by Tony Novak, CPA, MBA, MT,
originally published April 14, 2011, revised June 17, 2010
Federal health care reform laws invokes
sweeping changes on consumers yet the timing of these events may
not be clear to most Americans. This timeline was developed to help individuals with
their own financial and health care planning.
In a move intended to reduce health plan fraud, multi-employer health
plans called "MEWAs" are required to register with
the U.S. Department of Labor. That agency now has the power
to regulate these plans to protect consumers.
Previously these plans were largely
unregulated because of exemption from state
insurance laws. This change will have no
effect on health plans costs but will likely remove some
of the most problematic health plans from the
market. We have previously reported that the
majority of consumer health insurance complaints reported to
OnlineAdviser service stemmed from these multi-state MEWA
state will offer a high risk pool for residents who
have been uninsured for six months. Rates will be
higher than commercial insurance so this will only
be an attractive option to those with a serious
medical condition. We expect this change
will have little impact because most states
already offer a high risk health insurance plan that
is not popular with residents.
reinsurance program is established for early
retirees from group health insurance plans. No
information is available at this time on the effects for
The changes that will have the largest effect on
- Maximum lifetime coverage limits are
removed. While very few policyholders have claims
that approach policy maximums, this change has a
significant impact on the amount of premiums that an
insurance company is required to hold as financial
reserves. One single catastrophic claim can easily
exceed the total annual premiums paid by one hundred
health plan members. Additionally, as maximum
benefit caps are removed the treatment on
catastrophic patients will increase so that these
become disproportionally important to the revenues
of doctors and hospitals. To meet these reserve
requirements, insurers must raise premiums.
Estimates vary widely but a long term estimate of
30% seems reasonable.
- Emergency coverage is expanded; restrictions are
lifted. This will have minimal impact since
emergency services are generally provided regardless
of insurance provisions and uninsured costs are
already allocated throughout the health care system.
- Ob/Gyn care will not require a physician referral;
also with minimal impact.
Deductibles and co-payments are removed for
preventative care and immunizations. This will raise
insurance rates slightly, perhaps 3-5% per year.
- Rescissions are prohibited except for fraud or intentional
misrepresentation on an application. This will have
little or no impact on consumers because first, the
rarity of rescissions (les than 1/2 of 1% of all
policies) and second, because insurers almost always
assert that the rescission was for intentional
premium rates may still be based on health history
we expect to see a widening of range of rates.
Insurance companies will compete for young healthy members. Insurance exchanges like Freedom Benefits that allow
consumers to comparing rates and coverage will
become more valuable.
Hospitals will be
required to publish a price list of their services
and each state will establish a data center to collect
and publicize medical cost information for consumer
The cost of
tax-free employer-provided health coverage,
including insurance and non-insured benefits, will
be reported to the IRS on Form W2. This has no
immediate effect on taxes although it does provide a
reporting method for taxes to be assessed in the future.
medications are excluded from coverage under Health
Savings Accounts and other no-insured health plans.
This will increase overall health care spending as consumers
switch back to prescription medications even when a
non-prescription alternative is available.
States will set up open enrollment periods for
child-only health insurance after insurers stopped issuing
this coverage in September 2010 in response to federal law.
Each state will adopt its own unique approach to fix the
problem, making this an overly-complicated issue for
families who need insurance for a child on a separate
Some small businesses may receive a subsidy to partially
cover the cost of adding a wellness benefits to their
health insurance. This is a voluntary provision.
Health plans pay one dollar per member to
fund Comparative Effectiveness Research. These
results may become the basis of controlled or rationed
federal health care payments in the future.
to a health care Flexible Spending Account are
limited to $2,500 per year. No information is
available on how this impacts the interaction with Health
Savings Accounts or combinations of health plans like
cafeteria benefit plans that generally have higher
disallowed for employer-provided prescription plans
that benefit retirees. This forces more retirees to
rely primarily on Medicare prescription benefits.
Funding for expansion
of individual and small group CO-OP plans is
available to commercial providers. Details of this
program are not yet available and Freedom Benefits
has not determined whether we will participate in
the grant program.<
Performance information of
individual physicians will be published on the
All residents must obtain health insurance coverage
and the following provisions are intended to facilitate this
- Health insurance
may not be denied due to medical history. Waiting
periods for coverage may not be longer than 90 days. Rates may be
based on age, location and tobacco use. Despite the
change, some currently uninsured individuals may be
unwilling to purchase coverage and then wait three
months before addressing a primary medical issue. Rates
for tobacco users are currently only about 40% higher
than for non-tobacco users, yet the difference in claims
is much larger. We expect this difference in premiums
will increase to approach the actual cost of insuring
annual coverage limits for certain essential medical
services. Coverage protections are added for those
participating in clinical trials. We have no
information on the consumer impact of this provision.
fees levied on health insurance companies begin and
then increase over the next four years. This fee appears to be less than $5 per
health plan member per month so it should not have a
significant effect on insurance premiums. However, some
economists point out that the fee is far to little to
cover the cost of the federal program so increases on
health insurance seems likely.
- Federal subsidies to employers are
available to help pay for health insurance for
modest income employees (income below 4 x federal
poverty level) when the employee is contributing
more than 8% of their own income for health
insurance. States may subsidize employers to
encourage coverage to Medicaid-eligible individuals.
- Employer Responsibility Mandates are
established. A "free rider penalty" is accessed when
employees enroll in government-subsidized plans
instead of the employer's health plan. Companies
with more than 200 employees must automatically
enroll employees unless the employee takes action to
opt out. In our experience, this method have proved
very effective in increasing employee participation
in group benefit plans.
State health insurance exchanges offer a premium
subsidy for modest income individuals (income below
4 x federal poverty level) and employees of small
business. State Medicaid eligibility is expanded for
low income (income below 1.33 x federal poverty
level) non-elderly individuals.
Predictions that 34 million people currently without
insurance will voluntarily add coverage through these
provisions but that more than $10 million non-elderly adults
will remain uninsured were recently published by several
government and non-governmental sources. We suspect these
may be overly optimistic based simply on the recent signs of
destabilization of the health insurance markets caused by
federal and state regulations. The number of middle income
Americans who decline to pay 10% or more of their gross
income to health insurance will be larger than current
Health insurance exchanges are opened to large employers.
40% excise tax is placed on executive health plans. If
combined wage taxes for those who receive these rich
benefits are more than 40% then this provision will have
little effect. Executive health benefit plans will likely
focus on coverage not provided or de-emphasized by other
federal and state reforms. We predict that supplemental
health plans will become an increasingly important
percentage of total compensation for those in the $200,000+
salary range and, coincidently, an increasing part of the
overall market for health insurance firms like ours.