Brown's Insurance Blog
Obamacare is here to stay?
Obamacare is here to Stay? What does that mean to me?
As we all know, the US Supreme Court recently upheld the Patient Protection and Affordable Care Act, often referred to as Obamacare. Just for ease of use, we will use the name Obamacare in this article. The purpose of this article is to review what this act means to our customers (assuming that the act is not changed or repealed by future legislation). We are not here to discuss whether or not the act is constitutional, affordable, or the right thing to do. We’re just going to talk about what it does. To do so, we are going to list some of the “winners” and “losers” under the act. This blog is mostly concerned with the effects on our customers. We are trying to provide facts, and our educated guesses about how things will pan out. The act does a lot more than what we will discuss, but much of that is “behind the scenes” stuff to the majority of our customer base. So here they are:
People who have used up their “lifetime limits” for coverage or for certain conditions. Winners. Policies may no longer have lifetime limits. Some insurance companies have stated that they would be willing to continue this provision even if the act were repealed.
Young people aged 18 to 26. Winners. Young adults may now remain on their parents policies up until age 26, even if they no longer live at home. Even if they are no longer students. Even if they are married. Most insurance companies have stated that they would be willing to continue this provision even if the act were repealed. However, watch out for one thing. Coverage for child dependents does not include maternity under most plans. If your daughter is 24, she could remain on Mom and Dad’s plan, but it might be best to get her own (with maternity) if grandkids are a possibility.
Kids under 19. Winners and Losers. The act says that effective in 2010, companies may not decline applicants for individual health insurance under the age of 19 due to pre-existing conditions. If your kid has major health problems, that may be a good thing for you. However, the unintended consequence was this: Virtually every insurance company who offers individual health insurance (at least in VA) declared that they will no longer offer coverage for policies for children under 19 by themselves. They will still take them as part of a family policy with at least one parent, but they won’t take them by themselves, even if they are in perfect health. This becomes a problem if the parents are not insurable. I expect that companies may begin to offer child only policies again in 2014 when they have to take all comers for adults as well.
People who already have health insurance and then get a major illness. No significant difference. Some politically biased sites tout the fact that health insurers can no longer drop an insured because they get sick. This is true. But they could not do so before the act under the laws of just about every state, except in cases of fraud by the applicant. But now it’s federal law. Translated, if you lie on the application and tell us you are in perfect health, when in fact you have cancer, the insurance company will still deny claims and rescind the policy once they find out about the fraud. As it stands now (and even before Obamacare), if you have an individual health insurance policy, and develop a major illness, they can’t cancel you because of the illness.
Insurance Agents. Losers. Losers. Losers. First, the act states that insurance companies must spend a certain percentage of their premium on claims, rather than overhead, expenses and profits. For group health insurance, it is 85%. For individual policies, it is 80%. In other words, their profit and overhead can be no more than 20% of premiums for individual policies. For just about every insurance company, this meant that they had to reduce overhead. Sounds like a good idea, right? The problem is, most of them already had overhead shaved pretty thin. The only area where they could make any significant cut was in insurance agent’s commissions. And they did. Big time. I write a group health policy for one business that pays about $200,000 per year in premiums. For writing this big account, I make about $3000 per year in commissions (1.5%). Before Obamacare, I would have made 5%. It has reached the point where it is no longer profitable for agents to sell group health at all. In addition, the act requires the Federal or State governments to set up “insurance exchanges.” In other words, they want to set up government entities to perform exactly the same functions as an insurance agent. Some political pundits have expressed the opinion that agents do not serve a valuable function in the insurance business, and they point to the example of GEICO insurance, where no agent is involved. Yes, you can buy insurance without an agent, but then there is nobody to advise you about coverage choices. Further, we find that our prices routinely beat GEICO in terms of rate by 20% to 40%. If that (the no agent system) is efficiency, then my customers can do without it.
So, by force of legislation, the federal government has largely removed the insurance agent from the equation in the purchase of health insurance, and set up a competing program which does not serve the customers as well. How many of you feel competent to compare the terms of two different insurance policies and understand which is the better deal? Do you want the government to help with that choice? OK. I’m off the soap box now. Back to business.
Anybody who wants preventive checkups. Winners. Policies must now cover preventive checkups such as mammograms and colonoscopies with no deductible and no co-payment.
Anyone who makes over $200,000 per year. Losers. Single taxpayers making over $200,000, and joint filers making over $250,000 will pay an additional 0.9% tax on their tax returns. And for you political wags, it is clearly labeled a tax.
