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Pros and Cons of Healthcare Reform

After more than a year of political debate and legislative jousting, Congress passed a comprehensive health reform package in March of this year. Shortly thereafter President Obama signed the Patient Protection and Affordable Care Act introducing sweeping reforms to our healthcare system.

Despite widespread opposition, Congress passed the 2,409 page healthcare bill with few if any of the legislators actually having read the document. In fact, Speaker of the House, Nancy Pelosi, infamously quipped in a televised speech, “We have to pass the bill so that you can find out what is in it.”

Now that the healthcare bill has been enacted as law, experts have been poring through the 2,000+ pages of legislation to determine the impact to individuals, businesses and America as a whole. It’s probably no surprise that upon reading the contents of this healthcare bill, the majority of experts believe that Congress will need to modify or at least clarify multiple sections of the bill.

Here are some of the key elements of the healthcare reform bill and the impact that they will have:

Pros

More coverage – an additional 30 million Americans who are currently uninsured will now have access to healthcare. In fact, 95% of the country is expected to have health coverage by 2014.

No limits – beginning in 2014 there will no longer be any annual or lifetime limits on your coverage. This is a significant benefit for individuals with catastrophic illnesses that require treatment that often cost well beyond the $1 million lifetime benefits limit that typical insurance policies now contain.

No pre-existing conditions – beginning in 2011, coverage cannot be denied for pre-existing conditions for children under the age of 19. By 2014, this will be extended to all Americans regardless of age.

Cheaper prescriptions for seniors – the so called “donut hole” is being closed in the Medicare Part D coverage. Seniors will begin receiving $250 rebate checks in 2010 as the first step in closing this coverage gap.

Insurance for adult dependants – beginning in 2011, children who are still living at home can now remain on their parent’s insurance policy until they are 26 years old. This applies whether these dependent children are a student or not or even if they are married or not.

Expanded Medicaid eligibility – low income individuals/families that earn up to 133% of federal poverty level (FPL) would now be eligible for Medicaid. A family of four earning less than $29,327 would be eligible. This is expected to allow 16 million Americans to join the Medicaid program by 2019.

Low income subsidies – Federal subsidies for insurance premiums will be provided to individuals earning up to 400% of the federal poverty level (FPL) unless they have access to affordable employer coverage. For a family of four, you would receive a subsidy if you earn less than $88,200.

Cons

Cost – the cost of this healthcare reform bill is conservatively estimated at nearly $1 trillion. Despite the high price tag, most experts forecast that individual health costs will continue to climb and the quality of care is likely to suffer given the higher volumes of patients that will now need to be treated.

Individual mandates – the government now requires each individual to purchase basic health insurance or pay an income tax penalty. This mandate has already sparked multiple lawsuits as states argue that it is unconstitutional for the Federal government to require individuals to purchase insurance.

Medicare cuts – to help fund this healthcare reform, Congress is reducing Medicare benefits by $500 billion. This is particularly concerning to our large, baby boomer generation that is just now entering retirement.

Higher taxes – businesses and high-wealth individuals will see tax increases in an effort to account for some of the costs of healthcare reform. Families earning more than $250,000/year will have to pay higher Medicare taxes, while medical device makers will see a new 2.9% excise tax. Of course these higher tax costs will eventually be passed on to consumers.

Higher premiums – introducing an additional 30 million people into the insurance pool will result in higher insurance premiums for the 85% of Americans that currently have insurance. Towers Watson, a leading HR consulting firm, estimates that the average person will see premium increases of 10-12% each year due to the healthcare reform bill.

Excise tax on Cadillac health plans – beginning in 2018, employers will be required to pay a 40% excise tax on insurance plans where the health coverage exceeds a specified value per year ($10,200 single coverage/$27,500 family coverage). While that sounds like a lot of money, with the expected increase in healthcare premiums it is likely that the majority of plans will be classified as a “Cadillac” health plan under these criteria. This will lead companies to reduce their insurance offerings to avoid paying hefty penalties.

Employer mandates – by 2014, employers are required to offer health plans to all employees who work more than 30 hours per week, or pay a $2,000 per employee penalty to the government.

Rationing – while possibly far-fetched, many believe that introducing an additional 30 million patients into our already over-stretched health system will by necessity lead to some form of rationing. Physicians and hospitals, facing lower levels of reimbursement, will be forced to make difficult decisions as to the level of treatment that they will offer.

HSA withdrawal tax – individuals with healthcare savings accounts (HSA) will now pay a 20% penalty for any withdrawals made for non-health expenses.

Filed in: Budgeting, Christian Finance, Family Finance

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