New Benefits, Taxes Under The Affordable Care Act

January 18, 2013
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For consumers, the new year brings changes in the Affordable Care Act ranging from limits on itemized deductions and flexible spending accounts to Medicare-related tax increases and standardized forms that describe benefits in plain English.

In many ways, Connecticut leads the nation in implementing reform from establishing an online marketplace to purchase health insurance and expanding Medicaid coverage to low-income adults to generating millions of dollars in savings for consumers with coverage issues.

Changes coming in 2013 and 2014 include:

Limits On Itemized Tax Deductions: The rules for itemizing deductions on federal income tax returns have changed. Beginning 2013, taxpayers can claim deductions for medical expenses not covered by health insurance when they reach 10 percent of adjusted gross income, up from 7.5 percent. The law waives the increase for those 65 years and older for tax years 2013 through 2016.

Changes In Flexible Spending Accounts: Starting in 2013, there is a new cap of $2,500 on flexible spending accounts (FSA), which permit taxpayers to set aside tax-free dollars for medical expenses (eye glasses, orthodontic work, speech therapy, etc.) that aren’t reimbursed. In future years, the $2,500 cap will increase by the annual inflation rate. You also can no longer use an FAA account to cover the cost of over-the-counter drugs unless prescribed by a doctor.

Medicare-Related Tax Increases: Two new Medicare-related taxes impact earners with adjusted gross income above $200,000 for individuals or $250,000 for married couples who file jointly. Effective 2013, employees will pay an extra 0.9 percent Medicare payroll tax on wages. There’s also a new 3.8 percent tax on unearned income, including investments, interest, dividends, annuities, rent, royalties, certain capital gains, and inactive businesses. Some exemptions apply, including income from tax-exempt bonds, veteran’s benefits, and qualified plan distributions from an IRA or 401(k). The new tax does not apply to the sale of a principal residence, except in rare cases.

Standard Benefit Explanations: Health insurers must provide policyholders with standard disclosure forms (no more than four pages) summarizing benefits and coverage, including information about deductibles, co-payments, out-of-pocket limits and excluded services. The standard format allows consumers to make informed decisions based on apples-to-apples comparisons of health plans. Insurers must also disclose typical out-of-pocket costs for two scenarios: having a baby and treating type 2 diabetes. Future years will include coverage estimates for other conditions, such as heart attack or breast cancer.

Phasing Out Annual Dollar Limits: In 2013, an insurance company must pay no less than $2 million a year for an individual’s medical expenses. The law eliminates all annual limits in 2014.

Health Insurance Exchanges: Connecticut is among a handful of states taking the lead in implementing health care reform with the establishment of the Connecticut Health Insurance Exchange, which recently adopted “Access Health CT” as its new consumer-friendly name. The exchange is an online marketplace where individuals and small businesses can compare and buy health plans. The law requires most Americans to buy health insurance or pay a tax beginning in 2014.

Nine insurance carriers intend to offer either medical insurance or dental coverage on the state exchange. The state Insurance Department, which regulates insurance, must approve all the health plans. The Exchange will announce later this year which carriers meet the requirements to sell health plans on the online marketplace. Open enrollment begins Oct. 1, 2013 for coverage beginning January 2014.

Essential Benefits: Insurers must provide a minimum level of coverage known as “essential benefits” beginning 2014, including dental care for children and maternity services. The Connecticut Health Insurance Exchange has chosen ConnecticutCare’s HMO plan as the benchmark plan for “essential benefits” for health plans sold on the exchange. Also chosen as benchmarks were the Children’s Health Insurance Program for pediatric dental coverage and the Federal Employee Vision Plan for pediatric vision coverage.

The law applies to non-grandfathered health plans sold to individuals and small businesses in the private market or state exchange. Health plans must cover emergency services, hospitalizations, maternity services, laboratory services, mental health and substance abuse treatment, outpatient care, pediatric care, prescription drugs, preventive care, vision and dental care for children, and rehabilitative services.

