Update on Healthcare Reform-Many changes are already here, though major ones come in 2014

Consumer Reports

2014: A new system begins |  Happening in 2012 and 2013 |  Reforms already in effect

The Affordable Care Act started changing the country’s health-care system almost from the moment it was signed into law in March 2010. It has already expanded coverage of young adults by allowing them to stay on their parents’ plans until they turn 26, outlawed lifetime limits on what insurance will cover, lowered the cost of drugs for seniors on Medicare, caused up to 12 million consumers to get premium rebates totaling some $1.1 billion, and expanded access to free preventive care for patients of all ages. Last summer it survived a challenge in the U.S. Supreme Court.

But all that is prelude to the transformation coming in 2014, when almost all Americans will have access to affordable health insurance that covers essential care.

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2014: A new system begins

A set of rules that take effect Jan. 1, 2014, will make shopping for health insurance a completely different experience for those who buy it on their own—or are uninsured today. These are the biggies:

Guaranteed issue. This is the most popular part of health reform: Health plans must sell coverage to everyone, regardless of pre-existing conditions, and can’t charge more based on health or gender.

Exchanges. By this time next year, every state must have an insurance exchange— an organized marketplace where individuals and small-business owners can view, compare, and purchase qualified private health plans. It’s expected that most consumers will shop on their state’s exchange online, but they can also shop by phone or through brokers.

States have the option of setting up exchanges themselves or allowing the federal government to do the job. It’s expected that the federal government will operate exchanges in as many as half the states. (To see what an exchange looks like, visit theHealth Connector run by Massachusetts, which has had a mandate since 2007.) About 20 states are expected to be ready to operate their own exchanges by late 2013. In other states, the federal government will step in to do the job.

Individual mandate. Everyone will be required to have health insurance or pay a penalty. Almost any sort of legitimate coverage will satisfy the mandate: private insurance obtained on your own or through a job, Medicare, Medicaid, CHIP, Veterans Affairs, or Tricare.

Penalty. If you don’t have health insurance, you’ll have to pay a tax penalty, starting at $95 per individual, $285 per family, or 1 percent of income, whichever is greater, for 2014. (That rises to $695 per individual, $2,085 per family, or 2.5 percent of income in 2016.)

Because the vast majority of people will already have qualifying health insurance, few will confront the choice of buying a plan or paying a penalty. Moreover, you won’t have to pay it if you make too little money to file a federal tax return or would have to spend more than 8 percent of your household income on the cheapest qualifying plan, even including subsidies. Americans living abroad, and those in prisons, are exmpt from the mandate and associated fines.

Individual subsidies. Afraid you won’t be able to afford insurance? If you buy on an exchange as an individual, you may qualify for a subsidy in the form of an advance tax credit if your household income is between 100 percent and 400 percent of the federal poverty level. (The tax system already subsidizes people who have coverage through a job by excluding the cost of their health plan from income taxes.)

For instance, a family of four with an income of 200 percent of poverty, or about $46,000 in 2012, will pay no more than $235 a month for health insurance. People with household incomes of less than 250 percent of poverty will also get subsidies to reduce their out-of-pocket costs, such as deductibles and coinsurance. You’ll learn whether you qualify for a subsidy when you shop on the exchange.

Medicaid expansion. The health care law was intended to expand the government-run health program for low-income Americans to cover up to 16 million more people with household incomes up to 133 percent of the poverty line ($14,856 for an individual and $30,657 for a family of four). That includes many at or below the poverty line who aren’t currently eligible. Read more about how to navigate Medicaid.

Happening in 2012 and 2013

Premium rebates. Nearly 12.8 million Americans will receive more than $1.1 billion in rebates in August, 2012, from insurers who didn’t spend enough of their 2011 premium income on health care. By August 1, 2012, insurers must issue rebates—either as reduced premiums or refunds directly to individual customers or employers—if they spend too much of their revenue on administrative, marketing or other business expenses instead of medical care and quality improvement activities.

Insurers must spend at least 80 percent of premiums on medical care and quality improvements for customers in their individual and small-group (under 50 employees) plans. The cut-off is 85 percent for large group plans.

The rule does not apply to self-insured plans offered by employers who pay employee health expenses on their own. The only way to know if you are self-insured is to ask your employer. You can’t tell just by looking at your insurance card.

