Affordable Care Act Implications You Need to Know Now [PODCAST]
In this podcast, Ted Sarenski discusses the latest developments regarding health care reform and the Affordable Care Act, including what will be required of health plans offered both through exchanges and employers, the delay to 2015 of the requirement for large employers to offer health insurance, the individual mandate, penalties and federal subsidies, the October 1 deadline for health insurance exchanges, preexisting conditions, and Ted’s predictions and advice for clients in 2014.
If you prefer, you can read the entire transcript below or download this and other audio webcasts from the Personal Financial Planning Section on AICPA.org.
Ted Sarenski, CPA/PFS, President, Blue Ocean Strategic Capital, LLC. Based in Syracuse, New York, Ted has gotten a taste for providing PFP services in a larger CPA firm and on his own. He provides financial planning services and manages assets. His compensation model is a mix of hourly, retainer and assets under management fees.
On behalf of the AICPA Personal Financial Planning Division, this is Ted Sarenski, to discuss the latest on health care reform.
What I wanted to start out with today was a review of what is the Affordable Care Act, and what are they trying to accomplish? The idea is that we're trying to accomplish insuring almost all Americans, whether they're employed or not employed. That is a good thing with this act. One of the things that I use when I'm talking to clients is that if they are looking to retire and they were retiring early, maybe not waiting until Social Security age to retire, they were always looking for a part-time job to pick up -- to get health insurance benefits until Medicare kicked in. Now, in 2014, for the first time ever, you can get health insurance without employment. This is one of the good things, I find, about the Affordable Care Act.
But what are the health benefits that are available? Basically, what's going to be required of health plans out there -- this is a general overview of health plans, whether it's through exchanges that are being set up, or whether it's your existing insurance, their benefits have to be in ten broad categories -- ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health, substance abuse disorder services, behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services, and chronic disease management, pediatric service, including oral and vision care for pediatrics. So health insurance exchanges and health insurance plans starting in 2014 need to have these as a benefit within the health plan.
Now, the exchanges that are being set up are being done in four major categories. And what they're doing with the categories is defining them by a metal, I guess you would call it. So if you wanted to compare one insurance company's plan under the new plan compared to another, you could expect to be able to compare them apples to apples.
A bronze plan will cover 60% of health care costs, meaning that if you go to the physician or to the hospital, the plan will cover 60%, the individual will need to pay 40%. That's the bronze level. The silver plan will be 70% will be covered by the insurance. Gold plans, 80%. And platinum plans, 90%. So, again, as we go through those, bronze, silver, gold and platinum, you have higher amounts that the insurance are paying, but conversely, you'll see that when you look at the rates, the rates will be higher for those plans at the higher levels. For instance, platinum will be much more expensive than bronze in terms of amount that you pay for your insurance.
Now, recently, what's been delayed is that employers who have 50 or more employees -- that was the first requirement here for 2014 -- originally, they had to be offering insurance. Again, employers have to offer the insurance. It doesn't mean they have to pay for the insurance. The employees could still pay for the insurance. The only requirement of the act is that the employer offer the insurance.
Well, the fact of offering that insurance has been delayed until 2015 for large employers. Small employers were going to be required later on, so certainly they are delayed, as well.
The individual mandate, the mandate that individuals still carry health insurance if they're uninsured, is still there. So individuals will still need to look to the exchanges or to an existing health plan where they work if they don't have insurance, and if they don't sign up for it, they'll be subject to a penalty.
Now, what's that penalty for the individual? The penalty is $95 in 2014, or 1% of your wages for the year, or your income for the year. So let's take an example of a person maybe in a part-time job, maybe in a lower-paying job earning $20,000 a year. 1% of their income would be $200. That's the annual fee that they would be charged for not having insurance.
So what's that individual likely to do if they're in good health? They're likely not to buy the insurance, because the insurance cost, even at the bronze level, is probably going to be in the 3 or $400 per month area in terms of how much that insurance will cost them. Most likely, individuals who have lower-paying jobs are not going to sign up for the insurance, because it's cheaper to pay the penalty than to get the insurance.
Another factor that they might consider is that there are federal subsidies to help pay for insurance. So if I sign up for an insurance plan and I make less than roughly 42, $44,000 as a single individual, or if I have a family, I make less than $90,000, roughly, as -- on my joint tax return, then there will be a federal subsidy to help me pay for my health insurance. So folks who are -- And these numbers were determined at four times the poverty rate for a single individual or a family of four. That's where they came up with these figures. Well, four times the poverty rate, if I'm below those values that I just mentioned, those folks will have a federal subsidy, further lowering the cost of insurance.
Now, in -- October 1, health insurance exchanges still need to be set up. California did so three weeks ago, two or three weeks ago. New York State just came out with theirs, two of the larger states of folks who are uninsured, they came out with their rates.
