Health reform law will boost demand and government costs, while expanding coverage

This article below from CCH, a leading provider of business news, provides insight into how Health Care Reform is performing to date and sheds light into what is expected through to 2014.

In 2014, the year that the Patient Protection and Affordable Care Act is set to expand health insurance coverage, growth in health care spending is expected to reach 8.3 percent, according to estimates by a group of economists from the Centers for Medicare & Medicaid Office of the Actuary.

The PPACA is expected to boost demand for medical services, particularly for prescription drugs and physician and clinical services, the economists noted. By 2020, the federal government’s share of health care spending will reach 31 percent (from the current 27).

Average annual growth in national health spending is expected to be 0.1 percentage point higher (5.8 percent) under current law compared to projected average growth prior to the passage of the PPACA (5.7 percent) for 2010 through 2020.

Total government spending, including federal, state, and local governments, is expected to reach nearly 50 percent in 2020. The number of uninsured will be lower by nearly 30 million. These projections are reviewed in the article, “National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth,” published in the July 2011 issue of Health Affairs.

In 2010, health spending is estimated to have grown at the rate of 3.9 percent, and a total of $2.6 trillion ($8,648 per person) due partly to the recession which caused many people to lose their health insurance when they lost their jobs. Health spending in 2010 represented 17.6 percent of gross domestic product. At the same time, health spending by private sources grew by only 2.6 percent to $822.3 billion for insurance premiums and the number of people covered in private plans fell by 5 million. Benefits paid by private plans amounted to $725.5 billion, a nearly $100 billion difference from premiums paid. Out-of-pocket spending rose by only 1.8 percent as the cash-strapped population put off seeking medical care and treatment.

The CMS economists project that out-of-pocket spending will grow faster through 2013, by an average 3.2 percent annually, as the U.S. economy recovers and the number of people with disposable income rises, along with more employers offering higher cost-share plans. Plans covering individuals with preexisting conditions and the expansion of coverage for young adult children to age 26 will result in an additional 1.6 million individuals covered in 2013.

In 2014, about 22.9 million new insureds will have coverage through expanded Medicaid and the new state health insurance exchanges, leading to an 8.3 percent spending growth, but a 1.3 percent drop in out-of-pocket spending, the CMS economists projected. The spending due to the coverage expansion is expected to more than offset Medicare savings obtained through the PPACA. A recent Standard & Poor study of the national health index found that Medicare spending increase rate has slowed to 2.64 percent, even before the full implementation of the PPACA.

Also in 2014, the growth in private health insurance premiums is projected to reach 9.4 percent (4.4 percent higher than without the PPACA), as 13.9 million people get coverage through the new state health insurance exchanges. Private health insurance will account for about 31 percent of national health spending, about the same as without the PPACA.

Because many of the new insureds will be younger and healthier and less likely to use hospitals or other more intensive services and the coverage expansion will allow a shift to preventive services, from more costly treatment for delayed, necessary care. Thus, by 2020, spending for prescription drugs and physician services will represent a higher share of health spending, 11 percent and 19 percent, respectively, while the share represented by hospital spending will drop to 30 percent. The excise tax on high cost health insurance plans likely will slow the growth in use of medical services and health spending beginning in 2018, as plan sponsors work to shift employees to lower cost, less generous, plans. While the share of national health expenditures will increase to 49 percent for governments (31 percent federal and 18 percent state and local), the share paid by private will fall to 18 percent, while households’ share will stay the same at 26 percent.

Health Care Reform Summary

Impact on Employers
April 6, 2010

With the passing of Health Care Reform legislation, the resulting overhaul of our country’s health care financing system is the single most important piece of Federal social legislation our generation has ever seen. There has been a broad consensus to expand affordable health coverage, reduce systemic waste and inefficiencies, and increase quality. With these goals we will ultimately achieve lower health care. This legislation outlines broad changes to the current system with significant enhancements to help support these goals. Most of the impact will take effect in 2014 while some changes will occur sooner.

After reading the 2,500 page legislation, attending webinars, and consulting with other colleagues, I have prepared a detailed review of the legislation that impacts employers and our nation as a whole. Outlined below is a summary that could also be used as a hand out for employees. If you would like to discuss the legislation further, or would like the more detailed review, please contact me at cwatkin@ipswichfinancial.com.

Tax Credit. Starting with 2010 taxes, small businesses with fewer than 25 employees that pay at least 50% of the health care premiums for their employees qualify for a tax credit up to 35% of your premiums (50% after 2014 if you purchase insurance through an exchange). How much of a credit you'll get depends on the number of employees you have and their average wage.

Exchanges. Starting in 2014, the biggest potential benefit may kick in with the establishment of Small Business Health Options Programs – or SHOP exchanges. These will enable small companies (up to 100 employees) to pool together to have greater buying power. Theoretically, this should result in lower premium costs.

Subsidies. Starting in 2014, many self-employed individuals will qualify for a federal subsidy to help them afford the cost of purchasing health care. Those earning up to 400% of the poverty level will get assistance, or up to $88,200 for a family of four (at today's poverty level).

Medicaid. Starting in 2014, more lower-income individuals and childless adults would be covered by Medicaid, the federal health insurance plan for the poor. This can be a big help, especially for those just starting a business, without much income.

Mandatory employer-provided coverage. Small businesses – with fewer than 50 employees – are exempt from mandatory requirements. Businesses with more than 50 employees will be required to provide coverage as of 2014 or pay a fine. This is designed to help reduce occurrences of those going to the emergency room for care with no insurance.

Mandatory personal coverage. Also as of 2014, as an individual you will be required to have health insurance or pay a fine. If you have to pay more than 8% of your income for the cheapest plan, you're not penalized.

Pre-existing conditions. Starting in June 2010, individuals who have not been able to get insurance because of pre-existing conditions can join a high risk insurance pool. As of 2014, insurance companies cannot deny insurance to adults based on pre-existing conditions.

Adult children. Starting in September 2010, dependent children up to age 26 can be covered on their parent's policy. This is the same as what we have currently in MA.

Lifetime limits. Starting in September 2010, there can be no lifetime maximum limits on policies. Also, companies cannot rescind policies except for fraud.

Preventive care. Starting in September 2010, coverage must include basic preventive care. Many of the plans currently offered include preventive care.

Taxes. Starting in January 2013, if you make over $200,000 (individual) or $250,000 (family), your Medicare tax rate will increase from 1.45% to 2.35%. A bigger potential tax bite may hit small business owners who receive capital gains, dividend, or interest income with an additional 3.8% tax on that income.

"Cadillac" plans. Starting in 2018, employers who provide insurance costing more than $10,200 for individuals or $27,500 per family must pay a 40% tax on the excess cost of the premium. This could be a big burden on small businesses, as premiums are already nearing that level.