Financial advisors may understandably feel that they need scorecards to keep track of the changes required by health-care reform that could affect their clients. It's true that the most far-reaching of the new law's rules do not go into effect until 2014. That's when individuals will be mandated to obtain health insurance or pay penalties, and when insurers will no longer be able to deny coverage to people with pre-existing conditions or to charge them higher premiums.
But 77 rules either have already been implemented or will be before 2014, according to the Kaiser Family Foundation's Health Reform timeline. Most of these are the responsibilities of insurance companies and government agencies. In late September, for instance, insurers were required to begin providing dependent coverage for adult children until they turn 26 and were prohibited from placing a cap on lifetime benefits.
Similarly, Medicare will soon implement several health-care reform changes that will affect most retirees. In 2011, preventive tests will be fully covered with no cost sharing, and brand-name drugs will be discounted by 50% for those who reach the Part D coverage gap known as the doughnut hole. Also, retirees earning more than $85,000 a year ($170,000 for couples) will pay higher Part D premiums for the first time.
While financial advisors should be aware of these and other changes, their clients are not responsible for making them happen. But there are several health-care provisions that individuals and small businesses must act on before 2014. Listed below, they include programs and subsidies that individuals and small businesses may apply for or new tax rules that they must comply with.
Individuals: Pre-existing condition insurance plan (PCIP). People who have been without insurance for six months or longer may qualify for this coverage. With $5 billion in federal subsidies, PCIP policies are expected to be the lowest-cost alternatives for those who are eligible. To qualify, individuals must provide proof (such as a letter) that they have been denied coverage because of pre-existing conditions. Even if they have been offered insurance, they are considered denied if the policy won't cover their pre-existing conditions.
PCIP plans are available in all 50 states and their benefits are federally mandated-out-of-pocket limits, for instance, cannot be more than those for health savings accounts. And premiums are to be the same as they would be for a standard population, with adjustments for age limited to four times the rate for the youngest policyholders.
In addition to the PCIP plans created by health-care reform, 34 states have their own high-risk pool plans. These state plans, most of which have been in existence for several years, will continue to operate alongside the PCIP plans. The rules for these state-sponsored plans vary widely-many, for example, do not require the individual to have been uninsured for six months. In 2014, policyholders in both PCIPs and the state-sponsored plans will be transitioned to coverage through the state-based exchanges. Information about PCIP benefits and premiums in different states is available at www.healthcare.gov/law/provisions/preexisting.
Small Businesses: Tax credits. Health-care reform takes several steps to encourage small businesses to offer health insurance to their workers. Probably the most important of these is a tax credit that starts with the 2010 tax year and that may be available to companies with fewer than 25 full-time workers. Among the criteria: The average wage for all company employees must be less than $50,000, and the employer must pay at least one-half of the workers' premiums.
The amount of the tax credit is based on a sliding scale: Firms with fewer than 10 employees and an average wage under $25,000 will get the maximum credit, which equals 35% of the employer's contribution to workers' premiums. And in 2014, this top bracket will increase to 50%. For companies with more than 10 (but fewer than 25) employees, the size of the credit is smaller, and in some cases is zero. Finally, businesses can use this credit for no more than six years (and can use the 50% credit for only two years).
Early retiree reinsurance program. Since its start in June, more than 2,000 companies have been approved for this program, which subsidizes employers' coverage for retirees ages 55-64 who are not eligible for Medicare. Although businesses of all sizes can apply, it's expected that mostly small businesses will participate because relatively few of them offer health coverage to early retirees.
Under the rules, the government will reimburse businesses for 80% of retiree claims that fall between $15,000 and $90,000. Employers can then use that money to reduce premiums and other health-care costs. The program is scheduled to last until 2014, but many believe that its $5 billion funding will be exhausted within two years. A list of the companies that have so far been approved is available at www.healthcare.gov/law/provisions/retirement/index.html.