By Andrea Coombes and Kristen Gerencher, MarketWatch
Last Update: 6:34 PM ET Jun 28, 2012
SAN FRANCISCO (MarketWatch)The Supreme Courts decision Thursday to uphold the bulk of the landmark health-care overhaul will leave intact some popular provisions, such as requiring insurers to accept people with pre-existing conditions and to cover children up to age 26 on parents plans, but it may mean higher health costs ahead.
The ruling delivers a huge victory to President Barack Obama on the signature law of his presidencya law that promises to make insurance available to a good number of the 49 million Americans who are currently uninsured.
The cost question
Some observers predict the law will lead to higher costs. The end result is everybodys happy because everybody can get health insurance, [but] whos going to pay for it? Thats the big question, said Keith McCurdy, a New York-based partner with law firm Fox Rothschild, which works with employers on their benefits plans.
In the past year, insurance premiums went up to begin covering some of the requirements of health-care reform. As more of those requirements develop, the cost of insurance will continue to go up, he said.
Karen Pollitz, a senior fellow at the nonpartisan Kaiser Family Foundation, said the laws measures aimed at curbing costs have yet to take effect. For instance, insurance companies currently compete on the basis of their ability to select out the healthiest customers and profit off them as much as possible, she said.
But the law will force them to compete on value, Pollitz said, helping to bring costs down. How will the law do that? In part, by requiring insurers to cover people regardless of pre-existing conditions and requiring minimum standards for what policies cover, plus much greater disclosure to consumers about what theyre paying for.
The laws provisions are a new factor in the health-care marketplace that we dont have today that will curb health-care costs, she said.
In the United States, the growth in spending on health care slowed in 2010, up 3% compared with an average 4% growth rate each year from 2000 to 2009, the Organization for Economic Cooperation and Development said Thursday. Still, health spending as a share of gross domestic product was at almost 18% the highest in the United States versus other OECD countries. See the OECDs data.
Good news, but also some penalties
Starting in 2014, the law will make it impossible for insurers to deny coverage to people with pre-existing conditions, such as asthma, diabetes, high blood pressure or a history of cancer.
Meanwhile, the inclusion of young adults on their parents coverage, already in effect, has proved popular in opinion polls, as the economic downturn left many young people jobless and without access to health insurance. About 6.6 million young adults joined or stayed on their parents health plans in 2011 who would not have been able to do so before the Affordable Care Act, according to a recent report from the Commonwealth Fund, a private foundation in New York.
This is truly a hallelujah moment for families across America. It means families will get the peace of mind that health coverage and care will be there for them when they need it, said Ron Pollack, executive director of Families USA, a nonprofit group representing health-care consumers in Washington:
But some people will face penalties, starting in 2014, if they dont buy insurance. In 2014, the penalty, unless you qualify for an exemption, is 1% of family income or $95 per adult ($47.50 for a child), whichever is greater.
For example, for a person with annual income of $50,000, thats $500.
In 2015, the penalty rises to 2% of family income or $325 per adult, whichever is greater, and in 2016 and beyond, its 2.5% of family income or $695 per adult, according to the Kaiser Family Foundation. Visit KFFs site for more on the exemptions.
Still, the law frees many Americans from simply having employer-provided coverage as their only choice, said Randall Abbott, senior consulting leader at Towers Watson, a benefits-consulting firm.
The insurance exchanges, coming in 2014, combined with the laws requirement that consumers cant be denied coverage is good news for people who retire before being eligible for Medicare, among others who currently dont have insurance, according to Abbott. The exchanges are essentially a new marketplace where consumers can shop and compare standardized plans.
But he added that the economic considerations of whether the nation can afford it over the long term is something we now need to grapple with from a budget perspective.
Part of those costs will be paid through higher tax rates, slated to start in 2013, for some high-income people, including a 3.8% tax on some investment income, as well as a 0.9% increase in payroll taxes for single filers with income of more than about $200,000 and married couples earning more than $250,000.
These new taxes will raise an estimated $35 billion to $40 billion a year by the end of the decade, said Clint Stretch, former legislation council to the Joint Committee on Taxation and formerly a tax policy leader for a major accounting firm.
Keep in mind that Republicans have vowed to repeal the entire law, though their ability to do so may depend on the outcome of the coming presidential election and whether they gain seats in the Senate. Whats more, tax laws are always up for debate in Congress.
But any effort to repeal the health-care tax on high-income people will be complicated by the fact that this tax is used to support Medicare, Stretch said. Conservative attempts to repeal it may be cast as an attack on Medicare solvency. While the odds favor an extension of the Bush tax cuts at year-end, they may not favor repealing or delaying this tax.
Here are a few of the other changes that result from the law:
- The $1.3 billion in rebates to consumers as a result of a provision in the health law also appear likely to move forward as expected.
- Medicare beneficiaries who fall into the coverage gap known as the doughnut hole will continue to receive discounts on prescription and generic drugs as part of the laws move to close the entire coverage gap by 2020.
- Insurers will no longer be allowed to charge women higher premiums than they do for men. There are tighter restrictions on how much premiums can vary based on age.
- Insurers will no longer be able to impose lifetime dollar limits on coverage.
- New consumer protections will prohibit insurers from rescinding coverage when a member gets sick, except for cases of fraud. And when a member disputes a claim, there will be new standards for third-party appeals.
- Small-business owners will continue to get access to the tax credit aimed at helping to subsidize the cost of health insurance for their employees.
- Tanning-salon owners across the land may rue the fact that the 10% tax on such services, in effect since July 2010, still stands.
- The health law limits the items covered by the pretax flexible-spending accounts people tap to pay for medical expenses. And, starting in 2013, the amount of money workers can set aside annually in FSAs will be limited to $2,500. Historically, companies have had discretion in how much they would allow workers to sock away tax-free, with some allowing as much as $5,000 to $15,000 a year on the high end.
- Starting in 2013, the law will make it more difficult for some taxpayers to deduct medical expenses (hiking the threshold from 7.5% of adjusted gross income to 10%).
- Theres also a tax hike, slated to start in 2018, on the value of employer-based health-insurance plans that are deemed more generous than most, so-called Cadillac plans.
- The recent push, driven by the new law, toward accountable-care organizations a system of delivering health care that includes a focus on patient outcomes likely will continue.
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