On June 28, the Supreme Court upheld the landmark Patient Protection and Affordable Care Act, which will require individuals and businesses to purchase health insurance or face penalties to fund government health care. The only part of the PPACA the court limited was the federal government’s ability to withhold Medicaid funding from states if they did not expand Medicaid eligibility under the new legislation. We asked insurance expert Victor Hazy to translate what this might mean for you.
WHAT DOES THIS MEAN FOR MY SMALL BUSINESS?
The law does not affect your small business right now unless you’re trying to get tax credits, which I hear is a nightmare. Beginning in 2014, small businesses with fewer than 50 full-time employees will not face a penalty for not providing health insurance. Businesses with 50 or more employees will face penalties of $2,000 to $3,000 per worker each year, in what the Supreme Court upheld as a tax.
WHAT IF I’M TOO SMALL FOR THE PENALTY AND DON’T PURCHASE COVERAGE?
Nothing until 2014. But should an individual or family not covered by health insurance choose not to purchase it, then the individual mandate includes the following penalties:
- 2014: $95 (person) or $285 (family)
- 2015: $325 or $975
- 2016: $695 or $2,085; or 2.5 percent of income (whichever is more).
The ACA requires insurance companies to cover people without regard to pre-existing conditions. The premiums they collect from those who are currently uninsured are meant to cover those who are sick.
What remains to be seen is if the “young invincibles” will decide to pay the smaller penalty instead of purchasing the more expensive insurance.
WHAT IF I HAVE 49 EMPLOYEES?
Businesses with up to 49 employees are not affected at all, but I can see the games that are going to be played now. Some businesses may even be willing to split themselves in order to avoid the penalties.
WILL THE ACA INCREASE OR DECREASE THE COST OF HEALTH INSURANCE?
In my opinion, the cost will increase. There are no free lunches, and somebody has to pay for all of this. Rates have risen 20 to 25 percent since the removal of the cap on health policies and the rule that now allows children to stay on their parent’s plan until age 26.
With many older people being added to plans, the insurance companies are going to write really high premiums for them because they’re claims waiting to happen. Insurance companies want young healthy people who aren’t getting sick, but the older, sicker citizens will almost certainly get the insurance since they are the ones most likely to use it.
Insurance companies are concerned that the ACA limits older people’s premiums to three times what younger people would pay. They say they need to charge five times more to be actuarially sound, meaning that insurance companies will have to take on more risks to cover the elderly.
HOW WILL HEALTH MAINTENANCE ORGANIZATIONS (HMOs) INTERACT WITH THE ACA?
HMOs are completely compatible with the ACA. An HMO features a cost-containing gatekeeper doctor who controls access to specialists. It’s important for people to talk to an independent agent for options, because generally people dislike HMOs for their lack of choice.
WHAT ARE MY OPTIONS AS AN EMPLOYER OR AN INDIVIDUAL FOR PURCHASING MY OWN COVERAGE?
You’ll have all of the choices you currently have, but you have to remember that the devil is in the details. A low deductible means a high premium. You might try a health savings account, which is money saved for health purposes. It’s tax-free going in and coming out, as long as it is used for a health-related expense.
WHAT CAN I DO NOW?
My advice for any small business or individual is that if you don’t already have health insurance, then start looking now. Now is the time to find out what your options are and to get a plan before more regulations go into effect.
Victor Hazy is the president of Insurance World of Gainesville and an independent insurance advisor. Victor teaches “Understanding Medicare” classes and writes the Insurance World blog.