Changing Health Care Reform a Challenging Task

Health care reform is one of those issues that are so contentious even when both parties agree a tweak to the Patient Protection and Affordable Care Act is needed, finding a way to actually make the changes is a Herculean task. Exhibit A: the provision in the PPACA requiring businesses, beginning in 2012, to file 1099s for every vendor to which they pay $600 or more for products or services. Today 1099s are required to be filed only for contract workers reaching this dollar threshold. The PPACA’s expansion of the 1099 requirements will result in millions of additional filings. Buy a couple of printers from Best Buy? Purchase paper from Staples? Send them a 1099. Hire a firm to clean your retail store? Or to maintain your servers? A 1099 is required. Arguably a sales person who drops off donuts at clients’ offices each week must send a 1099 to Winchell’s.

Why is this expansion of IRS filings contained in health care reform legislation? Because the additional information flowing into the IRS will help cover the cost of reforms. Expanding the 1099s filed with the IRS is expected to increase tax compliance to the tune of roughly $17-$19 billion — and perhaps more. The IRS estimates that the federal government loses $300 billion annually on unreported taxable income. Learning about some of these transactions through 1099s could help close that gap.

Tax compliance is a good thing, but the burden on businesses, especially small businesses, will be substantial. Just think about the effort required to collect tax identification numbers from every hotel, restaurant, online store or establishment at which you spend $600 per year. Every freelancer will now need to track every expense to every vendor.  The coming administrative headache is leading some lawmakers and business groups to seek repeal of this provision of the new health care reform package. Even some of the reform legislation’s strongest supporters (think the White House) favor exempting firms of less than 25 employees and raising the reporting threshold from $600 to $5,000.

Yet the Senate voted down attempts to repeal or tweak the PPACA’s 1099 requirements. The problem is that repealing a revenue source for health care reform requires either finding a new source for these dollars or reducing the cost of the reforms. So while there’s bipartisan support for fixing this problem in the PPACA, agreement on how to pay for the fix is lacking. Democrats voted down an outright appeal of the provision because the revenue was offset by exempting more Americans from the PPACA’s requirement to obtain health insurance coverage. Republicans voted against the more limited change to the 1099 requirement supported by President Barack Obama and others because the lost revenue was to be made up by repealing tax breaks for large oil-and-gas producers.

Ultimately I believe Congress will find an acceptable way to pay for the fix. Given the state of the economy and the need to help small businesses, the political and ideological interests of both parties converge to find a solution. Of course, finding a fix in the run-up to November elections may be too much to expect. Fortunately, the 1099 changes don’t take effect until 2012 so there’s time to find a solution.

But if it’s this challenging to fix something relatively tangential to health care reform, one shudders considering what it will take to fix something closer to the core of the Patient Protection and Affordable Care Act.

13 thoughts on “Changing Health Care Reform a Challenging Task

  1. Boy ya gotta love it. Thanks Congress! Just got notice that yet another carrier is leaving the ‘child only’ market. So lets see: You have parents who are covered by a group health plan who will now be unable to secure health coverage fo rtheir kids. That will push more kids into whatever gov run programs are avialable in the way of child only programs. Socialized medicine here we come.

    Uhh….if I ain’t got nuthin to sell what’s the point of opening each morning? Shall I just market my free services? This is getting to be like the old Saturday Night Live routine: I’ll be the “Change Bank”! …….. ‘If you need change for a dollar? We can give you ten dimes….We can give you 20 nickels….We can give you four quarters….’ ‘People ask us how we make money?’….. ‘Volume’.

    • Are you in California? I am in Georgia and child-only plans are being discontinued by virtually every decent company. Seems one company waits for one to act then the others jump in. What part of “guaranteed issue” does Congress not understand, and don’t they realize this is going to be the insurer’s response? They do this and the MLR years before mandates go into effect, which makes no sense (oh wait, this came out of Washington). Of course once they get wind of this they will just blame the insurance companies and do like you said, put kids on govt run plans (funded by the States of course).

      That, and the amendments to our commision schedule (we reserve the right to do what we want with your commisions on policies placed after July 1).

      As a small business owner and the accountant for my small biz, I guess I will be spending my time filling out 1099s instead of health insurance policies. If I have any commission coming in to spend that is.

  2. Sorry if I seem partisan, I’m actually being sarcastic. Make no mistake. The 1099 provisions will get repealed, in due time.