Anyone with no health insurance who is in good health. Losers/ Winners. Starting in 2014, you must get health insurance, or pay an additional tax. At least, according to the Supreme Court, it’s a tax. If you pay the tax, you lose. If you buy health insurance to avoid the tax, you lose, but if you actually need the coverage, you win. Of course, we recommend that you get health insurance anyway. If you can’t afford health insurance, but make too much to qualify for Medicaid or federal subsidies, tough cookies.
Anyone with no health insurance who has pre-existing conditions. Winners/Losers Starting in 2014, you must get health insurance, or pay an additional tax. The good part for you is that starting in 2014, the insurance companies must take you, and must charge you the same rate as those clients in excellent health.
Anyone with no health insurance who makes less than 133% of the federal poverty level. Winners. Those making up to 133% of the federal poverty level will be eligible for Medicaid starting in 2014. Look here for an explanation of the federal poverty level. http://en.wikipedia.org/wiki/Federal_poverty_level#Recent_poverty_rate_and_guidelines. For a family of 4 in the 48 continental states, an income below $23050 counts as poverty level. Thus, an income of up to $30656 ($23050 X 1.33) would qualify for Medicaid. If you qualify, you need to enroll! People who make too much to qualify for Medicaid may still be eligible for federal subsidies to help them pay for the premiums (up to 400% of federal poverty levels). However, looking at some of the “subsidized” prices, they are still a lot higher than what some consumers would pay now, especially as you get closer to 400%. Still if you make twice the federal poverty level, this may help you afford insurance in the long run, especially if you have pre-existing health problems.
Anyone in good health buying health insurance starting in 2014. Losers. Since they have to take the folks with health problems, and charge them the same rate that they charge you, do you think they are going to give them all the low rate that you would pay today? Nope. Your rate will be raised to compensate for, and average out with, all of the unhealthy folks. And of course, you will be required to buy it, or pay the tax. I expect rates for individual policies to more than double the current “healthy individual” rates available, until they are comparable to group insurance rates.
Anyone who already has an individual health insurance policy renewing it starting in 2014. No big difference? I’m guessing a little on this one. My guess would be that the health insurance companies will start fresh in 2014 with new rate structures for new clients, and keep the existing rate structures for existing clients (subject to the usual rate increases, but not extraordinary ones).
Anyone already enrolled in a group health plan. No big difference. Group health plans already cover pre-existing conditions and take all comers, so no big changes in terms of rate.
Employers with 50 or more employees who do not offer group health now. Losers. Starting in 2014, the law requires any employer with 50 or more employees to offer coverage to their full time employees. This may result in an increase in the cost of your restaurant bill, construction project, landscaping, or virtually any other product that includes an element of labor in the US. Or it may result in problems for the next category.
Full time employees of a company with 50 or more employees and no health insurance. Your boss will soon (starting in 2014) be required to offer coverage to all full time employees. Maybe they will spend hundreds of thousands of dollars on a new company expense, in which case you are a winner. Maybe they will cut your hours down so that you no longer qualify as full time, in which case you are a loser.
Hospitals, drug companies, and medical equipment suppliers. Winners. Winners. Losers. Theoretically, Obamacare will greatly reduce the number of uninsured patients in the country. If these millions of patients have access to medical care they will use it. This means millions more doctors appointments, hospital stays, and prescriptions per year. And that means huge increases in profits. On the other hand, there are new taxes on them as well.
All healthcare buyers, if Obamacare works as hoped. Winners. One of the intents of this plan is to remove, or at least reduce, the number of uninsured patients. Hospitals are required to treat the uninsured for emergencies. Most hospitals write off a significant percentage of their billings as bad debts. The theory is that if we can reduce the number of uninsured patients, that will reduce hospital write offs. If hospitals don’t have to cover as much bad debts, they could reduce the amounts that they charge for their services. If hospitals don’t charge as much, your health insurance costs could go down. Or at least, not go up as much as they might have done. If I had to guess, there might be a lag of a few years before this effect, if any, filters down to the insurance buyer. Hospitals won’t reduce costs until they actually see the reduction in bad debts. And insurance companies won’t reduce premiums until they are able to negotiate lower reimbursement rates with hospital corporations. Further, I have seen one blog on hospital accounting that actually predicts an increase in bad debt write-offs as more consumers choose high deductible health plans.
Anyone who uses an FSA account for more than $2500 per year. Losers. FSA stands for flexible spending account. These are sometimes referred to as section 125 or cafeteria plans. Starting in 2014, you won’t be able to run more than $2500 per year into your FSA account (at least, you won’t get a tax deduction for more than $2500). This is most likely to affect parents who pay for daycare through an FSA. In other words, it hurts most for middle class folks on a budget.
The American Taxpayer. Losers. I have seen estimates ranging from One to two TRILLION dollars for the cost of this plan over the next ten years. That money has to come from somewhere.
Copyright 2012 Brown’s Insurance Agency Inc.