Now, the rates right now are relatively low. We're looking at 3 or $400 a month for the bronze plan, and somewhere in the area of 5 to $600 a month for the platinum plan. Now, those rates are being set today very similar, in my opinion, to long-term care rates when they were first set. There's no history. There's no idea of where this is going -- how many people are going to sign up, what is the cost of the visits that they're going to have to hospitals or physicians or other types of care? What is the cost of their prescription drugs? What are the costs that are going to be associated with folks signing up for these plans?
Are they being artificially low rates today that may need to be raised as we get into 2015, '16, '17, when there's more experience as to how individuals that did sign up are going to the doctors, going for prescription drugs? What is the cost of that going to be? Very potentially, you're going to see a rise in these rates, as well.
Now, one of the ideas of the Act was that the more people that were covered who were, let's say, in good health and didn't need insurance and were paying for insurance, that would help lower the cost for those folks who are out there that already have insurance. Well, that might not happen initially only because, as I said before, a lot of these folks are individuals, and it's not mandated for the employer to do it until 2015, those individuals might not be signing up for insurance in this year, which will tend to not lower the cost, and in fact may even raise the cost.
And also, looking at taxes, we may see an increase in tax rates if the federal subsidies are large enough across a broad base that more is going out than is coming in on the insurance that's being offered.
13 states roughly, 13, 14 states will have their own exchanges set up by October 1. Those states that have not set up exchanges, the federal government is setting up an exchange that those states will use for their purposes to offer this coverage to individuals starting January 1st. Now, the individual actually has that first three-month time period -- October 1 to December 31. They also have until March 31 of 2014 to sign up for the health insurance plan. There will be a 90-day grace period, January 1 to March 31, for that individual to sign up.
Now, in dealing with our clients, I see this being a tremendous benefit, again, for those folks who have been working and want to retire from their existing job. Maybe their retirement is set, and they're retiring prior to full Social Security benefits, which right now is age 66. So someone's retiring, let's say, in their later 50s, up until age 66, and need -- or want, certainly -- health insurance to cover them. They can get that now with the exchanges and not have to worry about getting that part-time job to cover for the -- for health insurance. I see that being the biggest benefit for our clients on an individual basis.
Broad-based, across the country, I see this being more costly than effective in that many people, even if they are working, will not get the insurance if they don't have to, because one of the other features of the Affordable Care Act is that if you have a preexisting condition, you must be covered by insurance. In the past, insurance companies could exclude you from coverage because you had a preexisting condition for a period of time. It might be six months, one year. They could exclude covering that preexisting condition.
Now, with the Affordable Care Act, the preexisting condition, I can get insurance right away. So even if I don't sign up for insurance today, as long as that provision's in there and something happens to me, I'll sign up at that time.
So I see what's going to happen in 2014 is that individuals, for the most part, if they don't feel they need insurance or haven't had insurance, probably won't be signing up for it. They'll probably be just paying the penalty. Those that need it or want it will be signing up. So many of those that the Affordable Care Act was designed to cover, those uninsured, I believe potentially could still be uninsured.
In fact, you might find that people who are currently insured in lower-paying jobs might opt to drop their coverage. You may see -- and this would hurt our premiums for those who do want insurance -- you may see individuals who are currently covered and are paying for insurance through their employer, you may see them drop the health insurance because they don't see it as a necessary thing if they are well and don't visit the doctor often. "Let me pay the penalty, and I'll save a lot of money by not buying insurance.” So we may see the opposite happen. We may see people dropping insurance that they have through their employer.
Advice right now for your clients, if they're operating a business, they don't have to offer insurance until 2015. Certainly something to look into, if they're not offering health insurance, to say, "Let's start looking at that throughout 2014 and not wait to the last minute.” The other thing would be that if they are offering insurance, make sure that the ten essential services that I mentioned at the beginning are covered under that current health insurance plan, and possibly look at other plans that would be covering those ten broad categories if the insurance they have right now is not covering them.
This is a process. This is something that was put into law, and there's changes constantly -- not only changes constantly, but certain things are coming to light as we move through this process, because the full provisions of the Affordable Care Act are not complete until 2016. So we're going to see many changes between now and then, potentially legislatively, or potentially just discovering other things within the Affordable Care Act. What we hope to do through AICPA is keep you abreast of all those changes, and have these type of podcasts for you to make sure that you stay up on this Affordable Care Act to assist your clients or the individuals that you work with in your practices.
This has been Ted Sarenski on behalf of the AICPA Personal Financial Planning Division. Please stay tuned to your weekly Electronic AICPA PFP news for updates on this and other relevant topics impacting your individual clients. Also, remember you receive Forefield Advisor as part of your PFP Section membership. Forefield has a built-in health care reform center that will help you educate and communicate with your clients on an ongoing basis. Visit AICPA.org/PFP to access. Thank you.