Monday, November 22, 2010

Could This Be The First Signs That The Hard Shell of Health Reform May Be Softening??!!!!


Below is information sent directly from Cigna Health Plan.  If you recall, any employer that made any kind of material changes to their health plan, including moving from one carrier to another, lost Grandfathered Status.  In Interim Revised Regulations, a health plan, after November 17th, 2010, will not lose Grandfathered Status simply because they move from one carrier to another.  Which is good because this part of the law was ridiculous and truly made no sense.
Many plans may want to retain Grandfathered status so that their Health plan would not need to adhere to many of the provision in the PPACA (Health Reform).  This is also important because it could be seen as the hard shell of the PPACA under Democratic Rule starting to soften with the New Republican Controlled  House of Congress getting ready to be installed.

Grandfathered Status Amendment Allows Plans to Change Policies and Carriers
On November 15, the Departments of Treasury, Labor, and Health and Human Services jointly announced that they are amending the Interim Final Regulations on grandfathered health plan status under the Patient Protection and Affordable Care Act (PPACA). The amendment allows employers to switch insurance carriers and/or change their funding from Administrative Services Only (ASO) to fully insured without losing grandfathered status.
The original Interim Final Regulations stated that changing insurance carriers would cause an insured group health plan that was in effect on March 23, 2010 (the date PPACA became law) to lose its grandfather status. For plans wanting to maintain grandfather status, this has been an important consideration.
The Interim Final Regulations are amended as of November 17, 2010 to reflect the following changes for group health plans. These changes are not retroactive, nor do they apply to individual policies.
  • Change of Insurer: If an insured plan changes insurance policies (new carrier) and the new policy is effective:
    • Prior to November 17, 2010: The plan will lose grandfathered status.
    • On or after November 17, 2010: The plan will not lose grandfathered status, provided no other changes are made to the plan that trigger loss of status (i.e., reductions in benefits or employer contribution).
  • ASO to Insured: If a plan changes funding from self-insured to insured and the new policy is effective:
    • Prior to November 17, 2010: The plan will lose grandfathered status.
    • On or after November 17, 2010: The plan will not lose grandfathered status, provided no other changes are made that trigger loss of status.
  • Documentation: The new health insurance carrier must obtain documentation of the prior plan’s terms from the new policyholder so the new carrier can determine whether the change in insurance policies will result in a reduction in benefits or employer contribution sufficient to trigger loss of grandfather status. There’s dual responsibility as the policyholder must also sufficiently provide the documentation to the carrier. Documentation includes:
    • Benefits
    • Individual cost-sharing
    • Employer contributions
    • Annual limits
Yet to be Clarified
The Federal government has yet to clarify whether a change in prescription drug formulary, network or funding status from insured to ASO will cause a loss in grandfathered status.

Wednesday, November 10, 2010

Guess Who Gets to Pay for Health Reform (PPACA)?

Paying for a One Trillion dollar Health Care plan isn't going to be easy.  However, this point may be moot as the republicans have vowed to kill health reform where it stands.  But for the sake of argument, and assuming that the republicans aren't able to stop the de-funding of the reforms, below is a listing of taxes, penalties and fees associated with paying the bill.

  1. Taxes on Tanning Services-This should raise and estimated $10 Billion.  This starts in 2010
  2. Penalties on Unqualified Distributions from HSA's.  The Penalty will be increase from 10% to 20% starting in 2011 and should raise an estimated $1.4 Billion
  3. Fees on Pharmaceutical Manufacturers and Importers-This takes effect in 2011 and should raise an approximate $27 Billion.
  4. Comparative Effectiveness Fee-This is a fee that is going to levied on every member in a health plan ($1 the first year then $2 per year after).  Comparative Effectiveness is where a Non-Governmental Third Party gathers and disseminates health care findings to decision makers.  This goes into effect in 2012 and should raise an estimated $2.6 Billion
  5. Increase the itemize tax deduction for medical expenses from 7.5% to 10% of Adjusted Gross Income, starts in 2013 and should raise an approximate $15 Billion.
  6. 2.3% excise tax on medical device manufacturers and importers.  This goes into effect in 2013 and should raise an estimated $20 Billion.
  7. Limit Flexible Spending Account (FSA) deferral contributions to $2500 per year.  This will be indexed for inflation, will go into effect in 2013 and will raise an estimated $13 Billion.
  8. Health Insurance Companies will be required to pay a fee in 2014 towards the cost of the reform and should raise an estimated $60 Billion.

If we total all these fees, taxes and penalties we come to approximately $149 Billion Dollars!

However, there are two taxes not mentioned that together raise an additional $220 Billion Dollars alone.

