The Simple Dollar: “The Affordable Care Act and You” plus 1 more

Posted: 03 Oct 2014 11:52 AM PDT

The Patient Protection and Affordable Care Act, commonly referred to as Obamacare or the Affordable Care Act was signed into law on March 31, 2010. The goal of the Act is to make affordable health care accessible to all Americans. The Congressional Budget Office estimates that once the ACA is fully implemented 94 percent of Americans will have some form of health coverage. By the end of 2014 87 of 90 provisions of the law will be in place. The remaining provisions which include employer mandated health insurance for companies with 50 or more full-time employees will begin rolling out next year.

The Three A’s of the Affordable Care Act

To achieve the goal of ensuring that all Americans have adequate health protection the provisions of the ACA can be divided into three overarching sections; accessibility, affordability and accountability.

Accessibility

The most widely talked about aspect of the Affordable Care Act has been the creation of federal and state insurance marketplaces. The marketplaces enable insurance shoppers to search for coverage in two ways. The first is by dividing available options into three broad levels of coverage; bronze, silver and gold. The second enables consumers to do side by side comparisons of policy benefits and cost.

Affordability

The ACA has already slowed the rate of increase of health care costs by increasing the number of healthy people in the system and by improving delivery of services included preventative care. The act works to improve affordability is a second more direct way by providing premium assistance in the form of tax credits to individuals and families whose income is less than 400 percent of the federal poverty level.

Unfortunately, affordability is a hotly contentious piece of this legislation. For many people, health insurance has actually become more expensive under the ACA because many insurers have pulled out of certain exchanges.

Accountability

– Holding insurance companies, health care providers and pharmaceutical companies accountable for the care they provide ensures that consumers receive the best possible care. Changes in the relationship between insurers and policyholders include coverage for pre-existing conditions and an end to lifetime benefit caps. Providers have been given incentives to offer greater preventative care and rule changes now make it easier for lower cost generic medications to make it to market sooner.

An Affordable Care Act Time Line

Over the coming years the Affordable Care Act will continue to transform the health care is delivered if it stays in its existing form. While 97 percent of the provisions of the Affordable Care Act will be in place and active by the end of 2014 looking at a timeline of the changes will provide an understanding of not only what has changed but how the law works. The timeline includes the year, the number of provisions that were supposed to begin and the number that actually did as well as key provisions for that year.

2010 – 26 of 26 Provisions went into effect

Insurance companies must not justify unreasonable premium increases.
Small business tax credit for companies with fewer than 25 employees.
Lifetime limits removed from health insurance policies.
Adult dependent children can remain on parents’ insurance until age 26.

2011 – 18 of 20 provisions went into effect.

The Medicare prescription donut hole was filled, saving senior citizens an average of $545 per year.
Improvements to the way Health Savings Accounts can be used.
Grants of up to five years became available for small employers to establish wellness plans for employees.
15 Member Medicare Advisory Board is delayed in Congress and is still not implemented.

2012 – 10 of 11 provisions went into effect.

Insurers must now provide uniform coverage summaries so that consumers can easily and accurately compare competing plans.
Data collection to identify and fix disparities in the delivery of health care begins.
More than a half dozen changes to Medicare and Medicaid went into place to reduce fraud, improve services and reduce cost.

2013 – 13 of 14 provisions went into effect.

Federal and state health insurance exchanges (Marketplaces) began enrolling consumers.
The financial disclosure provision which requires disclosure of relationships between health providers such as doctors, hospitals, pharmacists and manufacturers and distributors of drugs and medical supplies be disclosed.
Financial disclosure rules began requiring doctors, hospitals, pharmacists and others to report relationships.
Flexible spending account limits were raised to $2,500 with future adjustments tied to the cost of living.

2014 – 15 of 16 provisions went into effect.

Medicaid benefits are expanded to individuals and families earning less than 138 percent of the federal poverty level in 27 states and Washington, D.C.
Premium assistance, subsidies, are available to individuals and families earning less than 400 percent of the federal poverty level.
Individual mandate requiring everyone to have private health insurance, Medicare or Medicaid.
Health insurance availability is guaranteed for everyone regardless of pre-existing conditions.
Health insurance premiums can only be based on age. Higher rates based on poor health are no longer permitted.
Annual benefit limits are removed.
The employer mandate was delayed one year.

2015 – 2 Provisions will go into effect.

The employer mandate which was delayed in 2014 will go into effect for employers with more than 100 employees.
An increase in federal matching funds for CHIP will take effect on October 1^st.

2016 – 2 Provisions will go into effect.

The employer mandate which was delayed in 2014 will go into effect for employers with more than 50 employees.
States may form compacts with each other to allow insurance plans to be sold across state lines.

2017 – There are no provisions scheduled for this year.

2018 – 1 Provision will go into effect.

