What Health Care Reform Means to You
April 5, 2010
Vol. 6, Issue 3
The new health care reform bill signed into law last month will have an impact on just about every American, with particular impact on people with health savings accounts. This month I’d like to explain the timeline on what is going to happen, and provide strategies to help you minimize your costs and maximize your benefits.
The Health Care Reform Timeline
Most of the changes don’t take effect until 2014, but some provisions of the law are already active. Below is a timeline of the major provisions that affect your health insurance and your bank account.
On September 23rd, the first phases of the law will be instituted. The main provisions affecting individual policyholders are these:
- Policies will no longer have lifetime limits (now typically $1 - $5 Million).
- Children with pre-existing conditions will no longer be denied coverage.
- Young adults will be able to stay on their parents’ policies until age 26.
- Preventive services will be covered 100%, with no copay or deductible. The law references guidelines of the U.S. Preventive Services Task Force. (Click on a service on their page – those rated A or B on their list will likely be covered, though details still need to be approved by the Secretary of Health and Human Services.)
Also in 2010, domestic and same-sex partners will be eligible for HSA reimbursements. This means that anyone with money in a Health Savings Account could use funds from that account tax-free to pay for their partner’s medical or dental expenses.
There are a couple of provisions affecting HSA owners that start January 1 of next year.
- You will no longer be able to pay for over-the-counter medicine from your HSA.
- The penalty for withdrawals from your HSA for non-medical expenses increases from 10% to 20%.
Most of the major changes in the health insurance market officially take place starting in 2014.
- Everyone will be required to purchase a specific minimum level of health insurance. A penalty of $95 or 1% of income will be charged by the IRS to anyone who does not carry coverage, rising to 2.5% by 2016
- People under age 30 will be allowed to purchase lower-cost catastrophic plans that cover only 3 primary care visits until cost sharing equaling the maximum deductible is reached
- Everyone over age 30 will be required to carry coverage that covers at least 60 percent of the actuarial value of the benefits offered (that being the average medical expenses incurred by a typical person in a year).
- Maximum deductibles will be the same as HSA-qualified plans in 2010: $5950 for individuals, $11,900 for families, adjusted for inflation.
- Underwriting will be eliminated, so people with pre-existing conditions will qualify for coverage
- There will be a maximum 90 day waiting period before a new policy-holder can be covered
- Younger people will be required to pay no less than one third what the oldest segment (age 60-64) pay, in order to subsidize the premiums for older Americans
- Everyone will be required to carry maternity coverage and other mandated benefits
- Subsidies will be available to individuals earning up to $29,327, and a family of four earning up to $88,200.
Can I Keep My HSA?
Yes, you can keep your HSA and your HSA-qualified plan. President Obama has repeatedly said that if want you can keep your current health insurance. And any existing plans will be “grandfathered” in, allowing you to keep that coverage as long as the insurance company keeps offering it.
High deductible plans not only lower premiums, but they also create cost-conscious consumers. When the consumer is involved in the decision making process, it creates competitive pressure to keep costs down. Without this critical factor, we will continue to see health care costs rise faster than inflation.
However, there is a possibility that high deductible plans may no longer be available in the future. Because the typical family doesn’t have thousands of dollars in claims every year, they usually do not even meet their deductible if they carry a low-cost high deductible plan. For instance, my deductible is currently $7500, an amount that we have never reached.
The requirement that all plans be benefit-rich and cover at least 60% of the actuarial value could make these high deductible plans no longer available to future enrollees. That is not clear at this time however, and may depend on whether HSA contributions will be included in the actuarial value calculations. Health and Human Services Secretary Kathleen Sebelius gets to decide that.
People in small groups will have maximum deductibles of $2000 for individuals or $4000 for families.
How This Affects Premiums (Is Health Insurance Now Free?)
We are already getting calls from people who want to sign up for the “free” health insurance. Unfortunately, it is not free. In fact, we are projecting just the opposite – there will be large rate increases in the individual and small-group market. We expect those increases to start happening this year, though at this point we don’t know how much those increases will be.
The “slacker mandate”, requiring coverage of dependents until age 26, the elimination of lifetime caps, and the mandatory first-dollar coverage for preventive services will all increase costs to the insurance companies, driving rates higher.
However, we expect the biggest rate increases to happen once all plans become guaranteed issue in 2014. The most detailed study on how this law may affect rates was conducted by WellPoint, which found that a healthy 25 year-old would be facing a 178% rate increase; a 40-year-old couple with two kids could be looking at a 106% increase. When similar reforms have taken place at a state level (New York, New Jersey), rates have skyrocketed.
Strategy for Minimizing the Costs to You
As President of HSA for America, my objective is always to help our clients get the best coverage for their needs while minimizing their costs. There is more to learn as this unfolds, but at this time these are the strategies I recommend:
- Maximize your deductible. The higher your deductible, the lower your premium. Since rates are certain to rise at an accelerating rate, you may want to consider changing to a higher deductible plan now. Plans are currently available with deductibles of up to $20,000, though the maximum deductible for an HSA-qualified plan is $11,900. Starting in 2014, you will no longer be able to have a $20,000 deductible, and until the HHS Secretary makes her decision we won’t know how high the deductible can be on government-approved plans. However, if you already have a high deductible plan you will be able to keep it as long as the insurance company continues to offer it.
- Lock in current rates. Several insurance companies offer 2- and even 3-year rate guarantees, including Assurant, Golden Rule, and World. If you are considering changing plans, locking in current rates could save you a lot over the next few years.
- Beware Rising Taxes. There are several new taxes that will be implemented to help pay for health care reform. Individuals earning over $200,000 and couples earning over $250,000 will face an additional 0.9% Medicare payroll tax starting in 2013. They will also face an additional 3.8% Medicare tax on investment income, including interest, dividends, capital gains, rents, and royalties.
- Maximize Your HSA Contribution. Since taxes will be going up in order to try to pay for this new law, you should be taking any actions you can to lower your own tax bill. HSA contributions are tax deductible, and if you had an HSA-qualified plan in place by Dec 1 2009, you should make a contribution to a health savings account by April 15th, and then of course fund it every year.
Health care reform has been needed since before I began in the insurance industry nearly 25 years ago. The biggest problem is the health care inflation that has been rampant for years. The second big challenge is that people with pre-existing health problems get stuck in a job they can’t leave because of the available health insurance, or get in a situation in which they are unable to get coverage.
This new law helps give access to health insurance for all, which will be a great thing for many people. Unfortunately, it does little to reign in costs, affecting individuals, businesses, and the government deficit for the foreseeable future. We continue to believe that the best and simplest way to reduce medical inflation is to allow all Americans to establish a health savings account to pay for first-dollar expenses with pre-tax income, and to encourage low-cost high-deductible plans to protect against larger bills.
HSAs seem to have survived health care reform because these low-cost plans should bring more healthy people into the risk pool, which may help this entire scheme to work. In fact, when people are required to carry coverage we will see millions streaming to HSA plans, which will continue to be the best value for most consumers.
At HSA for America we will continue to look for strategies that will help you personally save money, and to push for policies that expand individual freedom and responsibility, and promote price transparency and free-market competition. These are the kinds of changes that will help everyone.
P.S. - We are strongly recommending that everyone who can establish an HSA and lock in a high deductible plan at current rates. If we can be of service, let us know.