Sactoking's ACA Q&A Thread

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sactoking

Diamond Member
Sep 24, 2007
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We were having a discussion at the office today about the Cadillac tax and I realized how much of a game-changer this thing is going to be. To recap, the Cadillac tax is a 40% tax on premiums that exceed $10,200 for an individual or $27,500 for a family before the employer's contribution is counted. If your employer-provided insurance has an annual cost of $12,000 ($1,000/month) for an individual then the Cadillac tax is $720, regardless of how much you actually pay for the premiums out of your own pocket. In many cases the tax will be paid by the insurer, which will make employer-provided insurance more expensive, which will make the Cadillac tax more likely to trigger, in a death-spiral.

Originally I hadn't paid it too much attention as the thresholds are pretty high. What I forgot was that the thresholds are measured in 2018 dollars, not 2012 or 2010 dollars; this makes them much more scary. To whit:
For an individual with a $10,200 annual Cadillac threshold, that means the monthly premiums must be at $850. However, medical premium inflation currently runs about 6% higher than cost-of-living, which is the inflationary peg for the Cadillac tax. At 6 renewals until the Cadillac tax becomes effective, we can discount that $850/mo 2018 premium to a $599/mo 2012 premium. $599/mo before employer contribution is a "middle-class" insurance premium today, not a "Cadillac" premium. This means that many more employers will either have to scale back their insurance offerings or drop coverage entirely in order to avoid the Cadillac tax. What happens if they don't? Well, their insurance premium will trigger a Cadillac tax which will likely be paid by the insurer, which will trigger a premium increase, which will trigger a larger Cadillac tax next year.

For the family things aren't much better as the $2,292/mo premium in 2018 is actually $1,616/mo in 2012.

Add in the fact that premiums are expected to continue to outpace COLA (without even accounting for the gigantic increases expected in 2014 for the ACA go-live) and I think we'll find the Cadillac tax is this decade's version of the AMT...
 

sactoking

Diamond Member
Sep 24, 2007
7,502
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The Cadillac tax is delayed until 2018, but that makes it worse in my opinion since the rate of premium inflation will cause it to take everyone by surprise.
 

sactoking

Diamond Member
Sep 24, 2007
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Why would they have it kick in so late vs. ACA go-live?

The partisan answer would be that the Cadillac tax, like all of the revenue offset provisions in Title IX, was purposely delayed so that it wouldn't be felt under any term the current President could serve.

The non-partisan answer would be either "They wanted to wean people off the plans slowly" or "Honestly, I can't think of a logical reason".
 

chucky2

Lifer
Dec 9, 1999
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I highly doubt they gave/give a sh1t about weaning people off plans slowly. 1-2 years lead time is plenty, there is no need for even 2014, 2013 would have sufficed. Yeesh, I wonder what else is lurking....
 

sactoking

Diamond Member
Sep 24, 2007
7,502
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what loopholes and "ways out" are there to the 85% rule?

I'm assuming you're referring to the Medical Loss Ratio rule. For starters you can just get a waiver. My state got an MLR waiver for 2011 and our threshold was 75%.

Beyond that I apologize, but I've been trying not to actually state what any of the apparent or hidden loopholes are for any aspect. It's an ethics thing, and I can't predict who might ever see the thread. I'd hate for someone employed by a health insurer to stumble across it and get all sorts of new ideas, or for a consumer to learn how to cheat the system.

Since it's a commercial product and not a legislative loophole I can mention that there is a group out there touting a "cap and trade" scheme for MLR, but it uses questionable accounting practices from what I have heard so i doubt it will catch on or be regulatorily approved.
 
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cybrsage

Lifer
Nov 17, 2011
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I do not understand why Obama and the dems want to punish people for having great healthcare coverage at low cost to the employee. Shouldn't that be the ultimate goal?
 

sactoking

Diamond Member
Sep 24, 2007
7,502
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I do not understand why Obama and the dems want to punish people for having great healthcare coverage at low cost to the employee. Shouldn't that be the ultimate goal?

I assume you're referring to theCadillac tax. It's hard to say why anyone does anything but I believe the thinking was that under the current system it was much more likely that a company's executives would receive extravagant benefit packages that the rank-and-file employees would be excluded from. If you disincentivize the extravagant packages through taxes then there is more money available for the overall package. Additionally, executives would be more sensitive to benefit issues if they are affected as well. This same line of reasoning is why Congress will now be barred from any health benefit that's not an Exchange benefit.
 

cybrsage

Lifer
Nov 17, 2011
13,021
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You are probably right, it is an anti-executive measure. They exempted most unions from having to pay due to cadillac plans. I hope they do not actually expect there to be any revenue from the tax, since most companies will figure out a way around it.
 
