Cook Wealth Management Group

How Will Healthcare Reform Affect You?

62%* of Americans assume their healthcare costs will increase due to healthcare reform.

Although it will be years before all laws in the healthcare bill commence, health insurance is beginning to change and will likely continue to do so in the next decade. Americans of all demographics are unsure of and rightfully curious about how healthcare reform will affect them. The widely misunderstood healthcare bill is complex, and the changes it calls for will come in stages. The following is a brief rundown of what will change in healthcare in the near and distant future, how it could cost you, and how it may help or hurt.

Prospective Advantages

The transformation of individual insurance will begin in 2014 and will rely on state-based insurance “exchanges” to cover those who aren’t offered insurance by their employer. Possible upsides include:

  • To help the sick and to seek to change the harsh truth that a terminal illness can potentially leave just about anyone penniless, insurers will not be allowed to turn away applicants with pre-existing conditions (from cancer to heart disease to pregnancy.) Overall, individual policies will look a lot more like group policies offered by an employer.
  • To make shopping for insurance easier, plans will be limited to four types – platinum, gold, silver, and bronze – and required to provide a standardized menu of benefits.
  • To attempt to make insurance more affordable for some,  – the plans on the new exchanges will cost 10 to 13% more than the average individual policies – around half of those who use the exchanges (and also earn up to $88,200) will receive tax credits to make it possible for them to afford the up charge. The maximum payment for basic coverage in 2014 is set at 9.5% of income.

Prospective Costs

Newly affordable individual plans paired with the millions of people that the law will allow to join Medicaid mean around 32 million Americans will be newly insured. And the aforementioned tax credits will cost an estimated $450 billion over 10 years. Who’s paying for all this?

  • High income earners will pay more tax. If you and your spouse make more than $250,000 (or on your own you make over $200,000,) beginning in 2013, you’ll pay an additional 0.9% tax on earned income and an extra 3.8% tax on investments.
  • Healthy people will pay more for insurance in some cases. Since insurers will no longer price policies according to pre-existing conditions, those who rarely go to the doctor will likely pay more in order to balance out everyone’s premiums.
  • Employers who offer insurance plans to families that cost over $27,500 will be heavily taxed in 2018. (Employers who offer no health insurance will be fined.) Some employers will try to stay below the $27,500 limit to avoid supplemental tax, meaning benefits will decrease or be cut. If employers offer a salary increase to compensate for the cut in benefits, this will still cost the employer more (since it will be taxed and the money he/she was spending on insurance plans was not.)
  • The uninsured (by choice) will be fined. Within the next six years, a fee of $695 per year or 2.5% of income will be required of those who opt out of health coverage. Those in good health tend to opt out of expensive plans, meaning those that pay for coverage are sicker and more expensive to treat. President Obama hopes this fine will give healthy people incentive to keep their coverage.

Prospective Pitfalls

With so many broad sweeping changes to healthcare, healthy employees – in the healthcare industry and beyond – are likely to suffer.

  • Offering healthcare at a low price to some 30 million extra Americans means hospitals and other treatment facilities will be inundated with patients, which will likely overwhelm healthcare providers by adding to their responsibilities, even as their own health coverage becomes more expensive.
  • Making individual policies more affordable for the sick could mean employers have much less incentive to continue offering coverage; the penalty fee for companies that do not offer health insurance to employees will be less than the cost of providing health plans for them. It will often be cheaper for employers to drop the insurance (and thus more expensive for healthy employees to pay for their own.)

During times of transition it’s as important as ever to communicate clearly and often with your tax advisor and financial planner. If you’re a Cook Wealth client, these two are always working together to help you make the most of what you have and to be prepared for what’s to come.

For now, here’s a look at what will likely take effect this year:

  • Beginning this summer, adults who have been uninsured for six months or more and have pre-existing conditions can get insurance with reduced premiums.
  • By this fall, new private plans will cover 100% of preventive services like immunizations, and insurers will not be allowed to enforce lifetime limits.
  • Those under 26 who are not employed or are not offered health benefits by their employer may be covered by their parent’s insurance.

This article was adapted from “The Truth about Healthcare Reform” by Pat Regnier, Michelle Andrews, and Amanda Gengler. Money. May 2010. 70-80. All timelines, numeric figures, percentages, and/or approximations are based on research by author Regnier et al.
*Source: CNN/Opinion Research Corp. poll. March 19-21, 2010. Cited p. 73.
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