whether eligible employees received their 1095-C form by the March 31,2016 deadline are being posed along with the impact of errors in the data, and employers successfully filing results with the Federal Government by the June 30, 2016 deadline. It may be mostly electronic data received, but think of it as more lines of code than it took to send men to the moon.

Additional questions worth pondering include how successful the government will be fining Applicable Large Employers (ALE 50+ employees) whose employees have purchased health insurance coverage through the Marketplace and receive a financial subsidy, instead of enrolling in their employer’s plan. If working more than 30 hours on average per week, plans offered must be good enough (up to about a $6,000 deductible then 100% coverage with an unlimited lifetime maximum including all of the ACA mandates) and employees cannot be charged too much per pay (maximum 9.56% of W-2 earnings, or no more than $159 per month if earning $20,000).

Fines to Applicable Large Employers (ALE 50+ employees) are  $3,240 per employee receiving subsidized coverage from the Marketplace. If the ALE doesn’t offer health insurance at all the fine is $2,160 per employee working 30 or more hours per week, minus the first 30 employees. These amounts are indexed to rise annually and were originally communicated as $3,000 or $2,000.

The ACA law includes billions in government savings from collecting fines from employers. This is all part of IRC Section 6055 / 6056, and after a 15 month delay and six years into health care reform, expect to read more about it as killing jobs, the same argument used for fighting increases to the minimum wage plus paying salaried employees earning less than $50,000 additional money if they work overtime.  Oh yes, that requirement may be rolled out shortly.

 

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Affordable Care Act, Benefits, Health Care, Health Insurance, Health Savings Accounts (HSAs), Obamacare, Uncategorized

HISTORICAL PERSPECTIVE OFFERS INSIGHTS ABOUT POSSIBLE LEGISLATION TREND

As we transition into 2015 and a new Congress with Republican majorities in both houses, it is time to consider two former health care laws that were repealed. Section 89 and the Medicare Catastrophic Coverage Act became law in the 1980’s and ultimately were repealed before 1990.

What happened is interesting and intriguing as the Affordable Care Act enters its fifth year and continues to poll as unpopular. Historians will remember that Ronald Reagan was the President back then. The Senate moved from majority Republican to Democratic control as the decade progressed, while the house was under Democratic control throughout the decade.

The goal behind Section 89 which became law in 1986 and was repealed in 1989 was to establish rules for employee benefit plan expenses that capped their tax deductibility. The rules were complex, but the goal was no different than today’s Cadillac tax in ACA which is set to kick in as of 2018. Limiting tax deductibility is an ongoing desire in Congress due to new tax revenue opportunities.

The Medicare Catastrophic Coverage Act became law in 1988 and was repealed in 1989 after significant negative polling from senior citizens as the law increased Medicare premiums for the trade off of prescription coverage and introducing maximum out of pocket exposure for hospitalization and physician services. But the seniors were expected to pay the entire premium cost increase and many already enjoyed generous coverage from their former employers. To top it off, there were high deductibles to satisfy before the hospitalization and prescription benefits kicked in so most seniors did not plan on dropping supplemental coverage.

High deductibles are a reality along with increasing premiums under ACA. While repeal of the law is unlikely until a future president is sworn in, there are interesting parallels to compare the past and a possible future repeal of this landmark legislation.

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