Health-care reforms after the Supreme Court's decision

With the Supreme Court's June 28 decision, businesses, companies involved in health care and health insurance and individuals will continue preparing for the Patient Protection and Affordable Care Act of 2010 to go fully into effect in 2014.

The Supreme Court's decision affirmed the constitutionality of the Affordable Care Act, ruling 5-4 that the law's requirement that most Americans obtain insurance or pay a penalty was authorized by Congress's power to levy taxes.

The court had heard arguments in March in a suit brought by 26 states against the federal government. The states objected to the health care reform law's individual mandate.

The law and small businesses

Small businesses will need to weigh the tax credits and penalties included in the law in their overall decision on providing health coverage. The law does not require small businesses to provide health insurance. If a small-business owner chooses to provide health coverage, however, the law provides a 35 percent small-business healthcare tax credit on an employer's contribution toward an employee's insurance premium.

Firms with fewer than 10 full-time equivalent employees and average salaries of $25,000 or less are eligible for the full credit. The tax credit declines as a firm's size and average wage rises. When a company reaches 25 full-time equivalent employees or $50,000 in average salaries, the credit is phased out.

Employers with more than 50 full-time equivalent employees must provide health insurance or pay a penalty. The penalty amounts to $2,000 for each full-time employee in excess of 30 full-time employees each year if any worker receives federal subsidies to purchase health insurance. The coverage offered by an employer also must be affordable and valuable to employees, or the penalty takes effect. The penalty would help cover the cost of the tax credits to individuals. These tax credits would subsidize premiums and out-of-pocket cost sharing when shopping for individual coverage.

The penalty applies if the employer fails to provide coverage to employees who average 30 or more hours a week in a given month. Note, however, that the penalty equation is based on actual full-time employees, not full-time equivalent employees. Thus, businesses that have fewer than 30 full-time employees and that are subject to the penalty would not need to make any penalty payment.

The Affordable Care Act also introduces a new option for purchasing insurance. Starting in 2014, sole proprietors and other small businesses can use their state's health insurance exchange to shop for less expensive insurance. One-person businesses will shop on the exchange for individuals while firms with up to 100 employees have the Small Business Health Options Programs.

Both options help reduce the cost of coverage by increasing the size of the insured pool and thus spreading out risk. For information on Nevada's exchange, visit

Impact on health insurance companies

Health care reform will involve many complex changes for health insurance companies in 2014. As one of several major changes, starting in 2014 insurance companies may not deny coverage to anyone with pre-existing conditions. Insurance companies must allow children to stay on their parent's insurance plans until age 26.

The individual mandate also will take effect in 2014. Insurance will be available to individuals through exchanges set up in each state. If a state chooses not to create an exchange, the federal government will do so in that state. As mentioned earlier, Nevada has set up such an exchange.

Every health insurance company will be required to submit data on its Medical Loss Ratio (MLR), the proportion of premium revenues spent on clinical services and quality improvement. For 2012, Nevada's MLR was set at 80 percent. If a health plan does not meet its MLR percentage, that is, if its administrative costs exceed 20 percent of its premium revenues, it must issue rebates to enrollees.

The law also covers members' rights to appeal coverage decisions to a health plan and to an outside agency. This applies only to health plans or policies that were created or purchased after March 23, 2010. Plans created on or before March 23, 2010, may be "grandfathered health plans." The appeal and review rights do not apply to them.

Decisions for employers, insurance brokers

A May 2010 survey by Towers Watson reveals that few employers believe that the health care reform law will help them in controlling health care costs. Towers Watson found that 74 percent of large employers expected to continue providing subsidized health care coverage for active employees, despite the rising costs.

According to a June 2011 study by McKinsey & Company, after the law takes full effect, we will see "a radical restructuring of employer-sponsored health benefits." McKinsey forecasted that nearly one third of employers would "definitely or probably stop offering employer-sponsored health insurance after 2014." Employers will need to make the business decision of whether to offer health benefits, balancing the need to retain and attract talented employees with the net economics of providing benefits.

The medical loss ratio has been a major concern for insurance brokers. The Department of Health and Human Services has ruled that broker commissions are part of a health plan's administrative costs. Thus when a health insurer pays a broker a commission, that amount is part of the 20 percent in administrative costs that the health insurer must not exceed. This might lead some health insurers to reduce the amount of broker services that they use.

Brokers would thus need to seek out more small businesses that they could assist in finding health coverage. For larger employers, brokers might add a consulting role to their broker services. This could include helping clients with compliance, technology and wellness programs.

The Affordable Care Act thus presents business owners, individuals, health insurance companies and others with decisions that require careful analysis. Now that the law's constitutionality is decided, that analysis on making the best use of the law can continue.

Ty Windfeldt is vice president of Hometown Health. Contact him at 775-982-3000 or through


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