Prescription Drug Savings For Older Adults: In 2013, Medicare recipients who reach the prescription coverage gap – known as the “donut hole” – will get a 52.5 percent discount on prescription drugs and a 21 percent discount on generic drugs. Since the law’s passage, state residents with Medicare have saved $62.9 million on prescription drugs. A total of 32,451 state residents with Medicare saved $26 million on brand-name prescription drugs during the first nine months of 2012, for an average savings of $803 per person. The “donut hole,” the point at which people must start paying for their medications, disappears by 2020.

Expanded Medicaid Coverage: Connecticut was the first state to receive federal approval to expand Medicaid enrollment even before the Affordable Care Act takes effect. States must decide whether to expand Medicaid by 2014, with the federal government paying 90 to 100 percent of the costs. The number of low-income adults receiving Medicaid has grown from an estimated 47,000 to about 86,800 from July 2010 to December 2012, reports the state Department of Social Services. Some lawmakers question whether the increase stems from a bad economy or if people are deliberately moving to Connecticut to receive benefits. For now, the Centers for Medicare & Medicaid Services is reviewing a request by Connecticut to institute a $10,000 asset test and parental income reporting for applicants.

Coverage For Pre-Existing Conditions: As of August 2012, a total of 484 previously uninsured state residents locked out of the coverage system for more than six months because of a pre-existing condition are now insured through the Pre-Existing Condition Insurance Plan created by the law. Although insurers cannot deny coverage to children under 19 with a pre-existing condition, discrimination against adults with pre-existing conditions doesn’t kick in until 2014.

Expanded Coverage For Young Adults: Young adults up to age 26 who do not have job-based health insurance can stay on their parent’s plan whether or not they live at home or attend school. The law applies to all health plans, even those that are self-insured.

Free Preventative Care: With its emphasis on prevention and primary care, the law requires new private health pans to cover wellness visits and evidence-based preventive measures (such as immunizations and cancer screenings) without charging a deductible, co-pay or co-insurance. Additional preventive measures for women since August 2012 include free screening for gestational diabetes, breast-feeding supplies, domestic violence screening and contraception. Although workplaces run by religious organizations that object to birth control do not have to pay for contraception, insurers must pick up the cost.

In the first nine months of 2012, a total of 277,412 Connecticut residents with Medicare received free preventive services. A total of 710,000 state residents were among the 54 million Americans with private health insurance who gained coverage for free preventive services in 2011.

In addition, Connecticut will receive $493,891 each year for five years in “community transformation grants” to address chronic disease and health disparities in five rural counties (Litchfield, Middlesex, New London, Tolland and Windham).

Consumer Rebates: Consumers whose private insurance carriers do not spend at least 80 percent of premium dollars on health care and quality improvements can expect to receive a rebate in August. Last year, 137,452 Connecticut consumers (individuals, small businesses and large employers) received nearly $13 million in rebates (for an average of $168 per person) from insurers that spent too much money on administrative costs rather than on health care. The rebates do not apply to people with self-insured health plans.

Scrutinizing Premium Increases: Insurance companies seeking premium increase rates of 10 percent or more trigger an automatic review by the Insurance Department to determine if the request is reasonable. The state has received $1 million under the new law to fight unreasonable premium increases.

Banning Lifetime Dollar Limits: Lifetime dollar limits on health benefits are banned. Already, 1.4 million state residents with insurance – including 525,000 women and 367,000 children – no longer need to worry about going into debt when their coverage runs out.

Consumer Protection: The Connecticut Office of the Healthcare Advocate (OHA), the independent state agency that helps consumers with insurance issues, generated $6.3 million in savings for consumers in 2012. OHA received federal funds to assist additional residents. Insurers can no longer cancel coverage if you get sick or make an honest mistake on your application. You can also appeal insurance company decisions to an independent reviewer.

Tax Credits For Small Business Owners: Small businesses can apply for a 35 percent tax credit (50 percent by 2014), while non-profit organizations can receive a 25 percent credit (35 percent by 2014). About 36,620 small businesses employing 192,400 state residents are eligible to receive up to $166 million in tax credits to defray the cost of insuring employees. To qualify, a small business must pay at least half of their employees’ health insurance costs and have fewer than 25 people earning an average of less than $50,000 a year.

Community Health Centers: Health centers that serve the state’s most vulnerable residents have received $56 million under the health care reform law to support ongoing operations, establish new sites, expand services and fund capital improvements. In Connecticut, 13 health centers operate 184 sites, providing preventive and primary health care services to 315,992 people.

