Andy Friedman on How to Handle Health Care Reform

President Barack Obama’s health care reform law, which takes effect Jan. 1, 2014, does not include a new government-run health plan–as most Americans erroneously believe–rather it seeks to ensure that virtually every American has health care coverage, and businesses and individuals have decisions to make, says analyst Andy Friedman of The Washington Update in his latest white paper, “Health Care Reform Takes Effect: What Choices do Businesses and Individuals Have?”

The latest research by the Congressional Budget Office estimates that the ACA will shrink the number of uninsureds by about half, from 60 million to 30 million, Friedman notes.

This reduction, he says, “will come at a cost to both the government and to affluent Americans,” as “a portion of the cost is funded by a new 3.8% tax on investment income received by families with adjusted gross income above $250,000.” The remaining cost “must be recouped through spending cuts–the law seeks to implement cuts in Medicare reimbursement amounts–additional taxes, or new government borrowing.”

In his paper, Friedman warns that, first and foremost, the Affordable Care Act–commonly referred to as Obamacare–is “complex,” and that businesses and individuals should consult with a financial advisor or qualified attorney to determine how the law impacts their specific circumstances.

But Friedman says that while the health care reform law is “massive,” at its core are five major initiatives that seek to ensure Americans have health care coverage:

1. Employer Mandate: While employers are required to provide health insurance to their employees that meets certain minimum essential coverage requirements, and will have to pay a penalty for not doing so come 2015, they must also bear the brunt of providing such coverage. However, a worker may be required to contribute up to 9.5% of their income.
2. Individual Mandate: Beginning Jan. 1, 2014, every American will have to be covered by health insurance that meets the minimum essential coverage requirements. Those not covered by an employer’s health care plan or via Medicare or Medicaid will have to purchase insurance, or pay a penalty for not doing so.
3. Pre-Existing Conditions: The health care law prohibits insurance companies from denying coverage or charging higher premiums based on the state of an applicant’s health (pre-existing conditions).
4. Exchanges: The law requires each state to set up an “exchange” or “marketplace”, an internet portal where people seeking insurance can get information about coverage options and fees. If a state fails to establish an exchange, the federal government will do so for the state. The exchanges are to be up and running by Oct. 1, 2013.
5. Subsidies: Families with income between approximately $24,000 and $94,000 may receive a federal subsidy when they purchase insurance on an exchange. Workers eligible for employer-provided insurance coverage are not eligible to receive a subsidy.

Friedman notes that whether the mandates work to ensure that Americans have health insurance “will depend on the extent to which employers and individuals comply.”