Oil Prophets

Winter 2013

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INSURANCE ISSUES The Future of Health Insurance PPACA Overview and What it Could Mean to You Tim Luy, Director of Internal Operations – Commercial Health, Federated Mutual Insurance Company The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010. The constitutionality of the portion of the law that created a mandate for U.S. citizens to purchase insurance starting in 2014 was contested by many states. In June 2012, the U.S. Supreme Court ruled that the provision was constitutional as a tax imposed on individuals who fail to procure coverage. PPACA implementation continues For employers, little will change between now and 2014 because of PPACA. While employers are interested and concerned about the future implications of PPACA, they should recognize that they won't be materially impacted until at least 2014. Individual Health Insurance Policies Big changes are coming in 2014 for policies issued to individuals rather than through employers. Insurers will be obligated to accept all applicants regardless of their health condition. In addition, even if the applicant has been uninsured for years, the insurer must cover all health conditions; a pre-existing condition exclusion can't be used. It is widely believed that the risk pool of individual insurance policies will worsen and premium rates for all current and new applicants will rise significantly in response. Health Insurance Exchange An online insurance distribution system called an Exchange must be developed in each state, or, alternatively, the Federal government will implement a Federally Facilitated Exchange (FFE) for states that don't develop their own. The Exchange is designed to facilitate the expansion of Medicaid, the provision of tax credit subsidies to eligible individuals, and create an online health insurance shopping experience that will presumably increase competition among insurance companies. Development efforts to date vary widely by state. At present, there is considerable uncertainty about the practicality of the exchange as a solution for small business owners. 26 OIL PROPHETS WINTER 2013 Mandate to Buy Insurance All U.S. citizens must purchase health insurance that provides minimum essential coverage by 2014 or pay a penalty for failing to do so. Individuals who fail to purchase coverage will pay a tax equal to approximately 1% of their annual income, which, for most Americans, will be considerably less than the expense to purchase insurance. It remains to be seen whether this small penalty will motivate people who don't buy insurance today to do so in the future. Subsidy to Buy Insurance People with household incomes below 400% of the Federal Poverty Level (FPL) may be eligible for a Federal subsidy to help pay for their insurance. Lower income households will qualify for greater subsidies than those with more income. The Federal government will establish the percentage of the household income that should reasonably be spent on insurance, then compare this amount to the actual premium cost of a benchmark plan. The difference between the household's equitable contribution toward insurance and the cost of the insurance will determine the subsidy the household is provided. Individuals eligible to participate in an employer-offered insurance plan, which provides coverage at a defined minimum benefit level or better at a cost less than 9.5% of the employee's income, will not be eligible for a Federal subsidy. Employer Responsibility to Offer Insurance Employers with 50 or more full-time employees will be obligated to offer health insurance to their employees or be subject to penalty for failing to do so. The coverage offered must be "valuable" or "affordable." Valuable coverage provides the minimum defined benefit level, and affordable coverage costs the employee less than 9.5% of their income to purchase. Employers who choose not to offer insurance to fulltime employees could be subject to a fine of $2,000 per

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