Dec 30, 2004
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I'm assuming you're referring to the Medical Loss Ratio rule. For starters you can just get a waiver. Nevada got an MLR waiver for 2011 and our threshold was 75%.

Beyond that I apologize, but I've been trying not to actually state what any of the apparent or hidden loopholes are for any aspect. It's an ethics thing, and I can't predict who might ever see the thread. I'd hate for someone employed by a health insurer to stumble across it and get all sorts of new ideas, or for a consumer to learn how to cheat the system.

Since it's a commercial product and not a legislative loophole I can mention that there is a group out there touting a "cap and trade" scheme for MLR, but it uses questionable accounting practices from what I have heard so i doubt it will catch on or be regulatorily approved.

loopholes like this would be what would tell us how screwed up the bill was.
For one, if we all know about them we can hurry up and exploit them to get them patched up.
Hiding them just ensures some get to "win" at the cost of the "losers" who don't know the loopholes.
That is not the path to real reform.

Besides, the insurance companies are the ones that could afford to pay people to sit around and find the loopholes that benefit them, then exploit them. Not the Joe Schmoe middle class guys getting the tax bill for this.
 
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sactoking

Diamond Member
Sep 24, 2007
7,502
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Interesting note: I've read it about two dozen times and it never sunk in until today, but low-income smokers are going to be in a world of hurt come 1/1/14.

The ACA really only allows for premiums to be rated on four factors: geographic area, age, family size, and smoker status. The age banding can be no more than 3:1 and the tobacco surcharge can be no more than 50%.

In the real world it means that a 19yo might cost $283/month and a 64yo would cost $848/month. A 21yo with tobacco would be $425/mo and a 64yo with tobacco would be $1272/mo.

The kicker is this: for those at or below 400% FPL (and who thus are eligible for a tax credit) the tax credit will be calculated based on age, geographic location, and family size but not tobacco use. This means that the entire tobacco surcharge will have to be borne by the individual.

Example: A 19yo at 200% FPL would have a premium of $283/month and a tax credit of $162/month for an out of pocket premium of $121/month. A 19yo with tobacco at 200% FPL would have a premium of $425/month and a tax credit of $162/month for an out of pocket premium of $263/month.

Is this really a problem? Should tobacco users bear the cost of their choice? Well, yes and no. Empirical evidence shows that lower income people are more likely to be smokers. If the tobacco surcharge makes coverage unaffordable then they will lose access to smoking cessation programs that insurance will be forced to offer. Also, you have to remember that the ACA has an "affordability" test built in whereby anyone who can't find coverage for less than 8% MAGI gets an exemption from the mandate.

Many people will find that the tobacco surcharge puts them at above 8% MAGI and they can then choose to not purchase insurance. As a result, costly tobacco-related treatments will be offloaded onto emergency rooms and hospitals where they will drive up costs for the system, just like the current environment.

California is considering reducing the tobacco surcharge (which is legal, it can be less than 50% but not more than 50%). This would have the benefit of not inducing low-income smokers to eschew insurance but would have the drawback of not positively punishing unwanted behavior.
 

herm0016

Diamond Member
Feb 26, 2005
8,377
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we all really appreciate what you are doing for us. This is some very interesting reading. people should research all of this and get out there to tell the rest of the country what is really going to happen to them when all this starts.
 

Agent11

Diamond Member
Jan 22, 2006
3,535
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Punishing unwanted behavior shouldn't be a factor in legislation such as this, it really pisses me off. Thanks for bringing this to my attention, I'm going to have to figure out what state representative is appropriate to write to about this.

Smokers are already taxed to death, it is ridiculous. Wonder why so many are rabidly anti government and anti nanny state?
 
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sactoking

Diamond Member
Sep 24, 2007
7,502
2,701
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Punishing unwanted behavior shouldn't be a factor in legislation such as this, it really pisses me off. Thanks for bringing this to my attention, I'm going to have to figure out what state representative is appropriate to write to about this.

Smokers are already taxed to death, it is ridiculous. Wonder why so many are rabidly anti government and anti nanny state?