This final provision is a tax on high cost employer sponsored health plans.

Breaking the Affordable Care Act Down by Title

The Affordable Care Act is like other large complex pieces of legislation in that it is broken down into a number of sections called Titles. Each title of the law addresses specific areas within the overall law. The Affordable Care Act is divided into 10 Titles of which each is briefly explained below.

Title I – Quality, Affordable Health Care for All Americans

This opening title makes fundamental changes to the way health insurance functions by providing substantial protections for consumers. One of the most significant changes is the elimination of “lifetime and unreasonable annual limits on benefits.” For health care consumers this means that if they fall victim to a catastrophic illness or injury all of their care will be covered by insurance. Prior to the act insurance companies were able to place arbitrary annual and lifetime limits on benefits resulting in patients running out of insurance and being unable to continue treatment.

Title I of the ACA will go a long way toward reducing the 60 percent of bankruptcies that were the result of medical treatments. 75 Percent of medical bankruptcies were initiated by people who had health insurance. In some cases, those financial collapses were not because patients exceeded their benefits, but because insurance companies cancelled their policies when they became sick. Title I makes it unlawful for an insurance drop a customer due to illness or injury and prevents them from raising premiums for people with pre-existing conditions. Finally, this tile allows dependent adult children to remain on their parents insurance until they are 26.

Title II – The Role of Public Programs

The focus of this section is public health programs for the poor and middle class. This title extends Medicaid benefits to individuals and families whose income is up to 133 percent of the federal poverty level. The extension of benefits is only available to those who live in one of the 27 states and the District of Columbia that have accepted federal grants to expand the program. This title also extends CHIP or the Children’s Health Insurance Plan through 2015. CHIP is similar to Medicaid in that it provides health insurance specifically for low income children.

Title III – Improving the Quality and Efficiency of Health Care

The most prominent feature of this section is the closing of the Medicare drug donut hole which will save senior citizens hundreds and in many cases thousands of dollars a year in medication costs. This title also addresses numerous procedures and protocols for delivering health care to seniors and the poor. Each of the changes is designed not only improve the quality of care, but the efficiency with which care is delivered by providing incentives to hospitals and other providers to improve senior care. This section also called for the creation of a Medicare Advisory Board to find additional ways to reduce costs, but is still awaiting congressional action to begin work.

Title IV – Prevention of Chronic Disease and Improving Public Health

Benjamin Franklin once said that “an ounce of prevention was worth a pound of cure.” While he was not talking about health care he was nonetheless correct. Preventing disease is far less expensive than treating or curing disease and this title makes that fact the law. It funds a wide range of public health and prevention programs designed to improve wellness and thereby reduce health care costs and ultimately health insurance premiums.

Title V – Health Care Workforce

In order to provide health care for the tens of millions of previously uninsured Americans the ACA includes a provision to fund scholarships and loan repayment programs for people pursuing a career in health care.

Title VI – Transparency and Program Integrity

A two prong approach is taken with this title to improve the transparency and integrity of health care. Greater transparency is achieved by requiring improved disclosure to patients of cutting edge research and treatment. There are also greater disclosure requirements concerning providers who have been identified as high-risk because they have defrauded patients in the past. States have been given the ability to prevent penalized providers in another state from setting up operations in a new state.

Title VII – Improving Access to Innovative Medical Therapies

In the past, patients have not always had access to necessary medications due to high cost. Anti-competitive practices which have traditionally driven the price of drugs higher are ended by this title. The statutes in this section improve the process of getting less expensive generic drugs to consumers.

Title VII – Community Living Assistance Services and Supports Act (CLASS Act)

This is a separate act within the ACA that was repealed in 2013.

Title IX – Revenue Provisions

In order to ensure that the other provisions of the law are paid for this title addresses the many facets of revenue. Revenue is generated through both new taxes and the closing of loopholes for existing taxes. The new taxes imposed under this section do not affect families earning less than $250,000 annually or small businesses. The majority of new taxes and fees are levied against large businesses (more than 500 employees) and the health care industry, especially pharmaceutical companies.

Title X- Reauthorization of the Indian Health Care Improvement Act

This provides for the reauthorization of the Indian Health Care Improvement Act (ICHIA) which provides essential health services to American Indians and Native Alaskans.

Small Business and the Affordable Care Act

The implementation of the mandate requiring businesses to offer health insurance to employees was delayed by one year. Small businesses with fewer than 50 full time employees (30 or more hours) are not required to offer health insurance. However, they can take advantage of the Small Business Health Options Program (SHOP) where they can visit a special health care marketplace to shop for plans. The SHOP program pools, small businesses to increase purchasing power resulting and lower premiums. This is important because historically small businesses have paid up to 18 percent more for insurance than larger businesses. To participate a small business must meet certain criteria that include offering the plan to all employees and meeting participation minimums.

