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Heath Care Reform

On March 23, 2010, the president signed into law the most sweeping overhaul of our health care delivery system and the health insurance industry in history.  The new law is known as the Patient Protection and Affordable Care Act (PPACA).  It is also known as The Affordable Care Act (ACA), but you probably know it as Health Care Reform (HCR) or “ObamaCare.” For the purpose of this article, we will refer to it simply as “HCR.”

Not only does HCR affect insurance companies, it also impacts physicians, hospitals, employers, the self-employed as well as individuals, families and even those on Medicare.  

Some of the madated changes took effect on September 23, 2010 and others took effect on January 1, 2011, ‘12 and ‘13.  However, the most significant changes for everyone occured on Jan 1, 2014.

The Child Continuation of Coverage Provision

Children can stay on their parents employer group or individual major medical insurance plan until they are 26 years-old even if they are married and have their own homes away from their parents. 

 The 100% Preventive Care Provision

Preventive care on major medical policies is paid at 100% with no deductible, co-insurance, co-pays or amount limits. 

The Elimination of Annual and Lifetime Maximum Limits Provision

Annual and lifetime maximums limits were also eliminated from major medical policies.


 The Guarantee Issue Provision

As of Jan 1, 2014, everyone under age 65 is able to buy health insurance on a guarantee-issue basis and no one can be declined for coverage or have specific health conditions excluded from their policies.

Health Insurance Exchanges

On October 1, 2013, the new Health Insurance Marketplaces opened.  These are better known as “Health Insurance Exchanges.”  People earning less than 400% of the federal poverty level can buy health insurance through one of the exchanges and receive a tax credit (better known as a subsidy) to help pay their premiums. Some states offer a State Exchange, others offer a Federal and State Partnership Exchange and still others will default to a Federal Exchange.  Most states have opted to default to the Federal Exchange.  

Grandfathered Plans 

Major medical plans that were in effect on or before the law was signed on March 23, 2010 and had no significant changes made to them since then are now grandfathered. Grandfathered plans are now considered GOLDEN and they are to be treasured and kept in force if at all possible. Even though they may also experience some rate increases, grandfathered plan rate changes will be nothing like those of non-grandfathered plans under HCR. NOTE: If your plan is grandfathered, you need to understand how valuable it is. It would be unwise to terminate a grandfathered plan. Plans can lose grandfathered status if the deductible or co-insurance is changed by more than 15% (in total over time) or if the co-pays have been changed by more than $5.00 (in total over a period of time) since March 23, 2010 or in the future. Whenever a plan loses grandfathered status it will have to meet all of the new HCR requirements, which will translate into much higher premiums. So, not only do you not want to terminate a grandfathered plan, you also do not want to change the deductible, co-insurance or the co-pays if at all possible. Of course, some people may want all of the new mandated benefits of HCR that may not be included in their grandfathered plan and may actually be willing to pay the cost to get them, but that will be at a very high cost. 

Qualified Health Plans and Essential Benefits 

On January 1, 2014 all existing and newly-issued major medical plans had to become QUALIFIED HEALTH PLANS or “Metalasized” plans. In other words, they must become like the new “Metal” plans under HCR. Metal or Metalic plans are the Bronze, Silver, Gold or Platinum plans required by HCR. They must include all of the health reform benefits in order to be a Qualified Health Plan. A Qualified Health Plan must include the “Essential Benefits,” as they are known. These Essential Benefits are expensive. Not only were non-grandfathered plans guarantee-issue and had no pre-existing conditions excluded, many benefits were required to be included that were not covered by older plans.

The10 Essential Benefits are as follows:

·        Ambulatory patient services (unlimited maximum benefits)

·        Emergency services & hospitalization (unlimited maximum benefits) 

·        Maternity and Newborn care (as any other illness and unlimited maximum benefits) 

·        Mental health and substance abuse services (as any other illness and unlimited maximum benefits)

·        Prescription drugs (unlimited maximum benefits) 

·        Preventative and wellness services (100%, no deductible, no co-pay, no co-insurance and unlimited maximum benefits)

·        Chronic disease management (unlimited maximum benefits)

·        Pediatric services including basic oral/dental and vision services 

·        Laboratory services (unlimited maximum benefits)

·        Rehabilitative and habilitative services and devices (unlimited maximum benefits) 

One additional benefit was later added: 

·        Contraceptives and sterilization services and counseling for women (100%, no deductible, no co-pay, no co-insurance and unlimited maximum benefits) 


The Case for Short Term Major Medical Plans 

There is also a consensus by some that short-term major medical plans are an alternative way to go. Remember that on Jan 1, 2014, all major medical plans were required to be guarantee-issue with no waiting period on pre-existing conditions. Short-term major medical plans are a lot less expensive than the metal plans because they do not have to comply with HCR. Even though they do not cover pre-existing conditions, if you develop a serious health condition after your purchase of a short term plan, you can always change to the metal plans on a guarantee-issue basis every January 1, but you will have to wait until the new HCR “Annual Open Enrollment Period” in order to do that. HCR guarantee-issue is not available, year-round. It is only available during the Annual Open Enrollment Period. If you are healthy now, you do not need to worry about pre-existing conditions not being covered on a short term plan. If your health changes later, you can always get a guarantee issue metal plan to be effective on Jan 1, during the Annual Enrollment Period. 

