The health insurance industry has changed tremendously since the implementation of the Patient Protection Affordable Care Act aka “Obamacare”. Over five million Americans had their policies terminated, as they did not meet the standards of the new Affordable Care Act requirement. While the government of the United States referred to them as “junk” plans, many were better and more valuable than what is offered today.
The “Obamacare” plans focus on preventive care. Under the law many of the services are covered without co-pay and not subject to a deductible or co-insurance. The proponents of the law refer to this service a “free”, however, these benefits add cost to the premium so you are paying for it on the front end instead of the back end. Prior to the ACA, plans tended to focus more on the major medical. For example, the Health Savings Account (H.S.A) which was approved by Congress in 2003 and became a law in January 2004, is a High Deductible Health Plan with a savings account attached to it. On these types of plans they realized that the most expensive part of the health plan was doctor visits co-pays and prescription coverage. So these features were removed from the plans and applied to the deductible. You could use the money from the savings account (assuming you funded it) for these services. I personally have had one of these since 2005, originally with a $2600 family deductible and leading up to 2014 a $5200 family deductible. I would be responsible for all charges up to the deductible, after that I was covered at 100%. Now under the ACA most of these type plans fall in the Bronze category and have a family deductible of over $12,000. They cover your preventive care 100%. The problem with this philosophy is most of us could afford to pay $100 or $200 for a physical, but a major claim, such as a heart attack or cancer, and have to spend $12,700, that would cancel a few family vacations.
Insurance rates are a derivative of the costs of the insurance carrier’s claims in relation to the premiums collected. Now that there is no more underwriting it is reasonable to see the insurance carrier’s claims expense going up as they are adding additional risk to their portfolio, which in turn you can see adding to the premium cost. To offset some of this cost, many insurance companies have narrowed their networks of doctors and hospitals. This means you may have to either change doctors or change insurance carriers depending on your plan.
Another part of your insurance plan to be concerned with is the prescription drug portion of the plan. Most prescription drug plans prior to the ACA were a four tier co-pay plan, such as $10 Tier one ( preferred generic) Tier 2 might have been $20 (non-preferred generic), Tier 3 may have been $35 for preferred name brand and tier 4 might have been $100 or a 25% of list price. Sometimes you may have had a separate deductible for name brand medications (Health Savings Accounts were not like this). Now you need to look closely at this part of the new ACA plans. Now many plans will say generic drugs no cost. Tiers two through four might have a co-pay, but after the deductible is met. Most silver and bronze plans utilize the same major medical deductible before you get the co-pay for name brand medications. If you take a drug such as Nexium, which costs somewhere around $400 per month, that would all be applying to your deductible.
In the event you choose to go out of network, the costs get more out of control. This will vary from company to company, but in general if you go out of network on a Preferred Provider Organization (PPO), the deductible and out of pocket expenses double. There are many reasons you may want to go out of network, especially for things like cancer or a transplant. Some hospitals across the country are better equipped to handle certain illness than others, but it will cost you a lot more. Also some services are not covered out of network. In that case you could pay thousands of dollars and not even have it applied toward your out of pocket maximum.
Under the ACA, all plans are required to cover what are called the ten essential health benefits. Most plans prior to that ACA covered seven out of these ten. The other three were, generally speaking, optional. The seven included were outpatient care, emergency room care, hospital care, prescription drugs, recovery services (occupational or physical therapy, psychiatric etc.), lab and blood work. Preventive care was also covered, however, the scope of what is considered preventive has been expanded. Some of these were covered with a copayment, while others were applied to the deductible. The three that were often optional in the individual market were mental health, maternity and pediatric dental. Maternity coverage, if offered, would raise monthly premiums between $100 and $200 per month and often had a 12 month waiting period. Mental health really varied from state to state and plan to plan. Mental health ranges from attention deficit disorder all the ways to schizophrenia. This has been streamlined under the ACA.
