Lundy Insurance Services, Inc.

Will Congress Repeal Health Care Reform?

On March 23, 2010, President Obama signed historic health care reform legislation – the Patient Protection and Affordable Care Act (PPACA) – into law. Even before its enactment, controversy surrounded the health care reform law. The law continues to be at the center of partisan debate, especially following the changes made in Washington D.C. as the result of the November 2010 election.

In January 2011, when the 112th Congress convened, Republicans took control of the House of Representatives. As promised, efforts to fully repeal the health care reform law followed soon after. So far, these efforts have not been successful, facing the challenge of a Democrat-controlled Senate and the promise of a veto by President Obama. However, two smaller pieces of the health care reform law, which were unpopular with Republicans and Democrats alike, have been repealed.

Lundy Insurance Services, Inc is monitoring the health care reform debate and will alert you to any significant changes in the law.

ATTEMPTS TO FULLY REPEAL HEALTH CARE REFORM

In January 2011, the House passed repeal legislation by a vote of 245 to 189, with three Democrats crossing the aisle to vote with their Republican colleagues. The Senate also voted on repeal in February. However, that attempt was defeated, with Senators voting along party lines. Sixty votes were required for repeal; the measure failed 47 to 51.

It is possible that further attempts to fully repeal the health care reform law will be introduced in Congress. If any of these attempts are successful, Lundy Insurance Services, Inc will provide you with information on the status of the law.

REPEALED HEALTH CARE REFORM PROVISIONS

The House and Senate voted to repeal two unpopular provisions of the health care reform law in March and April 2011. The provisions repealed were:

• The requirement for businesses to report annual payments in excess of $600 on a Form 1099 starting in 2012; and

• The requirement for certain employers to provide free choice vouchers to lower-income employees to allow them to purchase health coverage on a state-run insurance exchange starting in 2014.

These provisions, if implemented, were expected to impose administrative burdens and increase costs for employers.

OTHER STRATEGIES

Republicans have been using other strategies to prevent the law from being fully implemented in its current form. These strategies include replacing, rather than repealing, parts of the law, or repealing the law “piece by piece,” using approaches like blocking funding or regulations. For example, on May 3, 2011, the House passed a bill that would block mandatory funding for the state-run insurance exchanges required to be operational by 2014 under health care reform. As with the full repeal attempt, it appears unlikely this bill will become law due to opposition in the Senate and from President Obama.

Additionally, in August 2011, the House Republican leaders announced that several House committees may draft legislation to repeal the health care reform law’s grandfathered plan rules. These rules exempt qualifying health care plans from complying with several provisions of the health care reform law, such as providing full coverage for preventive care services. If passed, Republican House leaders say that any new legislation would eliminate some of the requirements that health care plans must comply with in order to retain grandfathered plan status.

Other provisions of the health care reform law that Republicans may attempt to revise or repeal in the future include:

• The employer responsibility provisions, which provide that employers can face penalties for not providing a certain level of health coverage to employees;

• The individual responsibility requirement, which imposes penalties on individuals who do not obtain coverage;

• The Cadillac Plan tax on high-cost, employer-sponsored health plans;

• The tax on manufacturers of medical devices; and

• Cuts to Medicare.

Members of the GOP have said that they may want to keep some of the law’s provisions that are popular with consumers. Some experts have warned that keeping some parts of the law while repealing others may not be practical. Democrats are standing behind the health care package. However, as shown by the repeal of the 1099 and free choice voucher provisions, Democrats may be willing to revise some portions of the law, especially if changes will bring faster and more effective reform to the health care system.

WHAT’S NEXT?

Despite the various attempts to repeal the law, the potential future changes, and the small changes that have been made, the health care reform law as we know it is the law. Employers and health plan sponsors should make sure they are implementing the requirements as they become effective. If any changes are made to parts of the law that have already taken effect, there will likely be time for employers and plan sponsors to put changes into place.

Lundy Insurance Services, Inc will continue to update you on developments related to the health care reform legislation.

Who Says Competition is Always Good?

I’ll freely admit that one of my fundamental beliefs is that competition is good and helps keep costs down. I think it’s a rational position to believe, that when companies compete, the natural impact will be to suppress prices.
That being said, I’m very disappointed to admit that my belief is being challenged. I’m also sure that the following information will be challenged  by some in the health care arena.

