Catching Up With Health Care Reform

I’ve taken a few weeks off from blogging, but health care reform sure hasn’t taken a break. There’s a lot going on, so let’s catch up with some interesting tidbits:

  1. In April the Internal Revenue Service issued guidelines concerning one of the more popular provisions of the new health care reform bill: the tax credit some small employers may use to offset the cost of their health insurance premiums. The credit is available to qualifying group of less than 25 employees, and there’s a cap: the average premium paid for coverage in the business’ state. In other words, the amount of premium paid above these average premiums is not eligible for the credit. The list of average premiums (published by the IRS, but created by the Department of Health and Human Services) is interesting in its own right. For example, employee-only coverage ranges from a low of $4,215 in Idaho to a high of $6,205 in Alaska. (In California, where I hang out, it’s $4,628). Idaho again has the lowest premium for family coverage $9,365), with Massachusetts having the highest family premium ($14,138).
  2. In addition to the original IRS guidelines, the Obama Administration has released additional guidance to the small business tax credit created in the Patient Protection and Affordable Care Act (“PPACA”). There’s some welcome news in the material: dental and vision coverage are eligible for the credit; employers can choose the method of determining hours worked by their employees in whatever way maximizes the tax credit; and the federal credit is in addition to any state health care tax credits or subsidies available to an employer. This document also lists other benefits health care reform delivers to small businesses: the ability to pool together in exchanges; elimination of pre-existing conditions, elimination of the “hidden tax” employers with coverage currently pay (see #5, below) of roughly $1,000 per policy.
  3. You might think all this would be music to ears of small businesses. If so, it’s not enough to satisfy the National Federation of Independent Businesses. The NFIB has signed onto the law suit filed by 20 state attorneys general and governors challenging the constitutionality of the Patient Protection and Affordable Care Act. The key argument of the suit is that the federal government has no power to regulate whether an individual to enter into an intrastate contract. According to the Associated Press article reporting the NFIB’s support of the suit, the government will argue that “a decision to opt out of health insurance is not merely a matter of personal choice. It has consequences for others, since uninsured people will get sick, or have accidents, and someone must pay for their care if they can’t afford it.  Individual decisions to forgo insurance coverage, in the aggregate, substantially affect interstate commerce by shifting costs to health care providers and the public.” Welcome to a gray area of constitutional law. Feel free to argue one side or the other all you want, but there are responsible arguments on both sides. And they’ll be argued before many courts over the next three or four years.
  4. Much of the health care reform debate focused on the pricing practices of health insurance carriers. Now focus is moving towards the pricing practices of medical providers. In Massachusetts, for example, the U.S. Department of Justice is investigating whether one of the state’s hospitals are guilty of violating antitrust laws. According to an editorial in the Boston Globe, the DOJ the inquiry was launched after it was shown that some hospitals are demanding “rates much higher than others … for identical procedures.”  Meanwhile, the same editorial cites a report by Massachusetts Attorney General Martha Coakley that showed that hospitals with “geographic monopolies” use their market clout to push rates up “and contributes to annual increases in insurance premiums that greatly exceed the cost-of-living index.” Nice of someone to notice, isn’t it?
  5. There tends to be a lot of two-sided coins when it comes to health care reform. Take the term “Medical Loss Ratio.” This refers to the percentage of premium dollars spent on medical care and health quality by health plans. The Venture Cyclist blog asked an interesting question, “Why do they call it Medical Loss Ratio? Why is looking after me (or you) called ‘Medical Loss’, when the whole point of a health care system is to look after me (or you)?” He’s got a point. Calling this expense “Wellness Investment” (as the Venture Cyclist suggests), would be as accurate. He goes further, suggesting that what’s not spent on looking after the health of premium payers be termed an “Administrative Loss Ratio.” It reminds me of when folks started referring to cost-shifting (which is the increased cost insured consumers pay to cover expenses incurred by their non-insured neighbors) a “hidden tax.” Words do matter.

Well, that’s enough catch-up for now, but there’s more to come.

8 thoughts on “Catching Up With Health Care Reform

  1. Very informative and useful content . You have nice command on the post and have explained in a very great way. Thanks for helping .Good work,hope your blog be better!I just want to make a blog like this!

  2. Hi

    The Venture Cyclist makes an interesting observation about the industry’s use of words. Over the last 10 years or so, premiums and profits have increased and the amount of premium used for claims has declined. During the same period, people within the industry noted that subscribers are increasingly turning to coinsurance and deductibles to “buy down benefits.” They may be “buying down benefits,” but they are still paying more and getting less.

  3. Great to see you back, Alan. There has been a great sucking chest wound in the blogosphere during your (well-deserved) sabbatical.

    Can you explain the “employee only coverage ranges”? Do you know what the amount is in Pennsylvania?

    My wife is starting a cafe that will need to hire at least one other employee beyond herself and me. I wonder if we could actually come out ahead leaving our current individual coverage ($1860.50 per month for a family of four) and cover all the employees (us and the extra person) for less than we are currently paying for just us?

    • Glad to be back Jim. And yes, you should save considerably moving to a small group plan. You’re currently paying $22,326 per year for your individual policy. The average cost for family coverage in Pennsylvania is $12,471. So your broker should have no problem finding something that works for you, your family and your employee — and still save dollars. By the way, I’d thought I’d included a link to the IRS list of average premiums by state. Your question brought to my attention I’d failed to do so — so thanks. The main post now includes this link.
      Alan

      • Thanks, Alan! This is good news indeed. But do you think it is safe to switch? I fear that by some horrible stretch of the imagination, Scalia and company will end up ruling health care reform unconstitutional, and I will end up being excluded because of pre-existing conditions, or the group plan will be allowed to skyrocket its rates, or some other snafu that is hard to anticipate now…

        • You really need to discuss this with a local agent. Assuming the small group policies work for you in practice as well as they should in practice, you’ll need to weigh the savings against the risk. Someone more familiar with Pennsylvania laws and markets can give you far better advice than me. Good luck though.

  4. Normally your accuracy about health care, and the new reforms, are right on. Unless there are multiple interpretations, the credit is only available to employers with less than 25 Full Time Equivilent (FTE)employees, not 50. There is also a average salary limit of $50K, with the credit phased out between 10-25 FTE’s and $25K-$50K in ave salary.

    • Don: Great catch. You’re absolutely right, the maximum number of FTEs is 25, not the 50 in the original post (I’ve since changed it). Thanks for the correction.

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