    It’s the political irony that is so facinating. The provision was only added (along with others) to create phantom revenue that could be counted in the CBO scoring process during the frantic last minute battle to get PPACA’s cost under $1 trillion.

    Now the same folks are figuring how to escape the monster they’ve created, but are constrained by rules, deals and politics. Delicious.

    BTW… brokers will survive whatever happens. Why? Because we can.

    The very same day our Colorado senators voted against the bill a news article appeared in a supportive local paper about Sen. Bennet’s strong support for small business. Ironic? Actually funny.

  3. Alan,

    When the requirements to keep the Affordable Care Act revenue neutral, and the apparent rejection of each bill due to changes in other laws in the bills presented to be revenue neutral, the missing information that does not seem to be on the table: What what would the increased revenues from hiring, purchase of plant and equipment, and business expansion because Congress took away some “uncertainty” about these 1099 business costs? The passage of either one of these bills would have done a world of good for small business, the economic doldrums, and be politically good for both political parties with the coming election.

    As an employer, I am holding tight to my money because I do not know what to expect. Passage of either one of those bills would have loosened my grip on investing in my business.

    My best.

    Malcolm

  4. Maybe I’m just optimistic. I’ve been in the business for 30 years and supposedly brokers will play “an important role” in the Exchanges. Also…underwritten policies outside of the Exchanges (even without tax credits) could be an interesting market.

    • You nailed it with one word: Supposedly. It’s not out of the question that – in some hardcore Republican states – the Exchange will be little more than an information portal (See Texas). Here in California? Forget it: The Exchange will be hellbent to eradicate health insurance agents.

      The thing ya gotta love about California? We’re swimming in $19 billion in debt, massive unemployment, and already outrageously high taxes. So what are we going to do? Spend money we don’t have setting up and running an Exchange, hire more folks for public sector jobs in the Exchange which will need to supported by already overburdened taxpayers, and then laddle more taxes (err fines) on folks who are noncompliant with mandatory health coverage.

      For anyone with half a brain California is an utter nightmare from which there is no awakening.

    • Optimism is a dangerous emotion at this stage of the game. And I agree with Curt: ‘Supposedly’ is the key word.

      Let’s face it: the IFP market will forever change for the worst. Brokers are getting pushed out like sheep herd on gaming land. You can either sit tight, be optimistic, and at the end of the day watch your income dwindle each minute (as exchanges start rolling in, one should assume customers will start falling off your books quickly, if not already due to an already poor and failing economy).

      I’m sure you have children to feed, families to look after – do the right thing like I have and be proactive and start adjusting to the market conditions (whether current or pre-imminent) and begin to formulate Plan B. The most dangerous thing someone could do in this climate right now is turn a blind eye to what is happening.

      There is a systematic effort right now to reduce costs on all layers, there will be more and more layoffs across all levels internally within carriers, and within the broker community. Regional sales managers have begun to receive their pink slips. Once January 2011 hits, the game totally changes, and there is a reason these carriers are going to wait until the last minute for you to keep producing business for them. There is a reason why they don’t want you to know what the new commission tiers will be. If you know you were going to change commissions to 4% like some carriers, wouldn’t you wait too to get as much business as you could before unleashing all hell on the broker community.

      And, the beautiful thing is watching your book dwindle faster and faster. Assume January 1, 2011 hits and you’re no longer selling aggressively because your commissions that have been cut by more than 50% don’t make it sufficient enough for you to sell with the overhead you have to endure. So you assume your book is going to stay strong for 24 months. All it takes is a good exchange program to come along shortly after Jan 1, 2011 : or exclusive carrier products that are cheaper and better than the plan you got them on prior to downsizing. Customers will flock where the wind blows, especially when it’s cost driven. Loyalty is only a myth at this point.

      It was a good couple of decades we all had going in. It’s time to pack up now, atleast until further notice. The days of the broker, much like travel agents, are now gone.

      • You said it brother. I’m glad you used the travel agent analogy. I was thinking about that for a long time. That hits the nail squarely on the head. And you are absolutely right about the “We love you, we honestly love you…” refrain from the insurance companies. They will smooth talk you right up until the time they drop the hammer on you.

        I observed the commentary on this blog for too long – from some readers and our host – and always came away thinking ‘well…hope you’re right….’ but frankly the writing is on the wall on this one: We’re screwed.

