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Monthly Archives: March 2012

Health Reform Simplified – Why the Individual Mandate Matters

It’s March 23rd, and exactly two years ago, the Patient Protection & Affordable Care Act, the health reform bill, was passed. And ironically, in a few days the Supreme Court will hear arguments over a few parts of the bill that some believe are unconstitutional. The biggest issue is the requirement that everyone must have insurance (the individual mandate), and what happens to the rest of the bill if the individual mandate is found to be unconstitutional.

Simplee isn’t taking a side, but we’re keeping an eye on how the Court’s decisions might affect insurance benefits and costs to consumers.

So we’re going to do a little crash course now on what’s really at heart of the debate.

First, remember that the Affordable Care Act (ACA) is already happening.

Several benefits have already gone into effect, while others will start in 2014. So far, the bill has:

  • Allowed children to stay on their parent’s health plan until age 27.
  • Prohibited insurance companies from denying coverage to children with pre-existing conditions
  • Set annual and lifetime limits so health plans can only ask you to pay so much out-of-pocket
  • Provided discounts to people with Medicare who hit the donut hole and would have had to pay all prescription drug costs out-of-pocket.
  • Made free preventive care available to people with Medicare

And in 2014:

  • Plans would be prohibited from denying coverage or charging higher premiums to people with pre-existing conditions
  • Health Insurance Exchanges will be set up so people can shop for plans
  • Subsidies will be available to help people purchase coverage

This means it could be a big mess to untangle…

If the Court decides the Individual Mandate should be repealed, that raises the next question: Can the Individual Mandate be separated from the rest of the ACA, or does that mean the entire Act should be repealed?

The answer is not simple. Because the parts of the ACA are not just a handful of changes related to health care. They are actually a set of interrelated policies, all intentionally created to work together and balance each other out. Let’s think back to Economics 101: Supply and Demand.

Why the Individual Mandate is actually kind of important

The ACA was intended to increase insurance coverage to as much of the population as possible. Think about all the benefits listed above—these things were all meant to increase the supply of health care. They prevent plans from being selective about who they sell coverage to. But imagine what might happen when everyone who is sick suddenly buys insurance: Costs to health plans would go up, premiums will probably rise, and a lot of insurance companies will struggle to stay afloat.

OK. That’s where the individual mandate comes in. It’s the piece that increases demand for health care. Health plans need people to buy coverage before they get sick. It’s the way to keep costs down for everyone.

Can the rest of the ACA survive alone?

This little balance of supply and demand is what’s making the debate tricky. If we get rid of the Individual Mandate, but keep the other benefits that increase access to insurance and health care, could costs for consumers go up? Would that just defeat the purpose of the Act?

Or will it be worse for consumers to keep the benefits that have already kicked in, and cross their fingers that costs will stay under control?

If the Individual Mandate is found to be constitutional, then none of this matters. But if not, then it could be a rocky road for consumers.

The Supreme Court’s decisions are expected in June or July.

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When Does my Pre-existing Condition Matter?

“Pre-existing condition” is sometimes a phrase that everyone is afraid of. Can you be denied health insurance? Can your health plan refuse to pay? Should you avoid the doctor so it’s not in your record? Here are the facts.

What is a pre-existing condition?

A pre-existing condition can be any health issue that you had before applying for health insurance. It could be anything—such as an abnormal pap smear, high blood pressure, asthma, cancer, or an old sports injury. However plans cannot consider pregnancy or any genetic information as a pre-existing condition, as well as conditions in a newborn or newly adopted baby, as long as the child had health insurance within 30 days of birth.

When does having a pre-existing condition matter?

Applying for individual health insurance

Depending on how serious the condition is, a plan CAN

  • Deny you coverage completely or
  • Decide to only cover the pre-existing condition after an exclusion period. You’ll still pay premiums and get coverage for other health issues, but the plan won’t pay for any care related to the pre-existing condition. The exclusion period can be between 6 to 18 months.

However a plan CANNOT

  • Deny you coverage if you had COBRA and your coverage is running out, and you apply for the new plan within 63 days. This does not count if you voluntarily disenroll from COBRA before the benefits run out, for example, because it’s too expensive.
  • Deny coverage to children under age 19 on their parent’s plan.
  • Impose an exclusion period if you had another source of health insurance for at least the last year, and you didn’t have a break in your coverage longer than 63 days.

Joining an employer group plan

A group plan CAN

  • Impose a waiting period before it covers you at all. 3 month waiting periods are common.
  • Impose an exclusion period before it covers your pre-existing condition (like that described above). However, unlike individual plans, the waiting period cannot be more than 12 months and can only be applied to conditions that you had treated in the last 6 months.
  • Impose both a waiting period and an exclusion period. If the plan does this, the waiting period and exclusion period must run concurrently—or in other words, one can’t start after the other ends.

