The New Health Insurance Law and Your Money
Aside from some procedural maneuvering in the Senate, the health insurance reform bill that Congress has been working on for the last year, now falling under the Reconciliation Act of 2010 (H.R. 4872) and the Senate health bill, will soon be signed into law. How is the new law going to affect your personal finances? Since there are so many different health and insurance situations in America, it’d be impossible to cover them all in one article.
Here’s a roundup of the more significant and wide-reaching parts, in a rough order of how likely each would impact you.
If you itemize medical expenses on your taxes, the threshold will go up from 7.5% to 10% of your income (expenses will have to total above 10% before you can deduct them), though the threshold remains at 7.5% for the elderly through 2016.
Starting in 2014, individuals and small businesses will be able to shop around for state-based group health plans in addition to private plans. This is optional and should provide an ability to find lower premiums due to a large customer base and the natural effects of increased competition in the market. The Congressional Budget Office (CBO) expects the number of people getting insurance through the new marketplace to start around 8 million in 2014 and to grow to 24 million in 2019.
Health insurance premiums
Most working Americans get health insurance coverage through their employer or their spouse’s employer. Premiums will largely stay the same according to FactCheck.org, but you’ll get more “bang for your buck.” Insurance companies will be required to spend 85% of your premium on medical care in small markets and 80% in large markets, rather than spend it on other things like marketing, bonuses, lobbying, and other administrative expenses.
Dependent children will be allowed to stay covered under their parents’ insurance until age 26. According to Reuters, “Many health plans currently drop dependents from coverage when they turn 19 or finish college.” This increased coverage is optional, and parents who decide to take advantage of this can always ask their adult kids to pay for their own co-pays and deductibles.
This will go into effect six months after the president signs the bill into law.
There is currently a “doughnut hole” in Medicare Part D, the program that many Seniors use to purchase medication. If you’re spending between $2,700 and $6,154 a year on drugs, you have to pay for it all yourself. The new law gradually closes this gap over time, starting with a $250 rebate, 50% discount on brand names starting in 2011, and it will be eliminated by 2020.
About 22% of Medicare enrollees use Medicare Advantage. Some add-on benefits of popular Medicare Advantage plans will be dropped, and money flowing from the government toward these plans will decrease. Medicare Advantage plan providers will have to spend at least 85% of revenue on medical costs or activities that improve quality of care, rather than profit and overhead.
Starting in 2011, Medicare beneficiaries will be able to get a free annual wellness visit and personalized prevention plan service. New health plans will be required to cover preventive services with little or no cost to patients.
Medicaid, the government healthcare program for the poor, would be available to everyone with incomes up to 133 percent of the poverty level, which stood at $10,830 for an individual and $22,050, for a family of four.
Federal subsidies for purchasing insurance will be available for those beyond the Medicaid limit, Americans with incomes between 133% and 400% of the poverty line.
If you get sick
This is why most people get health insurance in the first place. It’s the same reason we get car insurance. There might be a terrible accident. Here’s how the new law will affect your finances if you get seriously ill:
- You won’t be dropped from your health plan. In about six months, that will be illegal.
- If you try to purchase health insurance with an existing illness, you will be able to. Insurance companies won’t turn you away. This is true for children six months after it’s signed into law, and by 2014 for adults.
- There will be no limit to how much coverage you can receive in your lifetime.
- Similarly, annual limits on benefits will be restricted within about six months, and will be illegal by 2014.
The “Cadillac Tax”
If you have a “high-cost” plan, currently defined as one costing more than $10,200 for an individual or $27,500 for a family per year, there will be a new 40% tax starting in 2018. According to FactCheck.org, this new tax “falls on insurers, but would be passed along to policyholders one way or another.”
However, according to Reuters, “A higher threshold is allowed for plans covering mostly women, older workers and retirees as well as those in high-risk professions.” The dollar thresholds are indexed to inflation and the dollar thresholds are automatically increased in 2018 if the CBO is wrong in its forecast of the premium inflation rate between now and 2018.
As a result of this tax, the CBO and the Joint Committee on Taxation believe people will start choosing less expensive plans, and because of higher cost benefits, employers will be able to raise salaries. Time will tell.
The Medicare payroll tax is raised to 2.35 percent from 1.45 percent for individuals earning more than $200,000 and married couples with incomes over $250,000. The tax is imposed on some investment income for that income group.
This refers to adjusted gross income (taxable income), not total annual income. This will go into effect in 2013. In 2008, about 2% of American households had adjusted gross incomes greater than $250,000.
Update:“Investor Junkie” in the comments pointed out something I missed in this section. The Medicare tax which comes out of our paychecks is being modified to include net investment income (interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property). As above, this does not apply if modified adjusted gross income is less than $250,000 in the case of a joint return, or $200,000 in the case of a single return.
Starting this year, there will be a new tax credit for some small businesses to help provide coverage for workers, but firms with more than 50 workers who do not offer medical coverage could face fines of $2,000 per full-time employee. The first 30 are exempted from the fine, so if the non-compliant business has 51 employees, the fine applies to 21 of them.
In addition, according to Reuters, “A temporary reinsurance program is created to help companies maintain health coverage for early retirees between the ages of 55 and 64. This also expires in 2014.”
People who can afford insurance but choose not to buy
If you’re not covered under your parents’ plan, and if your income is high enough to afford insurance, and if you choose not to sign up for it anyway, you will pay an annual penalty. The penalty will be either a flat dollar amount (for example, $325 in 2015 and $695 in 2016), or as a percentage of your income (for example, 1.0% in 2014, 2.0% in 2015 and 2.5% in 2016).
If you own a tanning salon
From Reuters, “A 10 percent tax on indoor tanning services that use ultraviolet lamps goes into effect on July 1.”
This article focuses almost solely on the direct or indirect effects of the new law on your personal or family finances. There are many more aspects to the law, however, which I encourage you to familiarize yourself with, including the quality of care, how program effectiveness is measured, innovation, taxes on specific medical devices, how national programs are paid for, etc. The full list of my sources are below:
Factbox: Details of final healthcare bill, Donna Smith, Reuters, 19 March 2010
Factbox: Healthcare bill would provide immediate benefits, Donna Smith, Reuters, 19 March 2010
Factbox: Winners and losers in House healthcare bill, Susan Heavy, Reuters, 19 March 2010
A Final Weekend of Whoppers, Lori Robertson, FactCheck.org, 19 March 2010
H.R. 4872, Reconciliation Act of 2010, Congressional Budget Office, 18 March 2010
There’s also a handy calculator provided by the Kaiser Family Foundation where you can see specifically how you’ll be affected once the new law is signed. Make sure you choose “Reconciliation Proposal” in the dropdown menu near the top.