Standard disclosure forms. Beginning in September, 2012, all health plans will have to use a standardized, consumer-friendly form  to provide a uniform summary of benefits and coverage, including information on co-payments, deductibles, and out-of-pocket limits. This will make it easier for you to compare plans. Insurers will also have to calculate and disclose a patient’s typical out-of-pocket costs for two medical scenarios: having a baby and treating type 2 diabetes. See a sample form (PDF).

Caps on Flexible Spending Accounts (FSAs). Employers can still set their own limits (usually $2,500 to $5,000) on FSAs in 2012. But in 2013, the most you can set aside tax-free for medical expenses not covered by insurance will be $2,500, with the cap increasing by the annual inflation rate in subsequent years.  Plus you can no longer use FSAs to pay for over-the-counter drugs unless you have a doctor’s prescription. The cap takes effect January 1, 2013. For people with 2012-2013 health care plans that run on a fiscal (rather than calendar) year, the cap kicks in July 1, 2013. Read more about FSAs.

New Medicare tax for high earners. Two Medicare-related taxes will impact high earners in 2013. Individuals earning over $200,000 (or $250,000 for couples who file jointly) will see their Medicare payroll tax rate increase from 1.45 percent to 2.35 percent. They’ll also pay a new 3.8 percent Medicare tax on unearned income, including investments, interest, dividends, annuities, rent, royalties, certain capital gains and inactive businesses. Read more about Medicare.

Exceptions to the unearned-income tax. It does not apply to the sale of your principal residence—unless your capital gain on the house is more than $250,000 for single filers and $500,000 for married couples filing jointly. And even then, it applies only to the capital gain in excess of those amounts. So, for instance, a single filer who made a $300,000 profit on a house sale would only pay the tax on $50,000. Also exempt from the new tax:  income from tax-exempt bonds, veteran’s benefits, and qualified retirement plan distributions such as those from an IRA or 401(k).

Reforms already in effect

More young adults with insurance. All health plans must allow young adults to remain as dependents on their parent’s health plan until they turn 26, whether or not they live at home or can be declared as dependents on the parent’s income tax return. An estimated 6.6 million young adults who would otherwise be uninsured have gained coverage during the first year of eligibility, according to a recent analysis by the Commonwealth Fund, a nonprofit health policy think tank.

Cheaper drugs for people on Medicare. Seniors who reach the “donut hole” – the point when they have to start paying prescription drug expenses themselves – now get a 50 percent discount when buying brand-name drugs and a 14 percent discount on generic drugs covered by Medicare Part D. More than 5 million older adults and people with disabilities have saved $3.5 billion in prescription costs since the law was passed. The donut hole will continue to shrink until it  disappears completely by 2020.

Temporary help for people with pre-existing conditions. To tide people with health problems over until 2014, the law created temporary Pre-existing Condition Insurance Plans in all 50 states plus the District of Columbia. Thanks to federal subsidies, people who have been denied coverage or quoted outrageous premiums because of their health history can buy these comprehensive health plans for about the same price as a healthy person their age would pay for a private plan. The catch is that to qualify for the program, the law says people must have gone without insurance for at least six months. Even so, 67,482 Americans had enrolled in these plans as of April 30, 2012. This program is scheduled to expire in 2014, when people with pre-existing conditions will no longer be locked out of the health insurance market.

Free preventive care. New private health plans must cover and eliminate cost-sharing (co-payment, co-insurance or deductible) for proven preventive measures such as immunizations, Pap smears, and screening colonoscopies. Beginning August 2012, private health plans must provide additional preventive measures to women, including free well-woman visits, screening for gestational diabetes, domestic violence screening, breastfeeding supplies, and contraception. Workplaces run by religious organizations that object to birth control  are to receive a special accommodation: their health plans must still offer the coverage, but the cost of it will be borne entirely by their insurance companies.

People on Medicare are also now entitled to the same free preventive coverage, and in addition get a free annual “wellness visit.”

More consumer protections. Health insurers can’t set lifetime limits on your coverage or cancel if you get sick. Annual limits on coverage in job-related and individual plans are now restricted to a minimum of $1.2 million, which will increase to $2 million beginning Sept. 23, 2012, before being completely phased out in January 2014.

Download our free guide to health care reform

For more detailed information on health care reform, click on the image at right to download a free guide describing what the new law means for you and your family.

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