But a group plan CANNOT

  • Completely deny you coverage or give you different coverage than other members of the group.
  • Impose an exclusion period if you had another source of health insurance for at least the last year, and you didn’t have a break in your coverage longer than 63 days.

I thought Health Reform was supposed to fix all this.

You’re right! Starting in 2014, health plans will no longer be allowed to deny coverage to anyone because of pre-existing conditions, regardless of age. Plans will also be required to renew your coverage at a reasonable rate if you develop a medical condition, as long as your premiums are paid.

Then what should I do when I apply for coverage?

You should be honest. A health plan does have the right to rescind (cancel) your coverage if you intentionally left information off your application.

And while it’s never a good idea to put off medical care when you need it, if you expect to get group coverage in the next few months, you might be able to avoid any waiting periods by refraining from getting any advice or treatment for a condition six months before the coverage will begin.

If you’re denied coverage

You can apply for the Pre-Existing Conditions Insurance Plan (PCIP). This plan provides affordable benefits that are just as good as private individual plans and cannot deny you coverage or charge you more based on your health condition.

So the bottom line? Pre-existing conditions will still matter until 2014. The best thing you can do is to try to never let more than 63 days elapse between coverage—get COBRA or a private plan as soon as you can. But if this happens, and you can’t find coverage, the PCIP is always an option you can fall back on.

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Taxes and Medical Expenses: What you Need to Know Before You Begin

You know that you can claim some tax breaks on your health care spending.  And that HSAs and FSAs are supposed to be a great tax-free ways to save for medical costs.

But now that it’s time to file your taxes, where do you start? And what do you need to prepare to be ready to file?

Let’s boil it down to the essentials here.

There are two main places in federal income taxes where you need to worry about medical expenses: your itemized deductions and your HSA.  If you have an FSA or HRA, don’t worry. There’s nothing additional you need to do with these accounts for your income taxes.

For Itemized Deductions

 Decide if you’re going to itemize. When you decide to itemize your taxes, you’re choosing to claim all the deductions that you qualify for, item by item, instead of taking the standard deduction. The standard deduction is the same for everyone of each filing status (single, married, etc), so you’ll save more money by itemizing if your own deductions exceed the standard deduction.

When it comes to health care expenses, you need to have spent a lot on Qualified Medical Expenses to be eligible to itemize. What is a lot? The IRS says 7.5% of your Adjusted Gross Income (AGI). If you didn’t spend this much in 2011, don’t bother itemizing health expenses. You can count spending for any of your dependents or your spouse. Any spending that exceeds 7.5% is deductible.

Just about anything related to diagnosing and treating injury or disease counts as a Qualified Medical Expense. For a complete list: www.irs.gov/publications/p502/index.html

To itemize, you’ll need Form 1040. You cannot itemize with the 1040EZ or 1040A.

For HSAs

 Look for your 1099-SA in the mail. This form will be sent by your HSA administer and will show both how much was contributed to the account and how much was withdrawn (distributed). HSAs are not subject to the same 7.5% of AGI as are deductions. Use your 1099-SA to complete Form 8889—the form just for reporting HSA contributions and distributions.

If you already paid a large chunk of money on medical expenses in 2011, but didn’t contribute as much to your HSA to match, there’s a way to still get that money counted as a tax-free HSA contribution. In fact, up until April 15th, your HSA contributions will still be considered a part of 2011. And as long as the cash amount of your contributions for the year matches your expenses for the year, they’ll count.

To take advantage of this, first find out how much you contributed to your HSA in 2011 (log in to your Simplee account to see). The annual maximum contribution is $3,050 for a single person, $6,150 for a family. If you’re below your limit, determine much you already spent in out-of-pocket medical costs (also on Simplee!). Deposit as much of this as you can, up until the limit, into your HSA. If you can’t afford to keep that much in your HSA at the moment, no problem—you can now withdraw it as cash, but still get the HSA deduction on the amount.

So for example: Let’s say you’re single and contributed $2,000 to your HSA last year. And you had $800 in out-of-pocket medical expenses, which you already paid. You still have a lot of room before you reach your limit of $3,050—almost $1,000. You can deposit $800 in your HSA, and then immediately distribute it. You’ll get the full deduction on that $800 through your medical expenses, as well as the full amount counted towards the HSA tax benefit.

And finally, keep receipts and records. You don’t have to submit these with your taxes—all you need is just one number: how much your Qualified Medical Expenses turned out to be. However, you should keep the proof on hand in case you are audited.

These rules will apply to most people. However, if you’re self-employed, your situation might be different. Visit www.irs.gov or talk to a tax advisor to get the best advice.

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