SEMA News - June 2010
Prescription for Trouble or What the Doctor Ordered?
By Dan Sadowski
On March 23, President Barack Obama signed the “Patient Protection and Affordable Care Act” into law, completing a year of contentious debate and creating the largest government mandate in recent history. Given the sweeping nature of the legislation, it will take some time for the ramifications of this historic action to be fully understood. However, some facts are immediately known.
The new health care law is designed to provide coverage to 32 million uninsured Americans and bring the total insured population to 95%. The law is complex and will eventually impact everyone—but not immediately. Many of the more significant changes will be phased in between 2014 and 2018. As will be described, there are some provisions that SEMA supports while others are inconsistent with the association’s stated positions.
The law includes a SEMA-endorsed measure to establish insurance “exchanges.” Under these exchanges, small businesses and individuals will be offered a selection of private health plans that have been established under common rules regarding the offering and pricing of insurance. Consumers will be provided with transparent information to help understand the options and differences between the plans (covered benefits, deductibles, premium costs, etc.). The exchange has the ability to pool a large number of potential consumers and thereby help organize a more competitive marketplace, especially if cost is a primary issue.
The exchanges will be called the Small Business Health Options Program (SHOP) for companies and the American Health Benefit Exchange for individuals. Each state will begin operating them in 2014, if not sooner. States may also form regional exchanges or allow more than one exchange to operate in a state as long as each exchange serves a distinct geographic area. The federal government will contract with private insurers to offer at least two national or multi-state plans in each exchange.
The SHOP exchange will be open to all companies with up to 100 employees. Beginning in 2017, states will have the option of allowing companies with more than 100 workers to participate as well. SEMA has been advocating for this model of health insurance coverage for many years and will work with other trade associations and government officials to make the program viable for its members.
The new law also provides an immediate tax credit to small employers that purchase insurance if they have no more than 25 employees and average annual wages of less than $50,000. The credit varies according to size, wages and the amount of employer contribution for the premium. Beginning in 2014, small businesses that purchase through the SHOP exchange will be eligible for a two-year tax credit, based on firm size and average annual wages.
While these measures are steps in the right direction, the new law fails to address certain key points of importance to SEMA members. The bill does not address options to limit costs for both businesses and individuals, and it places an unfair financial burden on employers. Additionally, the legislation does not address meaningful tort reform, which may result in frivolous lawsuits and even higher costs for business owners.
|"SEMA remains committed to pursuing meaningful reforms to protect and advance the industry in a difficult economic and political environment. Overhauling the nation’s health care system did not end with the new law. The groundwork was laid for further improvements."|
Of particular concern for SEMA members is the so-called “employer mandate,” which imposes significant requirements on midsize to large businesses but spares small businesses. Employers with 50 or fewer employees are not required to provide health insurance. While there is no direct mandate, however, businesses with 51 or more employees must offer qualified coverage by 2014, as they will be penalized as soon as any full-time employee receives a government subsidy as part of the individual mandate.
If the penalty is triggered, the government will impose a fee of $2,000 for each fulltime employee (30 hours or more a week), minus the first 30 employees. Therefore, a company with 51 employees would be assessed a fine of
The law imposes a variety of restrictions on the insurance industry. It prohibits individual and group health plans from placing lifetime limits on the dollar value of coverage or annual limits on the dollar value of coverage. It provides dependent coverage for children up to age 26 for all individual and group policies and prohibits pre-existing condition exclusions for children. The law establishes a national high-risk pool to provide health coverage to other individuals with pre-existing conditions. It also provides grants for up to five years to small employers that establish wellness programs, and it allows companies to offer employee rewards to participate, such as premium discounts.
It is clear that the legislation signed into law does not provide sufficient reform. It also has the potential to impose new burdens on American employers. As described above, it will have both positive and negative impacts on SEMA members, and those distinctions may vary based on company size or other demographics.
SEMA remains committed to pursuing meaningful reforms to protect and advance the industry in a difficult economic and political environment. Overhauling the nation’s health care system did not end with the new law. The groundwork was laid for further improvements.
Patient Protection and Affordable Care Act Timeline for Major Provisions
- Tax subsidies for very small businesses that provide coverage.
- Children permitted to stay on parents’ policies until their 26th birthday.
Insurance companies barred from denying coverage to children with pre-existing illness
- Businesses must begin reporting the value of health care benefits on employees’ W-2 statements.
- New information reporting is required for businesses making payments in excess of $600 over the course of a calendar year to corporations.
- A new 0.9% surtax will be tacked onto the 1.45% Medicare payroll taxes paid by individuals earning more than $200,000 per year or joint filers earning more than $250,000 per year. A new 3.8% Medicare surtax will also be imposed on these same individuals/couples. It will be the lesser of: (1) net investment income; or (2) any modified adjusted gross income over the threshold amount.
- The threshold for claiming medical expense deductions rises from 7.5% of adjusted gross income to 10%. (The threshold will remain at 7.5% for individuals 65 or older until 2016).
- Contributions to health care flexible spending arrangement will be limited to $2,500. The cap will be indexed to inflation beginning in 2014.
- SHOP exchanges for small businesses take effect (if not sooner). Subsidies will be available to participating small companies based on wages and number of employees.
- Large companies (more than 50 employees) must provide affordable coverage or risk a fine of $2,000 per employee, excluding the first 30 employees.
- All individuals must now have minimum insurance or pay a $95 penalty.
- Penalty for individuals that don’t have minimum insurance rises to $325.
- Penalty for individuals that don’t have minimum insurance rises to $695 and is thereafter tied to inflation.
- Businesses with more than 100 workers may buy coverage through the SHOP exchange, if state permits.
- A 40% excise tax on high-cost health insurance plans takes effect. Paid by insurers, the tax is on the amount in excess of $10,200 for individuals and $27,500 for families.