Health reform explained: What's next for consumers

MINNEAPOLIS - Now that the United States Supreme Court has upheld the Affordable Care Act many are turning their attention to what's coming down the road in 2014 when some of the more controversial elements of the plan take effect.

"I think that was a surprise to a lot of people," University of Minnesota health economist Roger Feldman told KARE Thursday after the ruling.

The High Court's majority  found that the individual mandate to buy health coverage is a constitutionally compatible use of the federal government's taxing power.

"They said if this law walks like a duck and talks like a duck, it must be a duck," Feldman remarked.

"This mandate, this penalty, is really a tax. And as such it's within the government's power to tax us and then give us rebates if we buy insurance," he said.

Some of the more popular elements of health reform are already in effect, including the provision that children can stay on a parent's health plan until age 26. The law also already barred insurers from denying coverage due to pre-existing conditions or placing lifetime caps on benefits.

Mandate and Penalties 

The mandate is one of the facets of the bill that drew the most criticism, but was seen as the glue that held it together because it created a pool of younger, healthier customers.

"If you design a health insurance policy like that, and let people buy it whenever they want to, they won't buy insurance until they're sick and they need it and they get the good deal," Feldman explained.

"So the individual mandate was necessary in order to have people participate in the insurance pool before they became sick."

The penalty for not buying coverage in 2014 will be applied through the tax code, and will show up for the first time in 2015 when people go to file their 2014 tax returns. Feldman said the tax forms by then will probably required proof of insurance.

"An example is already in place in Massachusetts where people, when they file their state income taxes, submit that they have bought insurance," said Feldman. "The same thing will now be happening at the federal level."

The penalty will be $750 or two percent of annual income, whichever is greater, up to a maximum of $2,250. It is not clear yet whether the government will allow a grace period for tax filers who are caught off guard by the mandate.

"So if I'm making $100,000 and decide not to buy insurance I'll pay a $2,000 penalty. That will be close to the top of the penalty scale," Feldman said.

That penalty will be phased in over three years, and will be indexed afterward to the cost of living.

Subsidized Health Coverage

The flip side of that will be the subsidized plans sold through state insurance exchanges, such as the one being developed in Minnesota by the state Department of Commerce.

Those who earn as much as four times the federal poverty line will be able to purchase health coverage from private insurers in the exchange but at greatly discounted costs. Out-of-pocket costs will range from three percent of the actual premium to nine and a half percent, depending on the policy holder's income.

Persons earning just one and a half times the poverty rate will pay only three percent of the premium, with the remaining 97 percent picked up by the government working through the exchange.

"Now if I'm at that income level and a policy costs $15,000 a year for me and my family -- and I'm paying three percent of that -- that's $450 a year, a little bit less than $40 a month," Feldman said.

"That will be the choice for me if I'm in that position. Do I decide to pay $40 a month, which is a very good deal? Or do I decide to pay the penalty and opt out?"

Medicare Changes

The plan will be financed partly through savings achieved in Medicare, by reducing or slowing the growth of fees paid to medical providers for taking care of Medicare patients. In other words the Medicare program will be "kicking in" part of the cost of the new system.

"Seniors will continue to have Medicare with all its protections, and insurance and so-on, but the government is going to try to pull a little money out of that program," Feldman asserted.

"It may be the case that some doctors will decide the payments are so low that they won't take any Medicare customers any more. So you might not be able to keep seeing the doctor you wanted to see."

That is why "Medicare cuts" has become a staple of opposition speeches and advertising campaigns, because the government's goal is to spend less overall on Medicare while still keeping the program's menu of benefits intact.

Penalties for Employers

The availability of subsidized health plans, combined with rising costs of health coverage in the private market, will inevitably lead more employers to drop coverage for their workers. That will lead to a penalty as well, beginning in 2014.

"That penalty is designed to keep employers in the insurance game," said Feldman. "On the other hand, if the employer drops insurance and the workers go over and get subsidized policies in the exchange that could be a really good deal for the employees."

Companies that employ 50 or more workers will be penalized $2,000 for each employee not offered coverage each year, with the first 30 employees exempted from that total. That is substantially less expensive, however, than their share of them employee health plans in many cases.

Feldman and another economist are currently developing a model to predict what percentage of employers will drop coverage, and opt to pay the penalties instead.  Their projections haven't been made public yet.

"If I had to speculate now I would say that some employers will drop insurance," he said.

"They'll be mostly middle-sized employers -- not the big ones, because they are the most committed to offer insurance. And not the small ones either, because they will be exempt from the penalties."

Businesses with fewer than 50 employees are exempt from the penalties, and some will qualify for tax credits designed to enable them to offer coverage.

Medicaid Opt In

The one part of the Affordable Care Act deemed unconstitutional by the Supreme Court's majority was the expansion of Medicaid.  That program, generally for those with incomes lower than one and a half times the poverty line, was projected to add 15 million people to the ranks of the insured.

The build-out of the Medicaid program would've been a financial burden state governments because they typically pay half of the costs of covering people enrolled in the program. But, even in striking down the Medicaid explansion, the Supreme Court ruling allowed states that choose to opt into the program to do so.

Gov. Mark Dayton of Minnesota, acting through an executive order in 2011, applied to the federal government for an early opt-in to Medicaid.  That allowed the state to move some of the people enrolled state-funded health programs into Medicaid, allowing the cost of that care to be split with the federal government.

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