        Here’s another shameful aspect of this: How many brokers do you know who have a few people manning their office? How many of those folks are going to go bye bye….So it’s not just agents who will be left out in the (unemployment) cold but support staff as well…

        To Angie above: Isn’t Congress great? They give with one hand (FDederally funded high risk pools) and take with the other: How many families will now have the angst of seeing their perfectly healthy and insurable child treated like a leper by the insurance industry. I hate to say it but one of the commentators on FOX was right on the money – this is all part of a bigger polan to force socialized medicine. The insurance industry is pushing back and the politicos will have the ammo they need to force more and more guv health care down the throats of Americans. It’s actually brilliant when you think about it: No matter your political leanings; if it comes to getting your kid health insurance you’ll sign on the (government) dotted line every time.

      • Oh, and one more thing to add. At this stage of the game, carrier directors and executives will continue to hound you to produce and paint a pretty picture that the reform is going to be a good thing for agents. At this point, even directors and executives out there are looking out for themselves. They too have children to feed and clothe, families to take care of.

        They too are worried about what the future looks like for them. But, it doesn’t take Sherlock to notice what’s happening. A quote from ‘Minority Report’ is the perfect exemplar:

        Dr. Iris Henimen: It’s funny how all living organisms are alike…
        [she starts crushing a mutated plant]
        Dr. Iris Henimen: …when the chips are down, when the pressure is on, every creature on the face of the Earth is interested in one thing and one thing only.
        Dr. Iris Henimen: [the plant scars her palm] Its own survival.

        You can be very sure that executives and directors will sugar coat HCR and how advantageous it is for brokers at this point. Even if personally, deep down inside, they felt differently, or even had guilty/sad emotions for brokers: at their workplace, there is no room for emotion. Slash and burn is the name of the game. Do what is asked of you. Reduce admin costs. Get rid of whoever you need to get rid of. It’s not easy being an executive nowadays.

        Only look out for yourself at this point in the game. Leave emotions aside. Part yourself from how things are unfair or how things will one day get better and this big bad nightmare will go away.

        Here’s a quote I leave with you all today from Martin Luther King:

        “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.”

        Times are tough, and are already getting tougher. Imagine you’ve got no job at this point: no income stream coming in. What will you do today to make a difference in your world and kickstart that motivation to succeed in an industry again?

  5. 1099 hell for business owners. Thank God, Congress didn’t do away with such a potent political weapon just yet. It’s easy to see who voted against repeal if you Google – “Senate voting record”. The date was 9/15/2010. Look it up and see how your senator voted and remind him or her of it in November.

    Since Congress wasn’t smart enough to repeal this section of PPACA now, it will have to get repealed after the swearing-in in January. When the collective IQ of Congress is set for an increase.

  6. I really have to chuckle when I read some of the postings here and elsewhere. It’s like seeing a bunch of fans whose team is down by 6 with 6 seconds left and everyone is trying to make the other feel better by predicting a hail mary pass. Folks if you are all waiting for something closely resembling a hail Mary on PPACA you can forget it. It’s law and as stupid as it is, one need only look as far as the Alt Min Tax situation which has thrived for years despite its utter stupidity and inequality. The Republicans will never do anything to try and reform this mess because it actually suits their best interests to wrap this around Obama’s neck in 2012 and by that time stopping the momentum on health reform would be like stepping on to a train track to hold back a train.
    As noted in my previous post, the recent actions by the CA state assembly and legislature is a blast of REALITY: Politicians see absolutely no value in what we do. None. You all can argue that and give me chapter and verse about how we add value but the simple fact is that legislation out here – that will soon be signed by one of the dumbest Governors in the history of American politics – is ample proof that you all may be right but right doesn’t make might when it comes to holding back the inevitable devastating effect PPACA will have on the broker community.

  7. Just got my letter from one co announcing updated commissions on individual products: 4% – In California the Health Benefits Exchange will be run entirely outside the realm of the DOI. They will use ‘helpers’ to guide people towards a health plan. No doubt these ‘helpers’ will be unlicensed guv workers who know as much about health insurance as whatever meager training they will receive as part of a new employee training seminar. (Licenses? We don’t need no stinkin’ licenses!)
    My choice of career has become a sad joke as I can look forward to providing my services in competition with a government call center employee who will likely be making more per hour than I will.

    I’ve seen the future and it blows.

  8. Since most of the offsetting revenue numbers (and most likely the estimated costs too) are estimates at best and nonsense numbers at worst, perhaps they should just invent a new item from which the savings can be counted, or revise the other estimates (downward in the expense categories and upward in the income categories) since their math is “fuzzy” no matter how it is applied. Problem Solved!

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