Last night, the House of Representatives passed the Senate’s health care bill (“Senate bill”) and a reconciliation “fix it” bill (the “reconciliation bill”) that makes certain changes to the Senate bill. Regardless what you think about health care, the landscape this morning is much different than before, and it is important for businesses and individuals to take note of the key provisions in both bills.
There are still some legislative steps that must be completed before either bill becomes law. The President must first sign the Senate bill in order for it to become law. The signing ceremony is scheduled for tomorrow. Then the Senate can take up the reconciliation bill. It is expected that the Senate will pass the reconciliation bill, which will alter the main Senate bill by eliminating certain controversial provisions in it. Together, however, they constitute sweeping reform of the health care industry. Beginning in 2014, coverage will begin to expand to the estimated 32 million uninsured Americans, and by 2019, it is estimated that 95% of eligible Americans would have coverage.
Here are the key provisions of both bills and when most of them take effect:
Coverage Mandates
In 2014, individuals will be required to purchase health insurance. Those who fail to purchase coverage will be fined $325 in 2015, $695 in 2016, and as much as 2.5% of their income in 2016 if the total is greater than the flat payment. There is an exemption for low-income people.
In 2014, employers with 50 or more workers who do not offer health insurance coverage will be fined $2,000 per full-time employee. Companies with 50 or fewer workers are exempt from the requirement. Part-time workers are included in the calculations: two part-timer workers equal one full-time worker.
Insurance Market Reform
This year, insurers will be barred from placing lifetime coverage limits on policies, denying coverage to children based on pre-existing conditions, and canceling policies due to illnesses (i.e., rescission). Insurers must also disclose their rate increases.
Also, beginning this year, parents’ health care policies will cover dependent children until age 26.
Beginning in 2011, insurers are required to spend at least 85 cents of every premium dollar on medical care in small group markets and 80 cents in large group markets. Medicare Advantage insurers are also required to spend at least 85% of revenues on medical care.
Beginning in 2014, insurers will be barred from excluding anyone for pre-existing medical conditions or charging them more.
Also, beginning in 2014, small businesses and individuals without employer-sponsored coverage can shop for health insurance plans through new state-based purchasing pools called “exchanges.” (“Small businesses” are defined as those with no more than 100 employees, but states have the option of limiting exchanges to companies with 50 or fewer employees through 2016. Companies that grow beyond the size limit will also be grandfathered in.) The plans offered on the exchanges will have to meet certain minimum benefit requirements. Until these exchanges are available, there will be a temporary insurance program for the uninsured.
In addition, until the exchanges are available, businesses with 10 or fewer full-time-equivalent employees earning less than $25,000 a year on average will be eligible for a tax credit of 35% of health insurance costs. (Companies with between 11 and 25 workers and an average wage of up to $50,000 are eligible for partial credits.) The tax credit will remain in place and increase to 50% of costs for the first two years a business purchases insurance through its state exchange.
Taxes
Beginning in 2018, there will be a 40% excise tax on high-cost health insurance plans, otherwise known as “Cadillac plans” (plans costing $10,200 for individuals and $27,500 for family coverage). A higher threshold is allowed for plans covering mostly women, older workers, retirees, and those in high-risk professions.
In 2013, payroll taxes for Medicare (the government health insurance plan for the elderly and disabled) will increase to 2.35% (from the current 1.45%) for individuals earning $200,000 or more and for couples earning $250,000 or more.
The new Medicare tax will also apply to “unearned income” (i.e., investment income) for those high-income groups as an additional 3.8% surtax. Specifically, it will apply to income from interest, rent, royalties, and passive S-corporation and partnership profits for families making more than $250,000 annually and singles making more than $200,000. This tax is in addition to the current tax rate on such income. It will also likely apply to capital gains.
Beginning in 2013, individuals under 65 cannot deduct medical expenses until they exceed 10% of income (up from the current threshold of 7.5%). Retirees, however, will keep the lower threshold.
Beginning in 2011, there will be new restrictions on what can be purchased using special savings accounts funded with pre-tax dollars (including health savings accounts). Improper withdrawals from the accounts will incur a 20% tax. In addition, there is a new limit of $2,500 on what people can contribute to employer-sponsored flexible spending accounts (another type of account funded with pre-tax dollars that can be used to pay for medicines, co-payments, and other expenses). Before this cap, employers set their own limits, typically between $3,000 and $5,000.
Beginning in 2013, there will be fees on medical device manufacturers, insurance providers, and brand-name pharmaceuticals.
Insurers will also be denied deductions for executive pay over $500,000. (Under current law, businesses can deduct up to $1 million a year in compensation for executives.)
Finally, beginning this year, there will be a 10% tax on indoor tanning services that use ultraviolet lamps.
Federal Subsidies
Beginning in 2014, federal subsidies will be provided to help people with incomes of up to 400% of the poverty level (approximately $88,000 per year) purchase health insurance on the exchange. Those subsidies will be higher for lower income people.
Medicaid Expansion
Beginning in 2014, Medicaid (the government health insurance program for the poor) will be expanded to everyone with incomes of up to 133% of the poverty level. That equates to $10,830 for an individual and $29,327 for a family of four. (Many states have eligibility requirements below those levels.)
The reconciliation bill eliminates a special deal that would have provided more money to Nebraska to cover costs of increased Medicaid coverage.
Medicare
In 2011, payments to insurers that provide coverage to Medicare patients will be frozen. The law begins reducing this subsidy in 2012.
Effective immediately, the law begins to close the gap in drug coverage for Medicare beneficiaries (known as the “donut hole”). Those who enter the coverage gap in 2010 will receive a $250 rebate. In 2011, they will receive a 50% discount on brand-name drugs. When the gap is completely eliminated in 2020, seniors will still be responsible for 25% of the cost of their medications until Medicare’s catastrophic coverage kicks in.
Student Loans
The law will also eliminate a $60 billion program that supports private student loans with federal subsidies, effectively eliminating private-sector student loan lending, and replace it with government lending to students.
