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On the Third Hand: PPACA subsidies and financial professionals

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Much of the Patient Protection and Affordable Care Act (PPACA) seems from a distance to have more to do with the working poor than with the investment advisory business.

PPACA imposed a 0.9 percent Medicare tax on wages above $200,000 for single filers and over $500,000 for married joint filers. The law also imposed a new 3.8 percent tax on the net investment income of single filers with “modified adjusted gross income” (MAGI) over $200,000 and married joint filers with MAGI over $250,000. A $500,000 PPACA cap on what health insurance companies can deduct for an executive’s compensation could also affect some clients.

But another PPACA provision, which prohibits insurers from using personal health information when deciding whether to issue coverage, and personal health information other than age and tobacco use when pricing coverage, helped some advisors and clients.

Before the PPACA medical underwriting restrictions took effect, on Jan. 1, 2014, New York and a few other states already required insurers to sell coverage on a guaranteed issue basis, but, in most states, solo advisors who had health problems had trouble buying coverage. The same barriers often affected clients in their 50s and 60s who had sold businesses, or retired from corporate positions, and had to buy their individual coverage for the first time in decades.

In theory, the Health Insurance Portability and Accountability of 1996 (HIPAA) was supposed to prevent that sort of situation, by giving people with the money to pay for expensive private coverage guaranteed access to individual coverage. All people of means had to do to get coverage on a guaranteed-access basis was to be careful to always be covered.

The problem was that, in some states, the state used a “risk pool” program with skimpy benefits to meet the HIPAA requirement, or let an insurer with a less-than-inspiring plan provide the mandated coverage access.

The result was that, in some states, advisors and clients had to move to states with different underwriting rules, or buy second homes, simply to qualify for acceptable coverage. In other cases, affluent people may have started businesses they did not want simply to get access to group coverage.

For affluent people, the King vs. Burwell case could pose a threat to their ability to buy solid coverage without worrying about health problems such as diabetes or cancer.

On the one hand, the case seems to relate solely to whether the public health insurance exchanges started by the U.S. Department of Health and Human Services (HHS) have the legal authority to provide premium subsidies for people with MAGI from 100 percent to 400 percent of the federal poverty level. Chances are that that’s not you and it’s not your clients.

But, on the other hand, insurers and exchanges are using the subsidies to help moderate-income people enter the individual health insurance risk pool. Insurers collect some income from those people in exchange for covering people with modest claims, to even the risk involved with covering the people already known to have diabetes and cancer.

If the Supreme Court blocks the HHS exchanges from offering premium subsidies, that could destabilize the individual insurance market in states with HHS exchanges. If large numbers of sick people in those states move to states with state-based exchanges to buy subsidized coverage without medical underwriting worries, that could destabilize the individual health insurance markets even in the states with state-based exchanges that can still offer subsidies.

The result could be insurer flight from the individual market and growing problems with access to solid coverage even for affluent Americans who are not quite ultra-net-worth enough to want to self-insure.

On the third hand, the advisors and clients in that situation have the resources to plan ahead, and possibly, to talk to insurers to see what options the industry can come up with for affluent customers who are in poor health. One possibility might be packages that combine access to well-staffed, cash-only concierge practices for routine care with catastrophic coverage for other types of care.