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How CPAs Can Prepare Clients for Healthcare Reform

Health-care-fileCurrently, there is a massive amount of confusion in the business community and among consumers – the very same people that are CPAs in public accounting’s clients – with the implementation of the Affordable Care Act or Obamacare. Change, of course, creates opportunity, and knowledgeable CPAs can expand their role as trusted advisers by gaining an understanding of the implications of the ACA on businesses and individuals.

The changes in insurance primarily affect two client types: small business and individuals who do not get insurance from their employer. This latter group would include self-employed individuals and their families who do not qualify under the definition of “small business” for purposes of the ACA’s insurance market rules. There are provisions for large employers that go into effect in 2015.

As is all-too-clear at this stage, the ACA has disqualified many insurance policies that fail to meet its definition of minimum essential coverage. Those who lost coverage are required to obtain qualified new coverage through the federal government’s healthcare.gov or one of the state exchanges or they will face a fine.

Why are many of the policies so expensive?  In addition to mandating coverage for benefits that a buyer would not have purchased in the past – such as maternity coverage for a 55 year-old female – many of the previously uninsured have preexisting conditions  that are extraordinarily expensive to treat. A federal government study found that 5% of the population accounts for nearly 50% of all medical spending. The inclusion of the expenses of those with preexisting conditions primarily in the individual market plans has been a major driver of the cost of the exchange policies. The maximum out of pocket cost for individual and family plans is $6,350 and $12,700, respectively. This creates an expense for insurance premiums that results in no actual benefit for many purchasers due to the out of pocket levels. As a final example, the low-level bronze plan offered covers only 60% of the expected medical costs to be incurred by the entire insured group, leaving the insured person responsible for the other 40% via co-pays, deductibles, co-insurance and limited access. While endemic to the individual and small group markets, the large group and self-insured markets were not similarly affected in this regard.  

The exchanges are supposed to be a kind of Amazon.com for buying health insurance. However, the majority of users do not have the knowledge base required to accurately evaluate the insurance options available. This fact was demonstrated in a new study by Health Affairs, the leading academic journal of the healthcare industry, which found that fewer than 40% of consumers likely to need the exchange had a basic understanding of nine terms deemed necessary for making an informed decision. I would hasten to point out, after nearly 40 years in this industry, that even with a self-assessed solid understanding of the terms, the likelihood that an individual really possesses sufficient understanding of covered and excluded services is quite low. There are numerous press reports about this in the post-ACA era, especially when expensive prescription drugs and in-network versus out of network doctors and hospitals are considered. This can also be an opportunity for CPAs to advise their clients on both personal and small business health insurance plans.

Under ACA, a small business is initially defined as one with less than 50 full-time employees. However, a regulation goes into effect in 2016 that increases this to 100. The exchange for small businesses, or SHOP, is open for those with 50 or fewer full-time employees. In 2016, small businesses with less than 100 full-time employees will be able to use SHOP. Small business clients may qualify for a health care tax credit up to 50% of the insurance premium costs by using SHOP. They can still deduct the remainder of the insurance premium costs not covered by the tax credit from their taxes.

Another option small business clients can explore with the assistance of a qualified insurance agent is to self-insure. Self-insured businesses avoid almost all of ACA’s minimum coverage requirements, something that is not well known. Self-insurance will not work for every employer, and it comes with some added risk that requires stop loss insurance (analogous to umbrella liability coverage), but it can work for some. In addition, the health insurance industry has been developing new self-insured products that make the option available to employers once too small to consider it. 

My final “heads-up” for this post is that CPAs keep an eye on their state’s Medicaid program. Massachusetts, for one, previously obtained a Medicaid waiver to cover most of its Medicaid and low-income population through a program on its Exchange that serves the combined individual and small group market. In 2014, they are planning to merge the low income population into the combined individual and small group market risk pool. This will contribute significantly to premium increases. If other states make similar moves, a similar result can be expected.

The upcoming AICPA Online Conference on Healthcare Reform: A Deep Dive into the Affordable Care Act, taking place Jan. 16, is a great opportunity for CPAs to learn how to advise their clients about healthcare reform. AICPA PFP/PFS members have access to Forefield Advisor's Healthcare Reform Center to educate and communicate with their clients.

Mark O. Dietrich, CPA/ABV. Mark is co-author of The Financial Professional’s Guide to Healthcare Reform and served as chairperson of the AICPA’s Healthcare Industry Conference in 2012 and 2013. He is chairperson for the AICPA’s 2014 Online Conference on Healthcare Reform. 

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