Health Reform and Your Finances
Health reform may have grabbed the nation’s attention while in Congress, but after its passage, many people still don’t understand what the new bill means for them.
Months after the health reform bill was signed into law, most people would be hard-pressed to explain how exactly it will affect them. the intention is to create a safety net that provides more financial security overall. Beyond that, the changes will depend on your income, your current coverage and a host of other factors.
“It protects people against financial catastrophe, and right now a lot of health insurance coverage doesn’t do that,” says Harold Pollack, the Helen Ross professor of Social Service administration at the University of Chicago.
A few groups stand to see some immediate changes:
At 39, Laurel Alberty is a non-Hodgkins lymphoma survivor, so she was relieved when the bill passed.
“I was almost halfway to the million-dollar limit on my husband’s group health care plan,” she says. in 2014, insurance plans will be barred from setting lifetime caps on coverage and won’t be able to drop sick people from their policies. therefore, should Alberty need another transplant – or an unrelated procedure – she’s no longer in danger of hitting the ceiling.
Roughly 46 million american adults are uninsured, which represents one in five working-age adults. of those 46 million, 10% to 15% face difficulties getting coverage due to serious health problems, such as cancer or diabetes, Pollack says. Approximately another 20 million to 25 million uninsured people have less serious problems like hypertension, high cholesterol or asthma, he says.
One of the first changes within the bill is to allow people with pre-existing medical conditions to join a new, federally funded “high risk” insurance program. The bill also bars insurers from denying coverage when they get sick.
“If my husband loses his job, I’m no longer worried that my cancer would prevent me from receiving coverage [somewhere else],” Alberty says.
Families with Children
How the bill affects your family will depend on many factors: income level, what type of plan you currently have, whether you’re caring for a sick member and family members’ ages.
A study by the Lewin group, a health care and human services policy research organization, indicates that younger families – with heads of households ages 25 to 34 – will see the biggest increase in health care spending. Lewin Vice President John Sheils, who authored the study, says, “the increases are attributed largely to newly insured people who must now pay a premium.”
But new tax credits would help many middle-class households pay those premiums. Also, people in their 20s will have the option of buying low-cost catastrophic health plans. Meanwhile, older families could end up with comparatively lower health care costs. Heads of household ages 55 to 64 will end up paying $70 less per year than they do now, according to the study, which notes almost no spending difference for people 65 and older.
Some families are already benefiting from the bill. Starting this year, children up to age 26 may remain on their parents’ health plan. that could offer some relief to parents of recent graduates who are uninsured. For families with younger children, that could provide some peace of mind down the road. You don’t have to worry that your 15-year-old might be uninsured 10 years from now.
Still, younger people may be looking for ways to offset some of their health care costs. one unintended side effect of the bill could be an expansion of Health Savings Accounts (HSAs) (see “HSAs and Health Care Reform”). An HSA allows money to accumulate tax-free until a medical need arises in the future.
“It stands to reason that more people might be taking out HSAs in the future,” says Sue Koski, a First Midwest Bank On-the-Job Banking Specialist. “It’s one way to contain health insurance costs, especially for young people who often see less of a need for health insurance.”
Less Impact on Seniors
Understandably, retired seniors have been among the most concerned, as they are the most vulnerable to illness and aren’t typically bringing in new income. Yet they may see the fewest changes to their health care.
In fact, the Lewin Group study predicted a $5 increase annually for senior citizens. Also, some seniors will get immediate help in the form of a check, closing a gap in their coverage for prescription drugs. The money will help pay for drug costs that weren’t covered under their Medicare plan. They might also receive a 50% discount on the cost of certain brand-name drugs next year.
However, a minority of Medicare recipients who participate in the Medicare Vantage plan could see slightly less generous benefits, due to cuts in federal payments to those plans starting next year.
A More Efficient System
If you’re not insured through the insurance program of a large company, two major changes slated for 2014 could add extra protection to your policy:
1.Small group policies
The small group market – insurance offered through small businesses or individually purchased – has become a focus of reform for many reasons, including falling coverage rates, dramatically increasing prices, premium instability and the falling value of coverage being purchased.
In response, new state-based insurance exchanges will offer consumers and small businesses a choice of standardized and heavily regulated health plans, starting in 2014.