Information for this report came from the U.S. Department of Health and Human Services, Kaiser Family Foundation, Connecticut Department of Social Services, Connecticut Health Insurance Exchange, Connecticut Insurance Department, Connecticut Office of the Healthcare Advocate and Connecticut Office of Health Reform and Innovation

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5 Responses to New Benefits, Taxes Under The Affordable Care Act

  1. in the gap on January 19, 2013 at 10:11 pm

    Let’s talk about what the premiums are going to be per person. The premiums can only be called cheap in relation to the astronomical costs we have come to know in the last 15 years. And I hear people calling them cheap, a bargain etc, even people working for DSS and other state agencies involved with rolling this out.

    They will not be cheap and I would like to know how many are going to fall between the gap — not poor enough for Medicaid but not making enough to pay the premium.

    First of all, let’s look at low-income Medicaid. How low does your income have to be? So low you can’t afford an apartment. You probably can’t afford a room in a boarding house.

    Low-income Medicaid still cuts off poor people making over $550 a month, yes, that is per month. There are some offsets etc, so let’s call it $700 a month to be safe.

    Premiums on the state exchange are estimated to be around $400, maybe $350 a month if we are lucky, for one adult’s coverage.

    If you receive $800 per month, $900 per month,$1000 per month, $1500 per month, $2000 per month are you going to be able to afford $400 health premium plus rent or mortgage? Of course not.

    So how are we going to fine people who are below, at, or slightly above the national poverty line for not buying health insurance.

    A low-income adult qualifies for food stamps with an income of $1,200 a month, but not Medicaid. See the problem? We are going to have people in the gap.

    So, I am waiting for a story about that, because Connecticut has one of the grossest wealth gaps in the country and some of the poorest, if not the poorest, urban areas in the country.

    It looks like there is going to be one heck of a wide gap between people who qualify for poverty Medicaid and people who can afford the cheapest insurance that will be offered on the exchange. Those people won’t be insured and they will be paying fines because of it. They not only won’t get health care, they will be paying for that.

    I predict NYC will beat us yet again on premium prices, as it always has. Connecticut is a small market and because of that, we never get the bargains. When I moved my solo business from NYC to Connecticut years ago my health insurance premium doubled.

    Unless the premium prices come way down, or the Medicaid monthly income limits go way up, I predict that, of the uninsured people in Connecticut right now, less than half of those currently uninsured will become insured under the new system next year unless, of course, their income changes (new job, etc — many remain unemployed right now)

    So, we could use a story about that. Let’s get realistic about what is about to happen, and let’s have a story about what people in that position should do and can expect. What will the process be? What if they can’t afford the fine? Is there a review? Is it sliding scale? Will they be excused from paying the fine? If so, up to what income level will that waiver be?

  2. in the gap on January 19, 2013 at 10:27 pm

    PS: Another story I would like to see is a one about the pros and cons of a state-run health exchange versus one run by federal HHS – state’s had a choice of state or federal.

    Some things in our state are done better by the state, some done better by federal government. I am more than a little worried about which is the case for a health exchange. The deal is done, the state has opted to do its own exchange, but I have not read anything indepth about that process and its meaning and ramifications.

    I have read though, about instant battles springing up right out of the gate over who was appointed to the committees overseeing establishing the state exchange — laden with insurance executives.

    So, frankly, I already have a head ache. Oh, and no health insurance for it!

  3. in the gap on January 19, 2013 at 10:43 pm

    Ok, sorry, a PPS:

    This is a cut and paste from the Hartford Courant in a story about a consumer advocate who criticized the Committee overseeing the formation of the Connecticut exchange:

    **

    “Herbert said, “This is a health insurance exchange. There are insurance concepts that will be laden throughout what this organization does. I mean, underwriters, actuaries — you absolutely need people with an insurance background.”

    Galvin wrote in his letter that the Connecticut board fails to meet state and federal standards, citing federal Health and Human Services regulations that say, “exchanges are intended to support consumers, including small businesses, and as such, the majority of the voting members of governing boards should be individuals that represent their interests.”