What state are you in? You can PM me if you want to keep it private and I can respond with the Exchange and/or Insurance Department contact info for you. That's much more likely to be productive than a Legislative contact.
 

sactoking

Diamond Member
Sep 24, 2007
7,502
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Just a note that the Exchange Declaration, the letter in which each governor declares whether their state will have a state-based, federal, or federal partnership exchange, has been delayed until December 14.
 

lothar

Diamond Member
Jan 5, 2000
6,674
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Just a note that the Exchange Declaration, the letter in which each governor declares whether their state will have a state-based, federal, or federal partnership exchange, has been delayed until December 14.
Explain this?
http://www.ajc.com/news/news/georgia-cedes-control-of-health-insurance-exchange/nS8TX/
http://www.wtop.com/120/3046212/McDonnell-Va-to-use-federal-health-care-exchange
http://vitals.nbcnews.com/_news/201...-get-more-time-for-health-exchange-plans?lite
http://vitals.nbcnews.com/_news/201...t-minute-break-on-insurance-marketplaces?lite


If states setup their own exchanges, they have to pay the costs.
If states want a federal/state exchange partnership, the cost for running such is split between federal and state on whatever terms they agree to in such a partnership.
If states reject setting up their own exchanges, the federal government steps in to create an exchange for them and the states won't be responsible for any of the costs?

“We have no interest in spending our tax dollars on an exchange that is state-based in name only,” he said. “I would support a free market-based approach that could serve as a useful tool for Georgia’s small businesses, but the federal guidelines forbid that.”

"My administration will not partner with the federal government to create a state-federal partnership insurance exchange because we will not benefit from it and implementing it could cost Kansas taxpayers millions of dollars," Kansas Governor Sam Brownback said in a statement Thursday.

"The reality is that the federal health care law is being totally dictated and totally controlled by the federal government," Heineman told a news conference.

“By creating an exchange, states will serve as de-facto administrators of the federal government implementing its rules, regulations, and mandates.”
States that don't set up their exchanges will have to submit to what the federal government does for them.
Are these people telling the truth, or is it completely false and simply political posturing?
If true, it sounds like a good deal to reject setting up a state exchange.
20 states have opted not to create exchanges, according to the nonprofit Kaiser Health News. Another 19 mostly Democratic-run states and the District of Columbia are moving forward with exchanges. Meanwhile, at least five others plan to partner with the federal government, with the rest still undecided.
All the state based exchanges have to be approved by the federal government anyway(meaning they are "state-based" in name only). So why not let the federal government implement the program in your state and eat all the costs in implementing such a program for your state while saving both your state budget and the taxpayers in your state some money?
 

sactoking

Diamond Member
Sep 24, 2007
7,502
2,701
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The answer is complicated, but let's see what I can do to boil it down. It may be easier to answer your second question first.

So why not let the federal government implement the program in your state and eat all the costs in implementing such a program for your state while saving both your state budget and the taxpayers in your state some money?

Control. Not the type of control the federal government claims, because that is just a lie, but some control.

EHB is an important component and states have the ability to make choices. Will licensed agents be allowed to sell exchange products? How will the reinsurance and risk adjustment programs be run? Will there be additional assessments for those programs? Will the individual and small group markets be merged? What will be considered an adequate provider network? What will the geographic network and rating networks be? Will tobacco surcharge be limited? What will be the age rating bands? Will the exchange do payment aggregation for the individual market or will carriers bill directly? What will the fee to users be?

Those are all examples of things states still have the ability to control. They're not huge individually, but collectively they shape a very large portion of the exchange experience.

Are these people telling the truth, or is it completely false and simply political posturing?

What's your definition of the truth? Unfortunately, truth is not absolute. You have to believe that there's political posturing in play, on both sides of the aisle.

In this case, the statements are partial truths.

The long-term operations of the exchanges must be funded by the states, that is true. However, the funding need not come from general fund revenue. States are perfectly free to assess insurers the costs of the exchange for access to the clientele. If they do so, then the exchange is revenue-neutral to the state.

If states do assess insurers, they will likely pass the cost on to the state's residents, so the state is indirectly paying for it anyway. However, there is absolutely no guarantee that the federal government won't charge insurers anyway.

There is also an assumption that the federal government won't send states a bill for the cost of operating the exchange. Again, this assumption is currently baseless as no indication of such has been given.