“There’s a segment of very affluent self-employed people who would benefit in the quality and predictability of the health insurance” in these markets, Pollack says.
2. Out-of-pocket expenses
In recent years, lower-income families have seen a disproportionate increase in out-of-pocket expenses they’ve had to pay for health care. Therefore, a new protection will limit how much these families can be forced to pay out of pocket until their insurance kicks in.
This could affect families with incomes up to 400% of the federal poverty level (FPL). For a family of four, the FPL is $22,050.
The purpose is to help people remain financially stable by improving overall quality of care. You might be covered for a liver transplant, for example, but if you can’t afford the followup treatment, then not only could your life be in danger, those initial costs would be wasted as well.
Who’s Footing the Bill?
Most people who are currently uninsured will either be required to purchase plans or pay a penalty. Because the young aredisproportionately healthy and uninsured, they’ll be paying more into the system, helping to offset the cost of some of the changes.
In addition, individuals earning more than $200,000 and couples earning more than $250,000 will see their taxes increase 0.9% starting in 2013.
One of the more controversial changes starts in 2018, when a 40% excise tax will be imposed on employer-sponsored “Cadillac plans” that exceeds $10,200 a year for individuals and $27,500 for families. That’s led some folks to speculate that companies will simply try to keep plans under that amount, and others to worry they’ll be dropped from their expensive plans altogether.
The truth is, no one knows how all of the reforms will play out. The bill likely won’t stop the rising cost of care, but it could slow it.
|Health Care Reform Timeline|
- Allows children to stay on their parents’ policies until
they turn 26.
- Provides access to high-risk pools for people with no
insurance due to pre-existing conditions.
- Bars insurers from denying people coverage when
they get sick.
- Provides a $250 rebate to Medicare prescription
- Medicare Vantage plan sees some cuts.
- Increases the Medicare payroll tax for singles earning
more than $200,000 and joint filers making more than
- State-based exchanges created (online portals through
which consumers can review and compare a variety of
private health insurance plans).
- Limits to out-of-pocket expenses go into effect.
- A 40% excise tax (“Cadillac tax”) on high-end
insurance benefits goes into effect.
- Expands health insurance coverage to 32 million.
Either way, for many people who have group health insurance, particularly through a large employer, their lives can go on more or less unchanged. And according to Pollack, although we might not notice the changes, overall cost-efficiency should improve.
“A variety of things in the bill are ways of providing care in a different way that discourages waste,” he says. “It’s a step in the right direction in getting value for the money we spend.”
|HSAs and Health Care Reform|
What’s a Health Savings Account (HSA)?
HSAs will continue to be a means of setting aside money for future medical use. But with the new limits on these accounts, you may have to become an even wiser consumer to keep your family’s health care costs in check.
Can I keep my HSA?
If you already have an HSA, you can keep it. And, if you remain in a qualified high-deductible health care plan (HDHP), you will still be able to open a new HSA and add funds to it or an existing HSA. If you move away from an HDHP, you can still use the funds for eligible expenses, but you will not be able to make contributions to the HSA.
What are the requirements?
Prospective account holders must meet certain requirements, including:
Be an individual or employee who is covered by an HDHP (defined as a plan with a deductible of $1,200 or higher for an individual or $2,400 or higher for a family).
Not be enrolled in Medicare.
Not be a dependent on someone else’s tax return.
Have no other first-dollar medical coverage.
For 2010, maximum HSA deposit contributions are:
Starting in 2011, the costs for over-the-counter drugs not prescribed by a doctor are excluded from being reimbursed on a tax-free* basis through an HSA. “So if you don’t have a prescription, it’s not going to be an eligible expense,” says Sue Koski, First Midwest Bank On-The-Job Banking Specialist. That could include bandages, aspirin, cold medicine and other common over-the-counter expenses.
Is there anything I should be concerned about?
The penalty for spending your health care dollars on non-qualified items will go up from 10% to 20%, so it’s more important than ever to make sure you’re staying within those guidelines. To find out more about changes to your HSA, visit irs.gov.
“There are cost differences between different types of medication and between reimbursement levels,” Koski says, “so ask doctors if a particular test or a certain kind of medication is the only option.”
To learn more about ensuring many of your medical expenses are covered with a health savings account, visit firstmidwest.com/hsa.