Starting in 2012, for people making over $200,000 Individually or $250,000 Filing Joint, there will be an additional .09% Medicare tax on incomes over that amount.  In addition, there will be  an additional 3.8% tax on unearned income (dividends, interest, etc) if earning over those thresholds.  Therefore, if you are earning close to those amounts as a married person, you may want to consider a divorce to protect your nest egg. That will get you to $400,000 before you're hit with the taxes.  As a side-note, not so sure I'd want to be around for any of those "honey we need to get a divorce" conversations.

Now, this still leaves a fairly large gap of funding that isn't accounted for and I'm supposing that much of it will rest on the backs of our employers by way of penalties and fines for not offering health insurance or not offering comprehensive enough health care coverage.

In addition, the Bush Tax Cuts are set to expire January 1, 2011 and this also would create a huge funding source.  However, it remains to be seen if President Obama is going to extend those tax cuts.  Because, if he does, in a sense he is de-funding his own Health Reform Law.

Friday, November 5, 2010

Small Business Tax Credits under Health Reform (PPACA)...It's a Good Thing!

In the New Health Reform Law there is some potential good news for employers who pay for a portion of their employees health insurance.  Well sort is how it works (it's a bit confusing...and long):

Small Business Health Care Tax Credits (Retroactive effective January 1, 2010)

Eligible employers may be offered a credit of up to 35% of what they paid towards the cost of employee’s health care!

Who is Eligible ?

Employers with less that 25 Full Time Equivalent (FTE) employees and average wages below $50,000 and contribute at least 50% toward the cost of the employees individual plan. 

Highest credits give to employers with 10 or less FTE employees and average wages below $25,000.

As the number of employees exceed 10 and the wages exceed $25,000, the credit decreases until at 25 employees and $50,000 average wages, the credit is $0

How do I calculate my number of FTE employees?

Divide the total number of hours worked by all employees (excluding owners and seasonal employees) by 2080 and round to the next lowest whole number.   If employees worked more than 2080 hours then use 2080.

Seasonal employees are not counted in the FTE calculation if they worked less than 120 days in the tax year.  However, premiums paid on their behalf may be counted towards the credit.

Sole Proprietors, Partners in a partnership, shareholders owning more that 2% in a S Corporation and any owner of more than 5% of other business…… and all family members are not considered employees for purposes of the tax credit.  Therefore, premiums paid on their behalf are also not counted towards the credit as well.

For Example, Jones Company has 5 full-time employees and 3 part-time employees.  The part-time employees work 20 hours each per week.  Therefore:

(5 X 2080 = 10,400)
(3 X 1040 = 3,012)

13,412 divided by 2080 =6.45 or 6 (Rounded to the next lowest whole number)

How do I determine average annual wages?

You will divide the total wages paid for FTE employees……not including those already listed as ineligible) by the total number of FTE.

$200,000 (total wages)  /  10 (FTE Employees) = $20,000 (Average Annual Wage)

How do I calculate my credit?

If you have 10 or less FTE employees and an average annual wage under $25,000 then you are eligible for a 35% credit on what you have paid towards your employees coverage.

What happens if I have 10 or more FTE’s and/or the average annual wage is over $25,000?

This is where it gets a bit tricky………………

For every employee over 10, the credit is reduced by 1/15th and 1/25th for every thousand dollars over $25,000.

For example:

ABC Company had 12 FTE Employees and an Average Wage of $30,000.  The employer paid $28,800 ($200 X 12 Employees X 12 months).

Therefore the calculation looks something like this:

Calculate what the credit would have been without reductions…

(35% X $28,800) = $10,080

Then calculate the reduction of credit for number of employees over 10…..

($10,080 X 2/15) = $1,344 (Reduction of credit)

Then calculate the reduction of credit for each thousand dollars over the $25,000 threshold….

($10,080 X 5/25) = $2,016 (Reduction of Credit)

The credit then looks something like this:

$10,080 (Total Possible Credit) minus $1,344 (Reduction for number of employees over 10) minus $2,016 (Reduction for $5,000 over $25,000 threshold)  = $6,720 Tax Credit

So how do you claim the tax credit?

Tax exempt organizations are eligible for a maximum 25% tax credit (as opposed to 35% for all others) and the credit is a refundable credit.  In addition the tax credit may not exceed the total amount of income and medicare tax that the employer is required to withhold from employees wages and the employer share of medicare tax on employees wages for the year.

Amounts paid by the employer for dental and vision plans are also eligible but must meet these same requirements separately.

The Kicker

Most companies (except non-profits) must claim the credit as an offset of income tax liability.  Therefore, in order to claim the credit, the company must make a profit.  In other words, if the company is operating at a loss for the year, they are not allowed to take the credit.  Doesn't this seem a bit backwards since the companies who would need this credit the most, aren't going to qualify? 

