Understanding Health Reform: Benefits and Requirements

Jul 3, 2012 by Shani Boston

In this post, we break down the Health-Care Reform Act so that readers can understand its provisions in simple terms.

In a previous post, we discussed the details of the Courts decision.

The best available summary of the details of the Law is provided by the Kaiser Family Foundation entitled, Summary of New Healthcare Reform Law.

Brief Summary of Health Reform

The US Supreme Court’s landmark decision supported the main provisions of the Health-Care Reform Act.

In a 5 to 4 decision, the Court supported the individual mandate and all other sections of the Act, with the exception of the Medicaid Expansion provision.

• The Health-Care Reform Act will require all citizens to purchase health insurance starting in 2014. This is referred to as the individual mandate.
• Subsidies will be given to individuals if their household income falls within a particular range of the poverty line.
• Employers with 50 or more workers will be required to provide health insurance options.
• States must establish health exchanges for individuals and businesses to purchase coverage.
• Nonexempt individuals and businesses that do not purchase coverage will be penalized by the Internal Revenue Service.

Who Is Exempt?

• Exemptions will be granted under certain circumstances such as financial hardship, religious preferences, and members of American Indian tribal groups, undocumented immigrants and incarcerated individuals.
• Exemptions will also be provided to individuals if the lowest-cost plan option exceeds 8% of their income or if their income is below the tax filing threshold.

  Individual Mandate

Citizens and legal residents are required to have coverage.

Families whose incomes are 133% to 400% of the poverty line will be subsidized on a sliding scale.

In 2012, 133% of the poverty line for a family of four was $30,657.

The subsidy will be provided in the form of a premium credit that can be refundable or paid in advance.

The credit/subsidy will be as follows:

• 2% of income for individuals up to 133% of the poverty line;
• 4% to 6.3% of income for individuals 150% to 200% of the poverty line;
• 9.5% of income for individuals 300% to 400% of the poverty line.

Individual Penalty

Non-exempt individuals who do not obtain coverage will be penalized by the IRS at 1% of applicable income in 2014, 2% in 2015, and 2.5% thereafter.

• For example, in 2014 an individual whose income is $20,000 will pay a fee of $95. In 2015, an individual, whose income is $25,000, will pay a fee of $325. In 2016, an individual, whose income is $37,000, will pay a fee of $695.
• Every state must create a mechanism (i.e. a Health Exchange) through which health coverage can be purchased.

Employer Requirement and Penalty

• Businesses with 50 or more nonexempt employees are required to provide coverage.
• Each state will set up a health exchange through which individuals and businesses (with up to 100 employees) can purchase insurance.
• Employers with 50 or more workers who do not provide health insurance to full-time workers will be assessed a penalty by the IRS.
• For one eligible worker who is not provided health insurance, the penalty will be $2000.
• If an employer has 50 or more eligible but uncovered workers, the penalty is estimated to be $40,000.
• Employers who have 25 or fewer workers earning an annual wage of less than $50,000 will be provided a tax credit.

Expanded State Medicaid Coverage for Low Income (Ruled Unconstitutional)

The entire Medicaid portion of the Health Insurance Act that covered low-income individuals was ruled unconstitutional.

As written, states would have been responsible for expanding Medicaid to provide health insurance to individuals whose incomes range up to 133% of the poverty threshold, which is $30,657 in 2012.

The bill had sections covering children, pregnant women, parents and adults with dependent children, as well as individuals with incomes below 133% of the poverty line.

The justices found that the Medicaid expansion provision violates the Constitution because it threatens states with the loss of existing Medicaid funding if they do not comply with the expansion.  The loss on average would be about 10% of the states’ annual budgets.

The Court considered this unconstitutional because states do not have a theoretical but not realistic option of participating voluntarily.

Other Provisions of the Reform Act

• Health coverage must be provided to individuals with pre-existing medical conditions
• Coverage will be provided to dependent children up to the age of 26.
• Insurance companies cannot rescind coverage except in the case of fraud.
• Existing individual and group plans can be grandfathered, but they must abide by the new requirements.
• The waiting period for coverage is limited to 90 days.
• Incentives are provided for wellness behavior programs and behavior modification.
• Chain restaurants and vending machines must disclose nutritional content.
• Improvements will be made in the Medicare program.
• Support will be provided for the development of training programs focused on primary care.
• Improved funding for community health centers will be provided.
• New annual fees will be imposed on pharmaceutical manufacturing companies.
• Establish new trauma centers to improve emergency care treatment.
• Establish processes for reviewing and justifying premium increases.
• Establish procedures to promote administrative simplification.

New: The 17 page report entitled, Economic Outlook for Minorities, Women and Non-minority Businesses in 2012 is currently available. Copies are free of charge and available for download.