Preventive care has been expanded under the new law and these services are covered without co-pay regardless if the plan covers doctor office visits or not. A large change is in how colonoscopies are handled. They were always considered a “covered expense”, but applied to the deductible, now they are covered as all other preventive services. You hear proponents of the law saying you now have “free” preventive care. I would say that the cost is already built into the premium.
To support many of these new programs, the Affordable Care Act includes several federally mandated fees to assist in paying for various parts of reforms, like funding the public exchanges, conducting research and supporting the individual market. The following federally mandated fees began your premiums in 2014. These are fees that are billed to insurance carriers and they in turn pass it on to the consumer.
- Market Share fee (annual fee on insurance providers)
- Patient-Centered Outcomes Research Institute (PCORI) fee
- Transitional Reinsurance Fee
- Risk Adjustment User Fee
- Federally-Facilitated Exchange User Fee
These fees impact both grandfathered and non-grandfathered health plans differently.
The market share fee is a fee that provides tax subsidies for families who buy insurance through a public exchange. This fee is permanent and began in 2014. It is based on how much each health insurance carrier collects in premium. This affects both grandfathered and non-grandfathered plans.
Patient-Centered Outcomes Research Institute Fees, support clinical effectiveness research. It impacts both grandfathered and non-grandfathered plans. The fee began in 2012 and will phase out in 2019.
A program known as the transitional reinsurance programs comes with a fee designed to help insurance carriers cover individuals with high claim costs. It is designed to be a three year program, and will decrease in 2016. The fee also affects both grandfathered and non-grandfathered plans.
The risk adjustment fee funds the government’s risk adjustment program, which also helps carriers with high claims costs. The fee does not affect grandfathered plans.
Lastly, the federally-facilitated exchange user fee helps fund and support the federal exchange. Health Insurance carriers will be charged 3.5% of their premium for all exchange business. The fee does not affect grandfathered plans.
Under the Affordable Care Act there are over twenty new taxes on individuals and businesses that will amount to over $500 billion by 2023. Some are in the form of tax hikes, while others are in the form of tax credits. Some do not appear to be related to health insurance at all. Here are some that will impact most of America.
One of the largest taxes in the law is the surtax on investment income. This took effect in January of 2013. The new 3.8% surtax on investment income earned in households making at least $250,000 will create $123 billion in tax revenue over the next ten years.
The individual mandate excise tax began in January 2014. This is expected to generate $65 million in taxes. In 2014 those who did not purchase insurance will be taxed one percent of their adjusted gross income (AGI). In 2015 the tax doubles to 2 percent of AGI.
In January of 2018, the excise tax on comprehensive health insurance plans. This is a 40% tax on what are being referred to “Cadilliac” health insurance plans. These plans are to be valued at $10,200 for a single person and $27,500 for a family. This tax is expected to generate $32 billion in new fees.
Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5% of adjusted gross income. This new tax imposes a threshold of 10% of AGI. This change in effect creates $15.2 billion in new revenue. This took effect in 2013.
A new additional Medicare tax went into effect in January 2013. This .9 percent additional tax applies to an individual’s wages that exceed $250,000 for married taxpayers and $200,000 for all other taxpayers. This creates an additional $86 billion.
One of the more controversial taxes is the tax on medical device manufacturers. This $20 Billion tax is a 2.3% excise tax on items retailing over $100.
On January 26, 2015 the non-partisan Congressional Budget Office revised its cost estimates. Over the next ten years the ACA will cost $1.35 trillion or $50,000 per person. This is just the government’s role in implementation. This does not include your premium, deductibles and co-pays. The law still leaves between 29 and 31 million uninsured. This includes the income from the Medical Device Tax, which many politicians predict will be eliminated within two years. If they are correct that $50,000 per person gets even higher.
The Patient Protection and Affordable Care Act, has come to us with a huge price tag. What is arguably the largest tax increase in the history of the United States of America, did nothing to address the cost of medical care, and still leaves 30 million uninsured.
Eric Wilson is President of I Sell Health, Inc., a Chicago area insurance agency. He can be reached toll free at 888-448-5370 or online at www.isellhealth.com