Friday, January 15, 2010

Potential Changes in Health Insurance and Pensions for 2010

Commentary
by Dr. Suzanne Taylor
Adjunct Professor

Just how the new health care bill will affect human resource management and labor negotiations is not certain, but what is certain is it will affect just about every aspect of health insurance as we have come to know it. Here is a summary of some of the major issues remaining to be resolved.

Retiree health insurance benefits will most likely become more expensive for employers. The Medicare Modernization Act provides subsidies to employers offering prescription drug coverage. The subsides will become taxable and the employer's liability under FASB 106 will increase as will the need to put aside more funding or to eliminate prescription drug coverage altogether. Reliance on the newly revised Medicare prescription program should reduce or drop the donut hole. It may be that legislation will prevent employers from changing benefits offered to employees and their beneficiaries once a person has retired. This could cause employers to cap their contributions to the cost, eliminate retiree health insurance as is already happening in both the private and public sectors, or even cut the benefits of active workers.

The cost of providing retiree insurance for early retirees under 65 will not be a part of Medicare.

On the other end of the age continuum, the youngest generation is in trouble as the House Bill would end the CHIP, Children's Health Insurance Program, and redirect the millions of uninsured children to Medicaid or to the new health insurance exchanges where moderate income Americans can buy subsidized insurance. In the Senate bill, CHIP is preserved until 2015, two years past its current expiration date, but two Senators: Rockefeller (W. Virginia) and Casey (Pennsylvania) are hoping for more.

As to the exchanges and how they will work; little has been determined. The expansion of Medicaid and how far it will go and in what direction is yet to be determined. Medicaid pays doctors and hospitals far lower reimbursement rates than private insurance. This is due in part to the fact that the states pick up some of the added costs. Both House and Senate versions will pay the states' additional shares in the first two years and 95% after that. California has indicated its additional costs, not paid by the federal government, will amount to an additional $3 billion a year.

Furthermore, one of the least understood aspects of the bill is just how the new insurance will be sold on the open market. The Senate bill requires states to create new insurance market places. The House bill would establish a national exchange, but the states could opt out if they had the capacity to run their own exchange.
Another problem is who will oversee the new federal regulations? Will it be the states, that are understaffed now, or a new federal regulatory commission?

What of the Cadillac tax proposed to be placed on plans, whose premiums exceed $8,000 for single and $23,000 for family plans, and how much it will rise in the future? As of January 15, 2010, there appears to be a compromise reached which increases the threshold to $8900 for individuals and $24,000 for family coverage. For people in certain high risk jobs, the threshold would be higher, up to $27,000 for family coverage. Moreover, state and local government workers and benefits from collectively bargained plans would be exempted until 2018. And in 2015, the cost of dental and vision coverage would also be deducted from the plan limit. It is still believed that the tax would slow the growth of health spending. The proposed tax is still subject to further modifications as it has not been fully agreed upon by all. It is thought, however, that the thresholds would probably rise less than health insurance premiums as the bill states the rise would be in correlation with the CPI plus one percentage point. The 40% tax on the excess to be paid by the insurer is expected to begin in 2013. Some still remain who want no excise tax at all. The House bill suggestion was to tax very high wage earners, but that proposal appears to be given up for now.

It is predicted that there will be no mandate for employers to insure their workers; rather it will be a mandate for individuals to carry insurance. Moreover, insurers will be able to charge older people two and a half times as much as younger ones. As of now the House bill has a two to one ratio and the Senate a three to one ratio.
What role, if any, will Health Savings Accounts play in the new designs?

Each of the bills is over 2,000 pages and both contain many recommendations for a variety of review commissions, some within the IRS and others within Health and Human Services.
Of course, not the least concern is how the package can ultimately be put together in the next month or so to pass both the Senate and House and gain the President's approval. Overall, Tom Daschle predicts that the starting date for the new bill would be "somewhere around 2014."

Just this concern of what health care is going to look like would be more than enough for one summer course, but we must also take some time to look at the growth of defined contribution plans and how money can be safely invested in these hard economic times. The big question is will defined benefit plans survive and how can we save for the costs of retirement by planning ahead to have sufficient assets for living and affording health insurance.

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