Congress passes historic health insurance reform

On March 25, health insurance reform legislation passed — after a year of debate, multiple versions, hundreds of town halls and months of procedural hurdles. It’s a complicated law, 2,310 pages long.

The core element, beginning in 2014, is a de facto requirement that uninsured adults under 65 purchase health insurance in government-regulated state-by-state exchanges, aided by subsidies, and enforced by tax penalties. The state exchanges, administered by government agencies or non-profits, will serve as clearinghouses for private insurance plans, which will be available at five benefit levels. Subsidies, available on a sliding scale, will limit premiums to 2 percent of income for those at 133 percent of the poverty level ($14,404 for individuals/$29,326 for a family of four) — rising to 9.5 percent of income for those at 400 percent of the poverty level ($43,320 for individuals/$88,200 for a family of four).

The tax penalties, phasing in from 2014 to 2016, will total $695 per person, $2,085 per family — or 2.5 percent of household income — whichever is greater; after that, penalties increase annually by inflation. Penalty exceptions will be granted for financial hardship and religious objectors.

Medicaid, the government insurance program for the poor, will expand in 2014 to cover everyone under 65 years of age who earns less than 133 percent of the poverty level. [Right now, most low-income adults without dependent children can’t get into Medicaid.]

Existing employer-sponsored insurance plans will remain essentially the same, except that they will be required to extend dependent coverage to age 26.

Small employers with up to 100 employees will be able to purchase coverage for employees on separate state-level exchanges beginning in 2014. Starting immediately, small employers with up to 25 employees (and less than $50,000 average wages) can get a tax credit for up to 35 percent of the employer’s contribution to health insurance premiums, if the employer is paying at least half the cost; in 2014 and 2015, small businesses that buy employee coverage through the exchange can get a tax credit for up to 50 percent of their contribution if they’re paying at least 50 percent of the premium.

Starting 2014, large employers with more than 50 workers will pay a penalty (up to $2,000 per employee) if at least one employee gets a subsidy on the exchange.

From 2010 through the end of 2013, employers that provide health insurance coverage to retirees over age 55 will be eligible to take part in a reinsurance program, which will reimburse them for 80 percent of retiree claims between $15,000 and $90,000.

Starting 2014, insurers will face restrictions on practices such as refusing to insure individuals with pre-existing conditions, terminating policies when individuals get sick, or imposing annual or lifetime limits on coverage. Young adults will be allowed to stay on their parents’ plans through age 26, but only if they are not offered health coverage at their place of work. At any given benefit level, premiums may vary by no more than 3-to-1 for age, and 1.5-to-1 for tobacco use.

New taxes and fees will be levied on insurance companies, pharmaceutical manufacturers, medical devices, indoor tanning salons, and capital gains income:

• The pharmaceutical manufacturing industry will pay annual fees, apportioned by market share, totaling $2.5 billion in 2011, rising to $4.1 billion in 2018, and then dropping to $2.8 billion in 2019.
• The health insurance sector will pay annual fees, apportioned by market share, totaling $8 billion in 2014, rising to $14.3 billion in 2018, and increasing after that at the rate of premium growth. Non-profit insurers will pay at a lower rate.
• Starting 2013, a sales tax of 2.3 percent will be levied on medical devices.
• Starting July 1, 2010, a sales tax of 10 percent will be levied on indoor tanning services.
• For the first time, a 3.8 percent Medicare tax will be levied on capital gains income, not just wage income.

The law also limits the tax-deductibility of health insurance executive compensation — to $500,000 per individual, retroactive to tax year 2009.

Insurers will also pay an excise tax of 40 percent on the value of employer-sponsored health plans that exceeds $10,200 for individual coverage and $27,500 for family coverage.

The new law contains hundreds of other elements, including provisions for funding community health clinics, subsidizing the creation of non-profit consumer-run health insurance co-ops, investing in medical research and training of health professionals, reducing the “donut hole” in Medicare’s prescription drug coverage, reducing subsidies to the privatized Medicare Advantage program, and making numerous other changes to Medicare.

The full text of the law is available online at thomas.loc.gov.

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