When the Supreme Court upheld the Patient Protection & Accountable Care Act (ACA) last year, the implementation of sweeping changes that will result from health care reform kicked into high gear. With many ACA provisions taking effect in 2013 and 2014, businesses and individuals can now better understand the impact of the law.
Access to care
ACA includes several new avenues for individuals to access care, including expansion of state Medicaid plans, incentives for employers to offer health care coverage and access to insurance exchanges for individuals who do not qualify for Medicaid and are not covered at work.
ACA removes the ability for insurers to deny coverage due to pre-existing conditions but also requires all individuals to have coverage or face a penalty.
The most significant impact for businesses is the requirement to provide employer-sponsored health coverage or pay a penalty. In general, starting in 2014, any business with more than 50 full-time employees is required to offer affordable health coverage that meets minimum coverage criteria. If a business does not offer coverage, or offers coverage that is not affordable, the penalties would be as follows:
- If a business does not offer coverage, the annual penalty is $2,000 per employee in excess of 30. (That is, if a business has 100 employees, the penalty would be 70 x $2,000, or $140,000.)
- If a business offers coverage that is deemed unaffordable, the penalty is $3,000 for each employee who receives a premium credit to access care through an insurance exchange.
As businesses prepare for these changes, they should determine which full-time employees must be offered coverage, ensure that premiums charged to employees are low enough to be affordable and be sure benefits offered under the plan meet ACA minimum requirements.
While small employers are exempted from many of these provisions, they are encouraged to offer coverage in exchange for a health insurance premium credit. In general, employers with 25 or fewer full-time employees whose average pay is less than $50,000 can receive a credit of up to 50 percent of health insurance premium paid, as long as they pay at least 50 percent of the cost of the single premium for their employees.
Impact on patient care
While most ACA provisions do not directly impact an individual’s health care choices, many patients will notice changes in the way doctors and hospitals deliver care. For many years, most payments to providers have been based on the volume of services provided. ACA creates a significant focus on quality of patient care and outcomes, rewarding or penalizing providers based on these factors. These changes are driving hospitals, physicians and insurers to align so they can better manage the care of a patient population, via organizations called Accountable Care Organizations (ACO).
The goal of an ACO is to reduce the cost of patient care by managing the way care is provided, mainly by ensuring it is provided in the right setting. ACOs often include patient navigators or gatekeepers that help patients access the right type of care, ensure that chronic conditions are treated appropriately and coordinate care from different providers to limit duplication of services.
Patients participating in an ACO can expect more direct contact from caregivers and will be asked to take ownership of their health care outcomes. Employers may be asked to offer more wellness benefits and encourage healthy habits to aid in the success of an ACO.
Paying for ACA
ACA’s $940 billion cost is paid for through several means, including payment reductions to providers and increased taxes.
Tax provisions include numerous business taxes, such as excise taxes on high-cost health plans and medical device manufacturers, annual fees paid by insurance and pharmaceutical companies and limitations on certain corporate income tax deductions.
For individuals, taxes include a 0.9 percent Medicare tax on earned income in excess of $250,000 for joint returns ($200,000 for other filers) as well as a 3.8 percent Medicare tax on net investment income. Other individual provisions include:
- If an individual does not purchase the minimum level of coverage required by ACA, then a penalty equal to the greater of 1 percent of income or $95 applies in 2014. This increases to 2 percent or $325 in 2015 and then 2.5 percent or $695 in 2016 and after. The ACA includes premium assistance credits that can be used to offset this cost for qualifying taxpayers.
- Pre-tax contributions to a health flexible spending account will be limited to $2,500 per year.
- The threshold for deducting medical expenses as an itemized deduction was increased from 7.5 percent to 10 percent of adjusted gross income.
Although most of these provisions will be effective in just nine months, there are many details yet to be finalized. For example, most state and federal insurance exchanges are not functional yet, so the manner in which individuals will enroll is not clear.
Also, while Medicaid expansion was a key component of ACA, it is voluntary on a state-by-state basis. Certain states may elect not to expand Medicaid, which could impact patient access to care as well as the financial health of hospitals. (Certain payments to hospitals are being reduced in anticipation of increased Medicaid volume. If a state does not expand Medicaid, the payment cuts still occur.)
Businesses and individuals should closely monitor the final rollout of ACA and contact advisors to be sure they are making the right choices to limit the financial impact of these changes.
This information was written by Tom Watson, managing partner of BKD’s Dallas practice. He can be reached at firstname.lastname@example.org or (972) 702-8262. Applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here.
Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.