You see, in some instances, our competitive healthcare model in America actually causes price inflation. And this ultimately causes the cost of insurance premiums to be far greater than they should be.
OK, so what am I talking about?
I’ll outline a few local examples from right here in San Diego. From these examples, you will see that they are replicated throughout the United States.

Example #1:

In March of 2010, one of San Diego’s most recognized medical organizations announced that they would be building a new Proton Radiation Therapy facility in Mira Mesa. Clearly, the technology represented by this new facility is state of the art and the population of San Diego will benefit from it. The real question is, “At what cost?” The cost of building the facility was announced as $186,000,000. The ongoing annual costs associated with operating this unique and highly specialized facility where not released.

What is clear is that the initial $186,000,000, in addition to the annual costs associated with operating the facility will have to be paid by someone. Much of this cost will be passed on to you, the consumer, by increasing medical premiums.

Now, it’s hard to argue against the effectiveness of this new technology. However, it’s also important to know that there are currently 5 of these facilities in the United States. One of these facilities is located here in Southern California in Loma Linda and is available to Southern California residents if needed.

Now here is the punch line…In July of last year, just five months after the initial announcement, one of San Diego’s other major medical organizations announced they would also be building a brand new Proton Radiation Therapy facility in San Diego at an initial cost of $230,000,000. Again, annual operating costs were not disclosed.

OK, now we have two competing organizations spending almost ½ billion dollars on the same highly specialized technology. Make no mistake about it; we will all pay for this in added health insurance premiums.

Example #2:

On September 21, 1994, the California Legislature passed Senate Bill 1953 into law. This legislation is commonly referred to as the “California Earthquake Retrofit Bill”. In basic terms, it requires all general healthcare facilities to upgrade their structures to comply with the new building codes created by the legislation.
The true impact of this legislation is that it has added literally billions of dollars in costs to the healthcare system here in California (Yep, this has also contributed to the huge increases to your health insurance premiums). Medical and healthcare organizations have regularly used this legislation to rationalize the tearing down and re-building of ever-more opulent facilities.

Here are a couple of local examples:

1. One of our largest hospitals recently “re-built” itself using the earthquake retrofit bill as part of the rationale for the effort. Immediately upon opening the new facility, the organization aggressively marketed the fact that all of their new rooms were “Private” rooms. No more sharing rooms on a semi-private basis as has been the historic standard for hospitals. Now you always get a private room.

Make no mistake about it, we are in a building boom throughout the county in which all new facilities will now have to “compete” by offering private rooms in order to “keep up with the Jones’s” to attract patients. Once again, we will all pay for this “new standard” through increased health insurance premiums.

2. If you, or someone you know, has delivered a baby here in San Diego over the past several years, you have undoubtedly experienced the “new” concept in delivery in which the mom is housed in a room with all the amenities of a 5 star hotel room. Of course, we all love this, but once this trend started all of the health care facilities had to  upgrade to “compete” for patients or be left behind. Once again, although very nice, the costs of these upgraded facilities are passed directly onto you through higher health insurance premiums.

Because healthcare organizations need to attract and retain patients in order to produce revenue, many of them compete with one another in ever increasing ways. Much of this competition is creating higher and higher costs for you, the consumer.

Ask yourself, "Why don’t the major healthcare organizations work together to meet the needs of San Diego’s population instead of duplicating so many services?"

In fact, it is important to point out that there are a few examples of healthcare organizations that are working together here in San Diego. For instance, instead of building its own high cost facilities, Kaiser has contracted with Scripps for cardiovascular care, UCSD for renal care, and Palomar Pomerado Health for several services. These are clearly not all of the examples. They are simply a few known by me. Kaiser’s patients receive high quality care, but Kaiser does not incur the huge expenses of building infrastructure that is not truly needed. By doing this, Kaiser is able to offer its health plans at lower costs to local companies and individuals than many of its competitors.

In summary, San Diego’s healthcare organizations should study the approach taken by Kaiser. In this time of soaring costs, it’s time our healthcare providers started working together instead of always wanting to outdo one another by duplicating technologies or building costlier facilities. 

So, do you still believe competition is always good?

So often I realize that we could do more to ensure our clients know all of the benefits available to them. I want to use this forum to let you know about some of the unique benefits that are available to you from your insurance carrier. 

