What is the Affordable Care Act really about? On March 15 Frank Knapp with the Small Business Chamber of Commerce in Columbia wrote a “To the Contrary” article that requires further clarification by someone who can address his article so readers have an opportunity to understand the broadness of the Affordable Care Act.
What is the individual mandate? There are two groups that will be impacted by the law. The first is individual marketplace purchasers; the second is those who purchase coverage through an employer.
The first group is supposed to comply with the individual mandate by purchasing creditable health insurance coverage before the open enrollment period ends on March 31, this Monday. If you purchase health insurance on the new individual marketplace, keep in mind there are distinct differences between individual policies and employer sponsored policies.
1. Individual policy premiums are no longer tax deductible like they are when you purchase coverage through your employer
2. You will be responsible for paying the monthly premiums, not your employer, with after tax dollars
3. Due to unisex rates and 3-to-1 rate compression, your premiums will likely be higher than expected
4. Individual policies use a different network of providers than employer sponsored plans do. The result is that individual policies have a narrower network of providers because providers are getting reimbursed less on these individual policies than what private insurers reimburse providers through employer sponsored plans
5. An individual policy holder only has access to in-network providers, which means you can't see a provider out of network.
6. Based on your household income, you may qualify for a subsidy to help offset the premium cost on an individual policy.
7. Your insurance agent earns more commission by writing an individual policy than an employer sponsored policy.
What happens if you go uninsured from April 1 forward? If you, as an individual, decide not to purchase health insurance coverage in 2014, you will be fined the greater of 1 percent of your income or $95. Keep in mind, this fine is only collected if you receive a tax refund and if you don’t qualify for a hardship provision, or, as of March 25, you go to the site and justify why you have not enrolled.
If you don’t apply for coverage during open enrollment, you will be subjected to a fine, but your wages won’t be garnished, you won’t receive a call from a collection agency and you won’t be billed for the fined amount. In South Carolina there were 300,000 uninsured individuals on Jan. 1, and as of Feb. 15, only 30,076 South Carolinians had signed up and paid the first month’s premium for individual health insurance coverage on the marketplace. Of those who have applied and paid for coverage, 83 percent were approved with a portion of their premium being paid by a subsidy from the federal government.
How about purchasing medical insurance through your employer? The second group of health insurance purchasers are those who buy health insurance through their employer. These employers are split into two groups: Those with 49 or fewer employees and those with 50 or more employees.
Today, and prior to the passage of the ACA, employers with 49 or fewer employees are not required to offer medical insurance to their employees. Most employers have offered affordable coverage to their employees by subsidizing the premium cost on a tax advantaged basis. The premiums employers pay on behalf of their employees is deducted as a business expense, and typically the small portion of premium employees pay is deducted from an employee’s paycheck pre-tax under IRS Section 125.
Since the 1930s employers have provided medical insurance coverage to their employees as a tool to attract and retain quality employees. I don’t foresee employers abandoning this practice, given that most Americans like the convenience of not being saddled with the responsibility of understanding the plans, but mostly because they don’t want to be responsible for paying the premiums each month out of a personal checking or savings account. As premium costs continue to rise, employers will ultimately be faced with a very difficult decision: Keep offering employer sponsored health insurance coverage or cancel the policies due to increasing premium costs.
The portion of the law that affects 50-plus employers has been postponed until 2016. In 2016 any employers with at least 50 full-time equivalent employees have to offer group health insurance to their employees or face a fine. If 50-plus employers don’t offer health insurance coverage to their employees, the first 30 employees are exempt from a fine, but every employee working 30 hours a week or more will trigger an after-tax fine to the employer of $2,000 per full-time employee. If employers continue to offer affordable coverage to their employees, it’s likely the employer will not be faced with a fine.
What are the politics of the law? Well, this is where my bias begins to take over and 24 years of experience in the health insurance industry shapes my opinion on the intent of the law for individuals, employers and the politics of persuading voters. First, when 535 members of Congress cast a vote in favor or against this law, they had no idea what they were passing or opposing because the 2,700 page document was first available to members the night before the vote.
The individual mandate penalty is not even enforceable. Why would I say that? Well, as I wrote earlier, if you, as an individual, decide not to purchase health insurance coverage in 2014, you will be fined. Keep in mind, this fine is only collected if you receive a tax refund and if you don’t qualify for a hardship provision. So you won’t have your wages garnished, you won’t receive a call from a collection agency and you won’t be billed by a federal agency for the fined amount. If you are subject to the penalty and you have a W2 wage, you will likely adjust your deductions to avoid receiving a tax refund, which, in turn, means you never have to pay the penalty.
Watts Huckabee, of the Carolinas Insurance & Investment Group, is a Rock Hill resident.