So, if you assume that exchange operations are funded by the general fund, that the federal government won't send a bill to states, and that the federal government won't assess insurers for access to the residents, then the statements quoted are correct. But, if any of the underlying assumptions breaks down (which is likely) then the quotes are completely wrong.
 

sactoking

Diamond Member
Sep 24, 2007
7,502
2,701
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I'm at the NAIC meetings in Washington DC this week/weekend. There should be discussion on the ACA, exchanges, Navigators, and the multi-state product plan. If anything interesting pops up I will advise.
 

episodic

Lifer
Feb 7, 2004
11,088
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Ok, my employer has 3 plans for health insurance.

An expensive 'cover everything plan' - with no or low deductables. I can't afford this one at all. It would take over half my paycheck.

A middle plan that is about 2/3 as expensive as the first with some deductables and coninsurance, etc.

A high deductable plan. I'm not happy about it, but it is the only way I can afford to cover my family. I have to use an HSA account in conjunction with it to pay doctor visits, etc. The first 3 grand a year are out of my pocket. Then it covers 80% until I've spent $8000 - then I owe nothing further that year basically. I really dislike this plan, but its all I can afford.


When the exchange thing happens, since my employer has this 'affordable' plan does that mean I won't be able to shop for 'better' plans on the exchange (assuming they'd be better)? If so, this really ticks me off that people could get better insurance for cheaper than me, etc.


So how will this situation work?


My situation is complicated because my wife cannot get insurance through her work that is affordable or decent. If I were just going to cover myself, I'd be able to get one of the better plans from my employer. Wondering if it'd end up being cheaper for me to get insurance from my employer, for her to get insurance from the exchange (assuming that she meets the pay vs. insurance cost thing - do they count my pay for her calculations?) She makes like 18 grand a year working retail. Finally, would my son be able to get his own insurance for cheap (2nd year in college) - if I declined to cover him? I would only decline if we could end up buying it just for him cheaper.

I'm really confused right now.
 

sactoking

Diamond Member
Sep 24, 2007
7,502
2,701
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I'm really confused right now.

The most honest and unhelpful answer to all of your questions is that nobody knows any of the practical details until the federal gov't releases their blueprint for the federally facilitated exchanges. Until that happens we think we know how some things will work but our beliefs can be superseded at a moment's notice. That being said, here are my best answers as of today (12/25/12):
When the exchange thing happens, since my employer has this 'affordable' plan does that mean I won't be able to shop for 'better' plans on the exchange (assuming they'd be better)? If so, this really ticks me off that people could get better insurance for cheaper than me, etc.

You will always be free to shop on and off the exchange but you will only be eligible for the on-exchange tax credit if your employer doesn't offer "affordable" coverage. In this case, "affordable" means your premium costs must be less than 8.5% of your modified adjusted gross income. IIRC the MAGI test is based solely on the employee's cost of coverage and not the cost of coverage of all dependents. In other words, if the employee-only cost is free but dependents are not, and the total family cost is greater than 8.5% MAGI, you pass the affordability test (based on your free coverage) and are ineligible for a tax credit.

Now, as of 1/1/14 there are some important market reforms that may affect things:
1) Affordability is calculated off one spouse's salary but tax credit eligibility is calculated off of joint income; if you're married filing separate you are automatically disqualified from a tax credit. Also, you may find that you family coverage through an employer is unaffordable (because dependents are only minimally subsidized) but that you also can't qualify for a tax credit because it's based on joint income. In that case, you're boned.
2) Employers providing insurance will have to pay at least 50% of the premium.
3) Employers cannot, by law, refuse to cover dependents.
4) Maximum deductible for an employer-sponsored plan will be $2000/4000 for individual/family; no more high-deductible plans.

As far as people getting better insurance for cheaper, you'll have to learn to deal. Not only will those at less than 400% FPL be getting tax credits with those at less than 200% FPL getting gigantic credits, but those at less than 200% FPL will also get sliding-scale coverage, so that they will get insurance virtually premium-free with no deductible, no copay, and no coinsurance.

As far as your son goes, I'm betting on it being better to get him his own policy. Kids can stay on their parents' policies to age 26 now, but as of 1/1/14 we will be in a guaranteed issue, no preexisting condition market; your kid cannot be denied coverage under any circumstance. There won't be any premium breaks either: the ACA requires community rating whereby each person in the family (up to 3 kids) is rating individually and the premiums are added together for the family premium.

Add in that a kid is college may be a substantial distance away, meaning no in-network doctors, and I cannot, at this time, see one good reason not to get him his own policy on 1/1/14.