Please take a few minutes to review the following list of added benefits and see if any of them appeal to you. If so, don't wait! Give us a call and we can tell you very quickly if your carrier offers the benefit.

• Human Resources support services - Do you have questions aboutt how to handle a situation or what to do about an employee issue? How about access to sample empleyee handbooks, company policy statements, and HR forms?
• Free Employee Assistance Plans
• Free Section 125 Plans
• Discounts for vision, fitness programs, weight  loss and smoking cessation programs
• Online enrollment and billing systems
• Employee benefits communication materials
• Annual employee benefit valuation statements
• Health videos relating to healthy eating, fitness, children's health, etc.
• Special discounts and offers on baby care items, senior care products, pet care products, books, magazines, etc.

We are very happy to introduce Nathan Craig to you as our newest Associate here at Lundy Insurance.

Nathan comes to us after graduating from San Diego Christian College and subsequently working as an Admissions Counselor for SDCC. Nathan has also previously worked in the personal lines of the insurance industry. He holds both Casualty and Health & Life insurance licenses.

Nathan has been married for just over and year and a half now. He and his bride, Olivia, are currently expecting the birth of their first child in early September. They both enjoy rock climbing, backpacking, and are avid Ultimate Frisbee players.

We are highly confident that you will find Nathan to be effective amd responsive to any issues you bring to him as he is conscientious and a very quick learner.

-Erick

The “Cadillac Tax”

Wait a minute! I thought this was a “Cadillac Tax”.

Recently, a few folks have asked me why they were going to have to pay a tax on the value of their employer provided health care benefits. They had received information from somewhere indicating this was being proposed and they wanted to confirm it. What these folks had heard was not entirely accurate.

“Here’s the real scoop…”

It is true that the federal health care reform legislation will require employers to begin reporting the value of employer sponsored benefits on each employees W-2 form. This requirement was originally set to begin on January 1, 2011, but has since been pushed back to 2012.

However, it should be noted that there will be no tax effect until 2018. The intent here is to get employers engaged in reporting this information now so that everyone is in compliance by 2018. It will also allow the government to begin tracking this data.

I would suggest all employers begin discussion and planning with their payroll company now to ensure proper implementation in January, 2012.

“Now for the bad news…”

This new tax issue has been commonly referred to as the “Cadillac tax”.

Based on the final legislative wording now being implemented, I believe it should more appropriately be called the “used pick-up truck tax”. Why? My opinion is that just about everyone will be subject to this new tax at some point.

For example:

Beginning in 2018, a 40% excise tax will be charged to any insurance company that sells a plan to an employer where the annual benefit (Premium) value is over $10,200 for an individual or $27,500 for a family. This may sound like a lot of money today. But it may be very common eight years from now.

Here is how the excise tax will work: Assume that the monthly premium for someone in their mid 40’s today is about $400. Also assume that medical inflation will run at somewhere around 15% per year and the cost of coverage will increase with age. Given these contributors to cost, the monthly premium in 2018 for this individual will likely be just under $1,300. Annually, the premium in 2018 will be roughly $15,600. If we subtract the $10,200 (the legislative threshold) from the $15,600 (estimated annual premium), the resulting taxable benefit would be $5,400. The actual tax would then be $2,160 (40% of $5,400) for this individual. Make no mistake about it. Even if the value does not go higher than $10,200 in 2018, it is certainly headed in that direction and will at some point in the future.

Here is how this tax will impact you

As I mentioned above, your insurance company will be responsible for paying this 40% excise tax ($2,160 in the example). Therefore, one of two things will likely occur. First, the insurance company will pass the cost of the new tax directly on to you in the form of higher premiums. This response will only exacerbate and accelerate the impact as each year your premiums will increase and so does the tax.

The second possible response will be for insurance companies to stop offering any plan that has an annual value for individuals of over $10,200 and over $27,500 for a family. This response will ultimately result in reductions in covered benefits and far higher out-of-pocket costs when services are received.

Either way, we all lose.

“A side note…”

As of this writing, it has been widely reported that over 750 businesses and unions have been granted “waivers” by the administration so that they may be excluded from the requirements of health care reform. Union health benefit plans are among the richest plans in the country and have the highest premium costs. These plans would have been among the first to be impacted by the 40% excise tax. Why have they been granted a waiver?