Come January 1st 2014, nearly all Americans will be required to have health insurance as mandated by the Affordable Care Act. But just what exactly does this mean for individuals and businesses?
Well, on June 28th Rice University’s Baker Institute for Public Policy hosted a presentation by Vivian Ho, Ph.D., a professor of economics at Rice University and a professor of health services research at Baylor College of Medicine. The presentation addressed some of the highlights of what is considered by many as a “very complex piece of legislation.” Below are some of the highlights.
Those without health insurance are required to have it or buy it by Jan. 1, 2014, or face a penalty. The penalty will be $285 per family or 1 percent of income, whichever is greater. By 2016, the penalty increases to $2,085 per family or 2.5 percent of income.
According to the U.S. Census Bureau, more than 40 million Americans lack health insurance, often because they are part-time workers, unemployed or self-employed, or they are full-time employees whose employers don’t provide coverage.
All 50 states must create an exchange, which Ho says is like a big shopping mall, with individual insurance stores inside. Consumers “visit” each store, and compare all the different insurance plans offered through the exchange, then select the one that best suits their needs and the needs of their families.
“The exchanges will serve as an insurance marketplace, a one-stop-shop for those who do not have employer coverage and are looking for private coverage,” Ho said. All 50 state exchanges must be operational by Oct. 1, 2013 to begin open enrollment for the 2014 plan year.
The government will provide subsidies to low- and middle-income Americans to help them buy insurance through these health exchanges – the individual pays a part of the insurance premium, and the government pays the rest.
THE ALREADY INSURED
Under the Affordable Care Act, insurance companies are no longer allowed to set an individual’s premium cost based on gender or health status. The act also prohibits insurance companies from dropping coverage or capping coverage for people who develop long-term illnesses or disabilities – a measure that has already been in existence in some states, and now should offer peace of mind to many more, Ho said.
However, policies purchased through a health exchange are allowed, under the Affordable Care Act, to cost three times more for an older person than a younger person. “Currently, older individuals are charged about four or five times higher than younger people,” Ho said. “The new three-to-one ratio will likely cause premiums to go up for younger individuals.”
The new law also requires insurance companies to cover the children of insured parents up to age 26 – this provision went into effect in 2010, the year the act was signed into law.
PEOPLE WITH PRE-EXISTING CONDITIONS
Starting in 2014, the law makes it illegal for any health insurance plan to use pre-existing conditions to exclude, limit or set unrealistic premium rates on coverage for adults – the requirement to cover children under age 19 for pre-existing conditions began in 2010.
Employers in the United States are not currently required by law to provide health insurance coverage to employees. However, the Affordable Care Act changes that, by requiring employers with 50 or more workers to provide those workers with affordable and adequate health coverage, or face fines.
That provision was set to go into effect Jan. 1, 2014, but on July 2, the Obama administration pushed it back by a year. The delay resulted from business groups’ complaints that the law was too complicated and they needed more time to update technology and to plan how they would offer health coverage to employees without yet knowing how much the coverage would cost. Like individuals, businesses can also purchase insurance policies through state exchanges for their employees, but not all state exchanges are in place yet.
Businesses with fewer than 50 workers will be exempt from providing health insurance to their employees, and those employees likely will look for private insurance on state exchanges.
When the delay concludes and employers must provide their employees with health coverage, larger employers won’t be affected as much, but middle-sized firms with 100 to 1,000 employees will likely experience a price increase in providing coverage for their employees, Ho said.
“This is mainly because many of these companies didn’t offer health insurance,” she explained, “or they offered health insurance that had extremely high deductibles and didn’t cover many standard services.”
Small firms with 100 or fewer employees will likely experience a decline in the amount spent on each employee’s coverage, she said.
“A lot of people don’t realize there are actually subsidies available for small employers – especially for those with 25 or fewer workers – to purchase health insurance,” Ho said, “and that will make it more affordable for these small companies.”