Small businesses with fewer than 25 FTE employees in may be eligible for a small business tax credit of up to 50% of premiums paid. Qualifying small businesses may carry the credit back to 2010-2013. Since the cost of premiums exceeds the amount of the credit employers are able to both receive the credit and deduct the expense. Employers who do not have a tax obligation in a given year may carry the unused credit backward or forward as needed.

Shared Responsibility

The most controversial part of the law is the employer shared responsibility provision which is commonly called the employer mandate. Originally scheduled to begin in 2014 it was delayed one year to 2015. The provision affects businesses with 100 or more full time employees starting in 2015 and business with 50 or more full time employees in 2016. Qualifying businesses will be required to offer employer sponsored health insurance and pay at least 60 percent of the plan premiums or be subject to penalties.

There are two sets of penalty formulas under this provision; the first applies to businesses that do not provide health insurance at all. While businesses are required to provide health insurance the penalties are only assessed, if at least one employee receives a subsidy. The penalty is $2,000 per employee, regardless of whether they receive a subsidy or not. The penalty calculation exempts the first 30 employees. For example, if a business with 75 employees does not offer health insurance and one employee receives a subsidy the company will have to pay a penalty of $90,000 the first year. The equation looks like this; 75 employees minus 30 exemptions multiplied by $2,000 equal $90,000.

The second penalty formula applies to businesses where a sponsored plan is offered, but the minimum requirements are not met. Those requirements are that the company pays at least 60 percent of the premium cost, and that the employee contribution does not exceed 9.5 percent of family income. The penalty becomes effective if one or more employees choose to buy their own insurance and receives a subsidy. The penalty calculation exempts the first 30 employees and is calculated the same way as if no insurance is offered with one addition. The penalty for each employee who receives a subsidy is $3,000 rather than $2,000.

The post The Affordable Care Act and You appeared first on The Simple Dollar.

When Should a Person Start Social Security Benefits?

Posted: 03 Oct 2014 07:00 AM PDT

Whether I like it or not (and I most certainly don’t like it), my parents are growing older. My mother is getting close to the age where she will begin to be eligible for Social Security benefits and my father is already there with his benefits already unlocked.

Naturally, one of their biggest questions is when should she start her Social Security benefits? Should she start immediately at age 62? Or should she wait for a while to receive larger benefits each month for the rest of her life?

I thought I’d walk through the ins and outs of this question on The Simple Dollar because I know that many readers are asking similar questions, both for themselves and for their spouse.

Full Benefits and Partial Benefits

Whenever you receive a statement in the mail from the Social Security Administration, it tells you what your monthly benefit will be. However, that monthly benefit does not kick in at age 62. Instead, a person can receive a partial benefit starting at age 62 or their full benefit starting at age 65 to 67 (depending on birth date).

For example, if a person was born between 1943 and 1954, that person can choose to have benefits start at age 62, but their monthly benefits for the rest of their life will be cut by 25% per month. On the other hand, that person could wait until age 66 to start benefits and would receive the full benefit for the rest of their life.

This isn’t an either-or choice, of course. A person can start benefits at age 64 and have their benefits cut by only 13.3% for the rest of their life, for example, and there are similar thresholds at almost every point along the way. A full table of all of these options is available.

Spousal Benefits

A married person has an extra perk when getting their Social Security benefits. They can either receive their full benefit or half of their spouse’s benefit, whichever is greater. For example, if someone would only receive $300 a month from their own wage earnings but their spouse is eligible to receive $1,000 a month, that person could instead receive $500 a month – half of their spouse’s benefit.

Of course, the spousal benefits are also trimmed down if you start receiving them early, as described above. If you were born between 1943 and 1954 and your benefit is going to be the “spousal” option – equal half of your spouse’s benefit – you’ll only receive 35% of your spouse’s benefit if you start receiving it at age 62, but if you wait until age 66, you’ll get the full 50% of your spouse’s benefit.

A Real Example (Similar to) My Mother

So, let’s look at a real-world example that’s fairly similar to my mother’s situation. She’s married, so the spousal benefit is available to her. However, she earned enough money in her life to earn a $1,000 benefit on her own, so we’ll use that as an example (it’s a nice round number so that the calculations are clear). She was born between 1943 and 1954, so the numbers above are accurate – if she starts benefits at age 62, she’ll only receive $750 per month. If she starts at age 64, she’ll only receive $867 per month. If she waits until age 66 to start benefits, she’ll receive $1,000 per month.

Unfortunately, this isn’t a cut and dried math problem. There are a few questions that are really relevant before deciding what to do.

To make things simpler here, I am not including inflation at all. Social Security provides cost of living increases that largely balance out with inflation, so including it makes things unnecessarily complicated and confusing, so I’m just leaving everything in today’s dollars.

First, what is her life expectancy? The longer her life expectancy, the longer she should wait to start benefits.