    **

    We already have the classic Connecticut recipe in place. This is classic Connecticut. I know I see subtext that not everyone will see, so I will explain what I see as the crux of it:

    We have a former insurance executive, Herbert, who has this stereotype that there are no health coverage consumer advocates out there with sophisticated knowledge of nsurance, or actuarial principles AND he implies on top of that, that only this knowledge is needed. Consumer advocates are dumb and they are also irrelevent. Amazing.

    Meanwhile, the consumer advocate quoted in the story is pointing out that Connecticut is already in violation with federal guidelines for establishing the exchange.

    The showdown that will happen five years from now is already in place, when Connecticut residents start complaining that other states have better exchanges and more affordable premiums and that the exchange was set up wrong and in violation of guidelines.

    I see Legal Aid lawyers or Public interest lawyers lining up already.

    I see uninsured poor people who aren’t poor enough to get Medicaid and a bunch of insurance executives who don’t care that insuring them was supposed to be the whole point.

  4. in the gap on January 19, 2013 at 10:49 pm

    And, the classic revolving door — Herbert is back in the insurance biz:

    By MATTHEW STURDEVANT, msturdevant@courant.com and The Hartford Courant, January 7, 2013

    Harvard Pilgrim Health Care announced Monday it has hired former ConnectiCare CEO Michael E. “Mickey” Herbert as a consultant to prepare the company for operations in Connecticut. Herbert, 68, has a career in health insurance that stretches back several decades and includes time spent on the national health care scene. Most recently, he served on the board of the Connecticut Health Insurance Exchange, a quasi-governmental online marketplace for health plans that will be … etc. ‘

  5. in the gap on January 20, 2013 at 2:26 am

    I just read the transcripts of the health exchange board committee. The board is talking about affordability for those near the federal poverty line but needs to face the fact of failure. It is not possible.

    Not without heavy subsidies, and although there was mention of subsidies, no one ever mentioned exactly how much. And I think the numbers I saw were ones that took the subsidies into account.

    No one at the lower end will easily afford the cost sharing (This isn’t even looking at premiums, but just their co-pays and deductibles) of the plans that are in the works for people between 100% nad 200% of the federal 2013 poverty levels.

    At 200% they might make a stab at it, that is, if they can afford the premiums and that is a big ‘if’

    The plans that are being proposed for this group are more realistic for the 200-400 percent federal poverty level group.

    there was a chart that showed that in 2014 people earning up to 400-percent of the federal poverty level will qualify for low-income Medicaid. If true, (I am not sure I got it right) that is more realistic. I can’t imagine there will be any dent in the uninsured poor in this state before that kicks in. Because there is no way that the poor can afford these plans, period.

    Health care is simply expensive, even when people are trying hard to keep it within reach of the poor, it just isn’t. That is a fact.

    One disturbing aspect of the committee’s activities is the PR plams. Get ready for a sugar coated exercise in opacity, in what is, again, a classic Connecticut PR campaign. The usual — information that insults your intelligence, information that is downright misleading. get ready for the dumbing down implicit in every state-run PR campaign you can remember.

    Another aspect that I found very confusing and intriquing is that they are designing health plans that are ONLY available to the poor. So instead of putting out a variety of plans of varying costs and benefits and letting anyone buy them who wants to, they have plans that only the poor can buy. they are segregating the poor as usual instead of letting us sort ourselves out. This creates more opacity as well, less transparency and will surely lead to the usual status quo tension and mistrust between the poor and the state of Connecticut.

    Also, look for plans that cater to young men. So what if lots of women are uninsured, a few more men – young men — are and that has some people on the committee all worried about guys and suggesting that when it comes to benefit packages, this fact should be kept in mind.

    Also, look for a slant towards young adults overall, as they constitute the bulk of the uninsured.

    One interesting statistic came from reading the minutes — data showing that 1 in 4 Connecticut residents are either uninisured or on Medicaid. That is 25-percent of us, and that number is not going to see that much reduction unless the Medicaid program expands to cover poor people who make up to 400-percent of the poverty level. Because they can’t afford the low-income plans the Connecticut health insurance exchange is about to roll out.

    By the way, is there a reporter in this state even covering this stuff? Christ, I should get paid for this.

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