How Health Care Reform will affect your Financial Plan
Email This Article Nathaniel RitchisonMay 18th, 2010
On March 23rd, President Barack Obama signed into law the farthest reaching and most significant social program since the creation of Medicare and Medicaid by Lyndon Johnson some 45 years ago. The Patient Protection and Affordable Care Act can best be described as a fix to the existing healthcare system and not a replacement. It doesn’t create a government run universal plan like Canada or turn doctors into government employees like Great Britain. Instead, the law attempts to increase the access to coverage of the neediest and often excluded segments of our population- the unhealthy and low income- by increasing the taxes and cost of healthcare of the youngest and most affluent of our population.
The government’s aim to cap the ever increasing cost of healthcare at no more than 10% of disposable income, which in 2007 stood at 16.6% compared to less than 10% in 1981, is a highly controversial one. I’m going to discuss the points of the act that will have significant impact on planning for your financial independence. For a detailed look at the law visit the Kaiser Family Foundation at http://www.kff.org/healthreform/basics.cfm, or schedule a time with us to go over in detail how the changes will affect your financial plan specifically.
Who will be affected this year…
Uninsured individuals and children with pre-existing conditions will have access to a temporary high-risk pool of insurance with subsidized premiums until state insurance exchanges are established in 2014.
Dependents can be included on their custodian’s health plan up to age 26.
Insurers will no longer be permitted to impose lifetime benefit limits on plans and will begin to be subject to restrictions on their use of annual limits until 2014 when limits will be entirely removed. In addition, the act also outlaws the practice of rescission- finding a reason to revoke coverage after you get sick.
Medicare recipients will receive a $250 rebate check if they enter the Part D “donut hole”- a coverage gap between $2,830 and $6,440 in total drug spending- until it is eliminated in 2020. Beginning in 2011, generics will begin to be covered and brand-name drugs will be subject to a 50% discount in the donut hole. Also, beginning in 2011 some Medicare Advantage plans (for-profit Medicare supplement plans) will see their government subsidy disappear- forcing plans to leave the market and seniors to switch.
Voluntary options for long-term care insurance will be available beginning in 2011. Funded by payroll deductions, this program provides a $50/day cash reimbursement for qualified long-term expenses after you’ve participated in the plan for at least 5 years.
2013, The year of the tax increase…
Increases to the Medicare payroll tax will bring the rate to 2.35%- an increase of 0.9%- for taxpayers with wages and earnings over $200,000 ($250,000 for married filing jointly).
A new tax on investment income will be assessed at 3.8% for taxpayers with an AGI over $200,000 ($250,000 for married filing jointly).
Contribution limits on Flexible Savings Account will be capped out at $2,500 and indexed for inflation in subsequent years.
Increases to the medical expense threshold for itemized deductions will lift the rate from 7.5% to 10% of AGI. The threshold will be increased for those over 65 in 2016.
In 2014 and beyond…
Health Insurance Exchanges are established in each state, or geographic region, allowing people to comparison shop for standardized health packages. Tax credits will be available for people with income above the Medicaid eligibility and below 400% of poverty who are not eligible for or offered other acceptable coverage. Credits will be applied to monthly premiums to ensure that people can obtain affordable coverage. The health packages will limit the insurer’s ability to charge higher rates due to gender or other factors. Premiums will instead be based on age (no more than 3:1), geography, family size, and tobacco use.
Penalties for not having health care coverage will be phased-in beginning 2014 and fully in force by 2016. The penalty- aimed at bringing younger, healthier participants into the plans to bring down the risk pool for the insurers- will be capped at $695 per person and $2,250 per family (not to exceed 2.5% of income) and indexed for inflation in subsequent years. Individuals will not be penalized if affordable coverage is not available.