For example, if she were to die on her 66th birthday, she would receive $0 if she had waited for full benefits, but if she started at age 62, she would have received $36,000 in benefits and if she started at age 64, she would have received $20,808 in benefits.

On the other hand, if she were to die on her 70th birthday, she would have received $48,000 if she started at age 66 with full benefits, $62,424 if she started on her 64th birthday, and $72,000 in total benefits if she started at age 62.

What about at age 74? If she started at age 66 with full benefits, she would have received $96,000 in benefits. If she started at age 64, she would have received $104,040 in total benefits. If she had started at age 62, she would have received $108,000.

It’s right after age 74 that the best benefit begins to change.

At age 78, for example, she would have only received $144,000 in total benefits if she started at age 62 and she’d only be getting $750 a month thereafter. If she had waited until 64 to start, she would have received $145,656 in total benefits and would be receiving $867 a month thereafter. However, if she waited until age 66 for full benefits, she would have also received $144,000 in total benefits to this point and she would be receiving $1,000 a month for the rest of her life.

In other words, there’s a point around age 75 where it becomes better to have waited for the full benefit than to have cashed in early.

This is why life expectancy is so important. A good estimate of your life expectancy will allow you to make a smart answer when it comes to this question. I recommend using the Social Security Administration’s life expectancy calculator to get an estimate of how long you can expect to live.

However, using this standardized table for life expectancy, my mother should expect to live into her early eighties. In fact, that’s pretty much true for any adult woman today – you should expect, on average, to live into your early eighties.

Given that fact alone, I’d encourage people to wait until they’re eligible for full benefits before cashing in. However, that’s not the only factor to consider.

The second question they should be thinking about is what is her financial state in the event of my father’s death? This is a more complicated question to answer as it involves making a budget for that point in time. It’s both emotionally and financially demanding to figure out that situation.

How much of his pension will she continue to receive? How much will her expenses drop? Will she receive any life insurance upon his death? When all that is figured together, how much will her monthly expenses truly change – and will that reduction in expenses make up for the drop in income?

The more difficult that situation for her, the longer she should wait for benefits.

A third question to consider is what would they do with the extra benefits now? To me, this is the only truly compelling argument for earlier benefits – it would give them more financial leeway while my father is still in good health.

With that extra $750 a month, they would have a lot more financial freedom to travel a bit, splurge on a few things they’ve never really been able to splurge on before.

This is a real quality of life issue. My parents live on a fairly tight fixed income, below the $40,000 a year that is often cited as the “threshold” above which additional money does not add to happiness. If my mother cashed in her benefits starting at age 62, they would be much closer to that threshold for the years that they have remaining together, which is a very valuable thing.

A final question: what about investing early benefits? Let’s say she were to simply drop her Social Security benefit straight into an investment each month while my father is still alive. Wouldn’t that be the best route?

According to my back-of-the-envelope math, if my father lived to his average life expectancy and my mother invested all of her benefit starting at age 62 in an investment that returned 7% per year, she would “break even” with her age 66 benefits at about age 83 – not too far from her average life expectancy.

However, this assumes several things that I don’t have faith in. It assumes that they’d just put all that money into an investment each month and never spend any of it. It also assumes that the market returns 7% per year like clockwork, which I absolutely don’t trust. It’s also only beneficial if she only barely makes it to her life expectancy… when I hope she lives for a very long time beyond that.

So, What Should They Do?

Given this situation, I see two main roads that they could take. My mother could either start collecting benefits at age 62 and give my parents more financial breathing room while they both live, but this would have the drawback of making things more challenging for her in the event of my father’s death.

On the other hand, she could wait until age 66, during which they would have four more years of being relatively tight with their money, but after which they would have even more breathing room and my mother would have less worry after the passing of my father.

In my eyes, the answer to this question really hinges on predicting a monthly budget for the time after my father passes away. What does that budget look like in each situation? Is the budget with a lower income level something that she can live with? Or is it just too tight?

This is the step of the process that they’re working through right now – assembling a budget for the event that my mother becomes widowed (if my father became widowed, he’d be fine financially). If it’s just too tight, they’ll wait, but if it’s livable, I’m pretty sure they’ll start benefits as early as possible so they have as much quality time together as they can during their golden years.

There is one final factor, an additional detail that I didn’t mention here: me. Regardless of what they decide – and this is still an ongoing process – I will never allow my parents to be in a position where they are truly struggling. They do not have to worry about not having food in the cupboard or not having electricity or anything like that – I will not allow that to happen to them. I do hope that many parents have that type of support available to them as it makes decisions like this less of a high-wire act.

Their final decision is theirs to make, but I have confidence they’re making that decision with a good framework and with the right topics in mind to think and talk about.

The post When Should a Person Start Social Security Benefits? appeared first on The Simple Dollar.

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