By: John V. Pellitteri, CPA, Partner, Healthcare Practice Leader
On Tuesday, March 23rd, President Obama signed HR 3590, a bill that will restructure major components of our healthcare system, into law. The “Reconciliation Package,” a separate bill that amends HR 3590, also passed the House on Sunday, March 21st, and it will be voted on by the Senate later this week. It is expected to pass there as well.
Considering that the changes in this bill are quite significant and sweeping, it is important for businesses to educate themselves on the major components of the bill and prepare accordingly.
The bill’s overall intention is to extend health coverage to the estimated 30 million uninsured Americans while slowing the growth of overall healthcare spending, which accounts for one sixth of our GDP. To that end, the bill has three primary components and a variety of other, smaller fixes. The first major component is banning the insurance practice of rescission (dropping customers’ coverage due to pre-existing conditions, imposing lifetime caps on coverage of chronic illness, etc.). In short, insurance companies now must insure people who want to buy their policies.
The first component carries a risk: if insurance companies must take customers, then healthy people would have no incentive to buy coverage until they get sick, which would reduce the pool of those insured and drive premiums up by a significant amount. The second major component of the bill, the individual mandate, seeks to prevent such a situation from happening. This provision requires all Americans to buy health insurance, either through their employer or on the individual market, by 2014, when the various provisions of the bill will have completely taken effect. Those who forego insurance will be taxed by the IRS, unless they don’t meet minimum income requirements.
Since the individual mandate requires people who may not have the means to pay for insurance to do so, the third major component of the bill is a network of need-based subsidies: those who are unable to do so of their own means will receive federal aid to help them handle the cost of insurance.
These three provisions are the major components of the bill. Other than those, the bill also contains a wide variety of smaller changes to the system, including but not limited to:
- A Medicare payroll tax increase of 0.9% as well as a 3.8% tax on income from investments on incomes over $200K for individuals and $250K for couples;
- Elimination of the Medicare “donut hole” in prescription drug coverage;
- Extension of dependent coverage until the age of 26;
- Expansion of Medicaid to cover those making up to 133% of the poverty level (about $24K for a family of three in 2009);
- A requirement that businesses of 50 or more employees provide health coverage to their employees;
- Creation of insurance exchanges through which individuals and companies can purchase their plans.
The bill also implements many technical programs designed to hopefully slow the overall cost of healthcare as a percentage of GDP. Among those programs is an independent commission to make recommendations on the effectiveness of treatments covered by Medicare for the purpose of curbing spending on ineffective procedures, as well as implementing the practice of “bundling” Medicare payments to healthcare providers in an effort to move away from the fee-for-service system.
So, what does this mean for you and your business? That depends: because the reform is less of an overhaul and more of an expansion of the current system, for many Americans, the changes are expected to be minimal. Coverage will still be primarily employer-provided via private insurance companies, just as it is now. The Congressional Budget Office (CBO) predicts that premiums for people currently receiving coverage through their employers will largely remain about where they are now. Meanwhile, the CBO predicts that premiums on the individual market will rise, although the subsidies provided in the bill are expected to ultimately reduce the out-of-pocket expenses for individual buyers. While these predictions certainly can’t predict the future with 100% accuracy, they are the best independent assessment of the bill so far. Many of the provisions in the bill are experimental, so costs and savings are likely to fluctuate over the next several decades.
The two major circumstances under which your company is expected to be significantly impacted are: if you employ 50 or more individuals and do not currently provide coverage, in which case you will now be required to; and, if your company has a so-called “Cadillac Plan.” “Cadillac Plan” is a term commonly used to describe high-end insurance policies, which will be significantly taxed under the provisions of the bill. Technically speaking, it is the insurance company providing the plan, not the plan user, who will be taxed. The insurance providers, however, are expected to pass those costs on to their customers.
These are the basic elements of reform in HR 3590 and its accompanying “Reconciliation Package” (as it’s referred to, due to the parliamentary procedure used to pass it). The various pieces of the bill are scheduled to take effect gradually over the next four years.
There are many specific provisions in the bill which may alter how it affects you and your business, depending on your industry, income, etc. Make sure you consult your business advisor to become educated on how the bill affects you and your company.