Wednesday, November 3, 2010

Republicans won the House. Now What Happens To Health Reform? (PPACA)

Nancy and Steny Kissing
each other goodbye. 
Most everyone, at this point, must be thinking.....what is going to happen with Health Reform under the PPACA?  According to the LA Times, the soon to be Speaker of The House, Rep. John Boehner of Ohio vows to dismantle the health care monstrosity.  "The American people are concerned about the government takeover of health care", he said.  " I think it is important for us to lay the groundwork before we begin to repeal this monstrosity and replace it with common-sense reforms that will bring down the cost of health care insurance in America."  This sentiment of repeal, according to a November 1, 2010 Rasmussen Poll, is shared among 58% of likely US Voters.

I know that many on the right and some turn-coats on the left have vowed to repeal the health care reform (PPACA) signed into law on March 23, 2010.  I honestly have no idea how that would happen.  Not that it couldn't, I just don't know enough about the politics to be sure.  However, what I do know is that the Republican House has already set a course through amendments and bills to "chip away" at the current law.  Some of these bills include: 

  1. No less than 9 representative have bills to repeal the Patient Protection and Affordable Care Act.
  2. H.R. 4904-Prohibits the use of funds for implementation or enforcement of any federal mandate to purchase health insurance. (Poe, R-TX)
  3. H.R. 4985-Medicare Decision Accountability Act of 2010 (Roe, R-TN)-This bill repeals legislation to set-up a Independent Advisory Board that was enacted in the PPACA and gives bureaucratic control to determine what benefits are covered and how much physicians are to be paid.  The IPAB sole intention will be to determine whether Medicare is spending more than budgeted and offer "fixes" to cut-back on that spending.
  4. H.R. 4995-End the Mandate Act of 2010  (Paul, R-TX)-Repeals the sections of PPACA that force all Americans to purchase federally-approved health insurance plans.
  5. H.R. 5054-Prevent IRS Overreach Act of 2010 (Forbes, R-VA)-Prohibits the IRS from hiring, transferring or appointing individuals for positions used to enforce provisions of health care reform.
  6. H.R. 5126-Helping Save Americans' Health Care Choices Act of 2010 (Fleming, R-VA)-repeals provisions of the PPACA including the additional taxes on Health Savings Accounts (HSA) and the prohibitions on tax-free reimbursements for over-the-counter medications as well as remove the cap on Flexible Spending Accounts (FSA's).
  7. H.R. 5141-Helping Small Business Paperwork Mandate Elimination Act (Lungren, R-CA)-Repeals the tax reporting mandate included in the PPACA thats requires all business to file 1099's for all transactions in goods and services over $600 a year. 
  8. H.R. 5444-To Amend the PPACA to permit a State to elect NOT to establish and American Health Benefit Exchange (Paul, R-TX)-This bill places individuals back in control of health care by replacing PPACA with reforms designed to restore a free market health care system.
So it seems to me that the Republican House, if they can't repeal the PPACA, will make sure that Health Reform is not going to look, at all, like it does today.  If they are successful , they will be taking away funding to manage it, taking away committees to oversee the administration of it and eliminate the health care exchanges to deliver it.  Doesn't seem like much of the PPACA is going to be left after they are done with it.

Monday, November 1, 2010

The Individual Mandate-What Coverage Every Person Must Take-Or Else....

Individual Mandate

Individuals must have health coverage effective January 1, 2014 either through employer coverage, government, private or the exchange.  If individuals elect to purchase coverage through their State run Exchanges (place where we will purchase coverage) they will be able to choose from several options:  The plans will range from minimum plan or Bronze Plan to the Silver plan, Gold and Platinum Plans.  In addition for those under 30 years old, you will be able to purchase a catastrophic plan which is kindly named the "young and invincible" plan.  This plan makes absolutely no sense.  Since all health coverage offered through the exchange will be community rated, you want the younger and healthiers on plan and paying into the system to help off-set the older and/or unhealthiers. 

Many States are arguing the constitutionality of the Individual Mandate

This is how the cost of the plans will break-down for people earning at or below 400% of the Federal Poverty Level (FPL)

Individuals earning  up to 133% of Federal Poverty Level (around $14,000/Year) will be eligible for free coverage under expanded version of Medicaid.  Individuals earning 133%-400% of Federal Poverty Level will receive a subsidy based on a sliding scale up to 400%.  400% of FPL for an individual is $44,000 per year and a family of four is $88,000 per year.  Nobody will pay more than 9.5% of their annual household income on health coverage if they fall at or below 400% of the FPL.


So What if You Say Forget It, No Coverage for Me........?

Fines for not having coverage

In 2014 you will pay a fine of $95 per year or 1% of income whichever is greater and by 2017 amount goes to $695 or 2.5% of income to a maximum of 3X the individual penalty.

Non-payers will receive a notice from the IRS.  If they don’t pay, the IRS will take it from their tax refund in the future.  If they continue to not pay the fine, they will not be subject to any criminal prosecution or penalties.  The secretary cannot file a notice of lien or file a levy on any property……..In other words, no teeth to this penalty.