Patient Protection and Affordable Care Act of 2010 (PPACA) is more commonly known as Health Care Reform or Obama Care. It doesn’t matter which side of the fence you sit on, PPACA is here for the foreseeable future. Is your organization ready? Are your employees ready? How is this going to affect the income stream for your tenants?
Yes, Healthcare Reform is changing our everyday lives and the lives of everyone around us. No one truly knows the long-term effect of this law or if it will get repealed or voted unconstitutional someday. For the sake of this article, we are going to assume that it will remain 100% in its current language.
The PPACA reforms certain aspects of the private health insurance industry and public health insurance programs, including increasing insurance coverage of pre-existing conditions and expanding access to insurance to over 30 million Americans. All of this comes at a cost; we’ll look at that in a minute.
Certainly, there are some positive steps in the right direction with a few aspects of this law. Insurance companies can no longer discriminate due to pre-existing conditions. What this truly means is that any American with a pre-existing condition can now purchase coverage at the same rate as a healthy individual of same age and geographical location. It is important to note that this doesn’t include pre-existing conditions related to tobacco use.
Several aspects of PPACA have already taken effect. A few of the most notable are:
• Insurers are prohibited from imposing lifetime dollar limits on essential benefits, like hospital stays in new policies issued.
• Dependents (children) will be permitted to remain on their parents’ insurance plan until their 26th birthday, and regulations implemented under the Act include dependents that no longer live with their parents, are not a dependent on a parent’s tax return, are no longer a student, or are married.
• Insurers are prohibited from excluding pre-existing medical conditions
• Insurers are prohibited from charging co-payments, co-insurance, or deductibles for Level A or Level B preventive care and medical screenings on all new insurance plans.
The largest changes are coming over the next three years. January 1st, 2012 is going to be the first major change that’s going to affect every W-2 employee. Beginning next year, employers must disclose the value of the benefits they provided for each employee’s health insurance coverage on the employees’ annual Form W-2’s. This means that employer’s contribution to their employees’ benefits is added to the adjusted gross annual income of your employee.
Beginning in 2013 we’ll have a tax increase on income from self-employment and wages of single individuals in excess $200,000 annually. They will be subject to an additional tax of 0.9%. The threshold amount is $250,000 for a married couple filing jointly (threshold applies to joint compensation of the two spouses), or $125,000 for a married person filing separately.
2014 is the year the majority of changes takes effect. Below are the major changes that take effect January 1st, 2014:
• Insurers are prohibited from discriminating against or charging higher rates for any individuals based on pre-existing medical conditions.
• Impose an annual penalty of $95, or up to 1% of income, whichever is greater, on individuals who do not secure insurance; this will rise to $695, or 2.5% of income, by 2016. This is an individual limit; families have a limit of $2,085. Exemptions to the fine in cases of financial hardship or religious beliefs are permitted.
• Insurers are prohibited from establishing annual spending caps.
• Expand Medicaid eligibility; all individuals with income up to 133% of the poverty line qualify for coverage, including adults without dependent children.
• Two years of tax credits will be offered to qualified small businesses. In order to receive the full benefit of a 50% premium subsidy, the small business must have an average payroll per full time equivalent (“FTE”) employee, excluding the owner of the business, of less than $25,000 and have fewer than 11 FTEs. The subsidy is reduced by 6.7% per additional employee and 4% per additional $1,000 of average compensation. As an example, a 16 FTE firm with a $35,000 average salary would be entitled to a 10% premium subsidy.
• Impose a $2,000 per employee tax penalty on employers with more than 50 employees who do not offer health insurance to their full-time workers (as amended by the reconciliation bill).
• Set a maximum of $2,000 annual deductible for a plan covering a single individual or $4,000 annual deductible for any other plan (see 111HR3590ENR, section 1302). These limits can be increased under rules set in section 1302.
• Establish health insurance exchanges, and subsidization of insurance premiums for individuals with income up to 400% of the poverty line, as well as single adults.
• Lower annual tax-free contributions to flexible spending accounts (FSAs), to $2,500 per year.
Making sure that your organization is informed and up to date on the changes that are coming is important because very few organizations are educating their people on what is coming. For the multi-family housing industry it is important to know how this will affect not only your staff but your tenants as well.
Tenants are going to be more lease conscience than ever before. It is estimated that the average American is going to be spending upwards of 10% or more of their annual income on health insurance. This is a major additional expense when it comes to people being budget conscience. With the unknowns in health care and whether the tenant’s employer is going to provide for coverage or not will sway people to make decisions to cut back on spending. Every American will be required to have health coverage by 2014 or face steep tax penalties. In our current economic state, this could change the income level of the cliental you may be seeing at your properties. Understanding this and educating your property managers and leasing agents will have a great effect on your property’s occupancy levels in the coming years.
Whether we like it or not, PPACA is here to stay. There may be dozens more changes in the coming months and years with new elections but the overall framework of this act is unlikely to change. Knowing what is coming is a smart, proactive approach for your organization. An endless amount of information is available online by just typing PPACA into any search engine. Talk with your insurance professional as well. PPACA….Get to know it!
The information in this article was accurate and current as of the time of its writing on September 5, 2011.
Chad DeVine is the District Sales Coordinator for the Greater Houston Area with American Family Life Assurance Company of Columbus (AFLAC). AFLAC is not Health Insurance, they provide Supplemental Insurances for employees such as Short-Term Disability, Accident, Cancer, Dental, Life, & additional Coverages. Chad is happy to sit down with your company to discuss PPACA in more detail with your company and how AFALC can help ease the burden for your employees. You can contact him via email at [email protected].