Health Insurance Company Taxes 

Insurance companies will receive tax notices that they have never had to pay before in order to help pay for Health Care Reform (HCR). These increases are not in the millions, but will be in the billions over time. In addition, insurance companies have to rent space on the exchanges in order to do business on them. Insurance companies are going to have to change the way they price their products - until HCR, health insurance companies used a 6:1 ratio for rating older persons compared to younger persons. Under HCR, that ratio was cut down to 3:1. That means that older people’s rates came down a bit, but younger, healthier people’s rates skyrocketed in order to make up the difference in ratio. As a result, many of these younger and healthier people rejected the exchange entirely and elected to pay the mandated fine for not having health insurance. When you calculate the cost of guarantee issue, no waiting period on pre-existing conditions, the “Essential Benefits” requirement, the new community rating ratio system requirement, new taxes and the cost of doing business on the exchanges, it is easy to see why rates are much higher than anyone could have ever predicted when HCR was originally conceived.  As you can see, much of the rate shock is caused by HCR’s mandates, the new taxes, and charges imposed on the insurance companies. 

The Individual Mandate 

Under Health Care Reform (HCR), there was a federal mandate that forced everyone to have health insurance or pay a fine (except for all those waivers and exemptions that were issued for special circumstances). 

The penalty for individuals who do not have health insurance in: 

·        2014 was 1% of income or $95.00 per person

·        2015 was 2% of income or $325.00 per person

·        2016 was 2.5% of income or $695.00 per person

Of course, keep in mind that in order to better motivate people to buy, the Feds may increase these fines in the future.  

The following groups are either exempt from the HCR mandates or they are not eligible: 

·  Those that can demonstrate a financial hardship - the process for that is controlled by the exchanges 

·  Those who object because they do not believe in health insurance for religious reasons 

·   American Indians  

·  People who are between coverage (without coverage for less than three months) 

·   Undocumented immigrants 

·    People who are incarcerated 

·    Those for whom the lowest cost plan option exceeds 8% of an individual's income 

·    Those who have incomes that are so low, that they are not required to file taxes 

Note: There is a new federal proposal intended to eliminate the fine for not having a qualified health plan.  

The Subsidy     

· HCR was supposed to expand Medicaid to a larger number of people that were currently on Medicaid in order to cover many of the uninsured. However, since the Supreme Court ruling that disallowed that states be mandated to expand Medicaid, many states have elected not to participate in an expansion of Medicaid. This complicated what HCR’s final cost would be even further because HCR anticipated that many new people would actually be placed on Medicaid and covered by the states and not have to use the exchange.  As a result of the Supreme Court ruling, only 20 states and the District of Columbia have agreed to expand Medicaid in their states. Thirty states have decided not to expand Medicaid in their states. This has had a major impact on how many people who were placed on Medicaid and ended up on the exchanges with a federal subsidy.  

· HCR created a sliding scale tax credit (the subsidy) for non-Medicaid-eligible individuals who have incomes up to 400% above the federal poverty level. The current poverty level is around $24,300 per year for a family of four. Four hundred percent of the poverty level is about $97,200 a year for a family of four (12.5% of the people in the US are currently at or below the poverty level or about 1 in every 10 people) - January, 2018.

· The subsidy is only available through an exchange.   

· Although individual and employer small group major medical can be sold on or off the exchange, subsidies will not be available outside an exchange.  

· Small employer groups will have their own exchange called the “SHOP” exchange. It is different than the individual exchange - very few employers are participating on the Shop Exchange. Many small group employees began looking for health insurance coverage outside an exchange unless they can qualify for a subsidy. 

· Subsidies are not available to people in the above income bracket that are eligible for employer-sponsored coverage.   

· Again, some employers, particularly smaller employers, due to the higher costs under HCR, may decide not to offer employer sponsored coverage anymore since they are not required to do so. Instead, they may send employees over to the exchange and/or offer them money to buy their own coverage on or off the exchange. 

Remember, the only reason for anyone to buy on an exchange is if they are eligible for a subsidy. Otherwise, they will not need an exchange to purchase medical insurance.   

Many insurance companies have left the individual health insurance market. Most insurance companies will operate off the exchange as well as on it. Most companies on the exchange are not be on all exchanges. 

If an insurance company operates on a state’s exchange and they also offer plans off the exchange in that state, their plans must mimic the benefits and premiums on the exchange. If they do not operate on a state’s exchange, but they do offer plans off the exchange in that state, their plans can differ from the “Qualified Health Plans” (QHP’s) on the exchanges. Remember, plans offered on the exchange must be a QHP and a QHP plan must include all the “Essential Benefits” discussed earlier.