After more than a year of political wrangling, searing debate, and vitriolic protests, President Barack Obama took a historic step toward making medical treatment available for all Americans when his healthcare reform package passed both houses of Congress. Even though he asserted that the legislation he signed into law in late March–the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010–”isn’t radical reform but it is major reform,†it clearly intends to surgically transform the nation’s healthcare system. Says Cara James, Kaiser Family Foundation’s Director of Race, Ethnicity and Health Care group: Out of the estimated 45 million total uninsured, “there are about 30 million to 32 million people in this country who do not have health insurance and would continue to be uninsured without this bill. It’s groundbreaking.†She maintains that although the measure will cost an estimated $938 billion over the next decade, millions of Americans will reap enormous benefits.
The legislation requires most individuals to purchase health insurance and will cover millions through an expansion in Medicaid, subsidies to families, and tax credits to small businesses. Among other measures, the package also allows for the creation of healthcare exchanges at which uninsured individuals and small businesses can shop for insurance policies; reduction in out-of-pocket prescription costs for seniors on Medicare; and restriction of insurers to deny coverage of individuals with pre-existing medical conditions.
Without question, large numbers of African Americans would benefit: Nearly one in five do not have health insurance, according to White House figures. Also, African Americans generally spend as much as 16.5% of their income on healthcare expenses versus 12.2% for whites.
So what does this law mean for you? Clearly, the legislation is not a universal prescription. Since there has been much confusion and, in some cases, misinformation about healthcare reform, black enterprise decided to examine the plan. We dissected the new law’s impact on consumers, small businesses, and taxpayers. To help you engage in long-term financial planning and choose the best options, we’ve included a calendar that tells you when key provisions go into effect. Turn the page to find out if healthcare reform is just what the doctor ordered.
Consumers
When President Obama signed healthcare reform into law in late March, Kashawn Alston finally exhaled. Access to health insurance would be welcome relief for the 46-year-old student at Laurus Technical Institute in Jonesboro, Georgia. The former New York City resident moved to Georgia two years ago to pursue a degree in HVAC (heating, ventilation, and air conditioning) while working a series of odd jobs such as house painter, roofer, and stocker at a local store. The jobs, however, did not offer healthcare coverage. He couldn’t afford insurance and had trouble gaining a policy because of a pre-existing condition: Alston has type 2 diabetes and must deal with occasional blood clots.
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Currently unemployed but continuing to work odd jobs when not in school, Alston pays as much as $3,600 a year in medical bills, doling out roughly $300 a month on doctor’s visits and another $150 on prescriptions when he can afford them. When he can’t pay for prescriptions, Alston borrows medicine from family members or friends who also have the disease. “This new bill will help me pay the bills,†he says. “I have to sometimes borrow money from family and friends or just go without the proper medication.†When clots form, he goes to the hospital and is billed for the visit.
Under the new healthcare reform, Alston and many others like him will be able to access affordable insurance. Says Alston: “Can you imagine how many neighborhoods, towns, and cities would be improved by just being able to properly control illness and disease? There’s no telling where this bill will take us in the long run, but I truly believe it will be to a better America.â€
THE UNINSURED
Those with pre-existing conditions will be able to obtain health insurance. If you haven’t had insurance
SENIORS
The Medicare Part D “doughnut hole†will close. This year, Medicare beneficiaries who fall within the Part D prescription drug plan coverage gap, or “doughnut hole,†will receive a rebate of $250. This repayment will help those who need to purchase drugs covered under the plan but who have exceeded the coverage limit.
YOUNG ADULTS
Adult children will receive extended coverage. Young adults will be able to receive coverage under their parents’ insurance plan until the age of 26. However, parents can elect whether or not they want their child to remain on their plan. If young people are not covered under their parents, they can obtain individual insurance or take part in their state’s health insurance plan.
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CHILDREN
Children with pre-existing medical conditions will have access to coverage. Starting this September, children with pre-existing conditions can’t be denied inclusion on their parents’ health insurance plan. It will also no longer be permissible for insurers to insure a child while excluding treatments for his or her pre-existing condition.
ALL CONSUMERS
Consumers will be able to more easily fight a claim denial. By September, all new health plans must have a clear process under which the insured can appeal claims or decisions regarding coverage. Also, a federal health insurance consumer assistance office will be created to help consumers enroll in a plan or file a complaint.
Taxpayers
Roughly 1 million individuals earning more than $200,000 and roughly 4 million couples filing jointly who make more than $250,000 can expect to pay higher Medicare taxes, according to the congressional Joint Committee on Taxation. There’s also a new Medicare tax on unearned income from investments.
Richard and Arvenita Cherry are among those couples who are likely to see a considerable increase in their tax bill. The Cherrys’ combined annual household income comes to about $178,000, plus another $120,000 in rental income from five townhouses they own in Maryland.
The couple has healthcare insurance through Richard’s job as a marketing specialist for the U.S. Department of Agriculture in Washington, D.C. Arvenita, an anthropologist with her own consulting firm, says she couldn’t afford an individual policy since she’s self-employed and had a pre-existing condition (rotator cuff injury for which she has since had an operation). In addition to the $574 a month that the couple shells out for insurance premiums, an additional $1,200 a year is taken out of Richard’s salary for Medicare taxes. Under new healthcare reform, the Cherrys could end up paying roughly an extra $1,800 a year in Medicare taxes because of the unearned income from the rental properties.
