Tag Archive: Individual Shared Responsibilty penalty

Trump administration adopts market-based statement of health care policy

Nearly nine months into his administration after many months of policy debate in Washington, President Donald Trump has issued an official statement of his administration’s health care policy in an October 12, 2017 Executive Order.

Trump’s policy is essentially not much different than that of his predecessor, Barack Obama, insofar as it retains one of the nation’s largest private sector financing mechanisms: employee benefit medical care plans. Like the managed competition principle of Obama’s Patient Protection and Affordable Care Act, Trump’s policy is market-based and aspires to harness competitive market forces to reduce medical costs and increase access to coverage.

It also mirrors the Affordable Care Act insurance market reforms by concentrating on the small employer group and individual (non-group) market segments where medical care cost pressures hit hardest. The order suggests (not orders) his administration explore allowing small employers to participate in association health plans traditionally used by large employer groups. In addition, Trump suggested his administration consider proposing regulations or revising guidance to increase the use of Health Reimbursement Accounts (HRAs) and expand employers’ ability to offer HRAs to their employees and allow HRAs to be used in conjunction with non-group coverage for employees.

The latter element closely aligns with recent legislation signed into law late in the Obama administration that enables employers to use a new type of HRA to subsidize premiums on a pre-tax basis for employees obtaining coverage in the non-group market. Effective January 1, 2017, employers of 49 or fewer employees that do not offer group coverage can fund up to $4,950 annually for single employees and $10,000 for an individual plan covering an employee and their family members.

Various observers expressed concern at the executive order’s suggestion (once again couched as a request, not a directive) that the administration consider reversing an Obama administration restriction limiting short term individual medical insurance policies to a maximum term of three months and expanding the limit to 12 months or even longer. The concern is well placed because doing so would put short term plans in competition with non-group and small group plans sold with the standard 12 month coverage term.

The Affordable Care Act established ten essential benefit categories with the goal to put small group and non-group coverage on a par with large group plans. But the tradeoff for these more generous plans is high and rapidly rising premium rates and deductibles, particularly painful for households earning too much to qualify for premium and cost sharing subsidies for individual plans sold on state health benefit exchanges. However, short term plans offering skimpier coverage for lower cost won’t comply with the Affordable Care Act’s minimum coverage mandate for individual taxpayers, subjecting them to a tax penalty.

Finally, Trump’s executive order reinforces market-based approach to mediate medical care costs by requiring the Health and Human Services Department in consultation with the departments of Treasury and Labor as well as the Federal Trade Commission to produce a report by April 12, 2018 and every two years following outlining where existing state and federal policy hinders market competition. The report must also identify policy actions to reduce barriers to market entry, limit excessive consolidation and prevent abuses of market power.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

The paradox of Affordable Care Act individual health coverage affordability

The Patient Protection and Affordable Care Act at Section 1401(b)(3)(a) provides advance individual health plan premium tax credit subsidies within six household adjusted gross income tranches between 100 and 400 percent of the current year federal household poverty levels. At the low end, the subsidies are calculated so that households with incomes between 100 and 133 percent of federal poverty pay no more than two percent of their incomes for a health plan. At the upper end, tax credits are applied so that households earning between 300 and 400 percent of federal poverty levels would pay no more than 9.5 percent of income. The subsidies are only available for health plans sold on state health benefit exchanges.

While designed to make individual health coverage more affordable to low and moderate income households, the subsidies employ a one size fits all approach that doesn’t easily achieve that goal in some parts of the nation such as those with high housing costs. Particularly for those over age 50, given the law allows health plan issuers to base premiums in part on age, and who earn close to or slightly above the 400 percent household income subsidy cutoff. And when their individual plan premiums rival or equal a significant portion of their monthly mortgage or rent payment. When that happens, the house payment is going to win out over the health insurance premium every time.

Case in point is San Jose, California resident Miguel Delgadillo, as reported by the San Jose Mercury News:

Until the price of health insurance comes way down, he said, don’t bother him.

“What little income there is after taxes goes to my house payment — that’s my top priority,” said the 55-year-old part-time teacher.

He said he likes the idea of a national health care law, but not the $451 he would have to pay each month for health insurance. That’s the cost of the lowest price plan available to him.

Delgadillo, who has been uninsured for seven years, shares a dilemma with tens of thousands of other Californians: He’s a middle-class person who narrowly misses the income threshold that would qualify him for a subsidized health plan.

That leaves Delgadillo potentially subject to the Affordable Care Act’s individual shared responsibility penalty for not having some form of minimum essential health coverage, which for 2016 is the higher of 2.5 percent of adjusted gross income or $695 per adult and $347.50 for children under 18, up to a household maximum of $2,085. Similarly situated individuals might do the math and figure it would cost less to pay the penalty than purchase coverage. Delgadillo and other similarly situated households may be able to avoid paying the penalty when filing their income tax returns if they can show that the lowest cost plan available to them would exceed 8 percent of actual household income.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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