The 34-year-olds view healthcare reform as a necessary measure to aid the nation’s uninsured population. “Some people in higher income brackets may feel they are being penalized,†says Arvenita. “If you are in that threshold you are not going to be missing or lacking anything by paying more taxes while other people are struggling and dying because they don’t have healthcare.â€
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Medicare Tax on Earned Income
Some workers’ Medicare payroll taxes, included in the FICA section of a paycheck, will rise to 2.35% starting in 2013. Currently, the employee half of the Medicare payroll tax is 1.45% on all wages–with the employer paying the other 1.45%, for a total of 2.9%. With the tax increase, high-income individuals will pay another 0.9 percentage points on earnings in excess of the threshold. For example, married taxpayers earn
Medicare Tax on Investment Income
Top earners will face a new 3.8% Medicare tax on investment income, including interest, dividends, capital gains from property sales, royalties, rents, and other nonwage income. The tax wouldn’t apply to interest from municipal bonds as well as income from tax-deferred retirement accounts such as 401(k) plans, until funds are withdrawn. If your salary is less than $200,000 for singles and $250,000 for couples but investment income increases total income beyond that threshold, like the Cherrys, then you’ll have to pay the new tax.
New Threshold for Medical Expense Itemization
Current rules allow taxpayers to itemize deductions for eligible medical expenses that exceed 7.5% of their annual adjusted gross income. Under new healthcare reform rules, the percentage increases to 10% in 2013.
Changes to Flexible Spending Plans
In 2011, the penalty rises from 10% to 20% for using money set aside in health savings accounts for anything other than medical expenses. Right now, employers set limits, typically between $3,000 and $5,000 in the absence of a government cap. By 2013 the maximum annual contributions will drop to $2,500. Taxpayers also will no longer be able to use this money for over-the-counter medication.
Entrepreneurs
On average, enterprises with fewer than 100 employees have paid health insurance premiums that are 18% higher than the amount paid by large entities for the same coverage, according to the White House. In fact, the average small business owner pays an annual cost of about $7,800 per employee or $19,300 per family for health insurance.
Small firms that opt for comparable insurance coverage under the new healthcare reform law, however, could save up to $390 for single polices and $965 for family policies, which could yield as much as $10 billion in savings in 2016 alone, according to the nonpartisan Congressional Budget Office.
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Under the new healthcare system, firms with fewer than 50 employees will not face penalties if they don’t offer health insurance coverage. But those that offer coverage will receive a tax credit up to 35% of employee premiums to offset insurance costs this year.
A number of business owners have been seeking such relief. Carla Walker-Miller, CEO of Detroit-based Walker-Miller Energy Services L.L.C., is among them. Her firm, which supplies electrical equipment and energy optimization services, employs five full-time workers and generates about $4 million in annual revenues. Since its inception a decade ago, Walker-Miller Energy Services has offered health coverage, while dental and vision plans are optional. Currently, the company covers 80% of employee health premiums, so
gaining a reimbursement has great appeal. “It will encourage other businesses that aren’t providing health insurance to at least provide partial coverage,†says Walker-Miller, who until the end of 2009 provided 100% healthcare coverage to her employees. “I changed to employees covering 20% of insurance costs because the cost was getting so unmanageable.†Right now, she pays about $500 a month for single workers and $1,300 a month for those with family plans.Coverage Provisions
There is no health insurance requirement for business owners with fewer than 50 employees. Firms with 50 workers or more, however, must offer insurance to employees or pay a fine. Part-timers are counted in the number of employees based on hours and wages, which means 50 part-time workers would be the same as 25 full-time workers.
Penalties for Non-coverage
If a company does not provide health coverage, the penalty is $2,000 per one full-time employee after the first 30. Even if you offer insurance but one or more workers receive government subsidies to buy health insurance, you still have to pay the penalty. Some CEOs would rather pay the $2,000 per employee penalty than offer health insurance to their workers because it would be cheaper, maintains Molly Brogan, a spokeswoman for the National Small Business Association, a trade group based in Washington D.C.
Tax Credit
About 4 million small businesses will be eligible to receive tax credits if they provide insurance. If you cover at least 50% of group healthcare coverage for your workers, pay average annual wages below $50,000, and have fewer than 25 full-time employees, you qualify to get back as much as 35% of the total premiums your business pays; 25% if you are a nonprofit. In 2014, the value of the credit will increase to 50% and 35%, respectively. Firms will be able to claim the tax credit up to six years.
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Health Insurance Exchanges
Starting in 2014, states must create health insurance exchanges (pools) for small businesses and their employees. These marketplaces, or Small Business Health Options Programs (SHOPs), are meant to kick in as the 35% tax credit expires. Exchanges will allow small businesses to band together to gain better pricing, more options, and greater bargaining power.
Self-Employed Benefits
There is some relief for the 22 million individuals who work for themselves and pay out of pocket for their health coverage. The 35% tax credit also applies in 2014 for self-employed individuals earning less than $43,320 (or family of four with income below $88,200). Furthermore, independent contractors and self-employed individuals will be able to join the health insurance exchanges.