Thursday, July 18, 2013

Why the Individual Mandate won't work for Health Reform

We've heard a lot about the individual mandate in the Affordable Care Act. The first year it will be 1% or $95 (whichever is more). It then goes up to 2.5% or equal to the lowest cost Bronze Level plan (whichever is more). Refer to page 12 of the following:

There are a number of exemptions available which people haven't talked about, but are very important. Here they are (taken from
6. What are the statutory exemptions from the requirement to obtain minimum essential coverage?
  1. Religious conscience: You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  2. Health care sharing ministry: You are a member of a recognized health care sharing ministry.
  3. Indian tribes: You are a member of a federally recognized Indian tribe.
  4. No filing requirement: Your household income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age, and types and amounts of income. To find out if you are required to file a federal tax return, use the IRSInteractive Tax Assistant (ITA).
  5. Short coverage gap: You went without coverage for less than three consecutive months during the year. For more information see question 22.
  6. Hardship: A Health Insurance Marketplace, also known as an Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage.
  7. Unaffordable coverage options: You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
  8. Incarceration: You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
  9. Not lawfully present: You are neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S.

Unaffordable Coverage Option (#7)

I'd like to focus on just one of the 9 exemptions, the Unaffordable coverage option (#7). If you surf out to the Kaiser Family Foundation's subsidy calculator ( and plug in a family of 4. The projected premium is $12,887/year for the second lowest Silver Plan. The projected premium for a Bronze level plan is $10,681/year.

If you divide $10,681 by 0.08, you'd need to make more than $133,512.50/year to receive a penalty if you decide to forego coverage (8% of $133,512.50 equals $10,681). That means there are a lot of people who will NEVER be faced with a penalty. Of course if you were, you'd just have to fill out the religious exemption section listing something like being a Christian Scientist or other religious organization that does not believe in traditional medicine.

How the IRS Collects the Penalty

Furthermore, the only way the IRS can collect this penalty is via your income tax return. If you don't pay income tax, then it's pretty hard for them to come after you as they are not allowed to garnish wages or freeze bank accounts. The last statistic I heard about the percentage of Americans who don't pay income tax was 47% (see So this mandate won't impact almost 1/2 the country.

So, whatever the CBO scores say about the number of people who will pay a penalty, my guess is that it will be much lower than expected.

Heck, if I were a young invincible, I'd happily pay the $95/year to save $2000/year in premium. That would be extra beer money. As I didn't have any assets and low income, there really is nothing for the doctors and hospitals to take from me if I had an illness (BTW, it's already a law that if you show up at the Emergency Room, they must treat you). The challenging part would be if I had expensive medications, but that's easily remedied through programs with the major pharmaceutical companies to supplement the cost to low income people. Then at open enrollment time, I'd sign up for a plan that starts January 1st of the following year. As there are no pre-existing conditions anymore, my conditions would be covered.

Of course if I wanted insurance sooner, I could just marry someone. This is considered a qualified reason (gaining a dependent) which allows me to get the insurance sooner. Once I had the insurance, we could get the marriage annulled (yet another qualified reason).

So why buy health insurance?

Health insurance is important because of the potential of taking your life savings on a major illness (I've seen it numerous times). It also helps give access to the top doctors and hospitals. If the government wants people to buy health insurance, they must focus on the reasons to buy and not on the penalties.

Frankly, there are three kinds of personal insurance coverage needed to protect against catastrophic loss due to health/death. The first is health insurance, the second is life insurance (to keep your beneficiaries living in the same lifestyle instead of having to sell everything), and disability insurance. The most overlooked is disability insurance.

Cash Machine

Imagine you had a cash machine in your home. It legally produced $1,000 -- $10,000/week every week of the year. My question is how much would you spend to make sure that income came in every week for the next 10 - 40 years? Would you spend $50/week?, $500/week?, or more to assure it keeps coming in?

If you would spend the money to protect the machine, then disability insurance makes sense. You are that cash machine. If you can't work, the money won't come in and you'll have nothing to live on.

The reason why people go into bankruptcy due to medical debt is because they have no income coming in during the illness. If you don't have money to pay for your premiums (because you are buying food or paying rent), then the policy lapses. Once the policy lapses, you are on the hook for all subsequent expenses. 


If you have questions on health reform, need a help with any of the above insurance products (for both individuals and businesses), please give me a call or shoot me an email.

Friday, July 12, 2013

Employer Mandate Delayed. Many Questions Remain

Posted: 11 Jul 2013 09:27 AM PDT
Copyright ©2013 Towers Watson. All Rights Reserved
Treasury Says No Impact on Any Other Provisions of the PPACA in 2014
The Obama Administration unexpectedly announced on July 2 that employers will be provided an additional year, until 2015, before any penalties are assessed under the employer play-or-pay mandate in the Patient Protection and Affordable Care Act (PPACA) (i.e., both the $2,000- and $3,000-per-year employer penalties are delayed until 2015).
In addition, the mandatory employer and insurer reporting requirements (including identification of full-time employees and their months of coverage) under Internal Revenue Code (IRC) Sections 6055 and 6056 are also delayed for a year. Thus, employers will not incur penalties for failing to provide affordable, minimum-value health coverage to their full-time employees in 2014, nor will insurers or employers be required to comply with the extensive information reporting requirements under those code sections for the 2014 calendar year.
In an unusual fashion, the Obama Administration announced the delay only via postings on the Treasury Department and White House websites. Mark Mazur, assistant secretary for tax policy at the Treasury wrote in a blog post, “We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively.” Mazur went on to write that “our actions today do not affect employees’ access to the premium tax credits available under the ACA (nor any other provision of the ACA).”
The Administration stated that the goals of the one-year delay are twofold. First, it will allow the government to consider ways to simplify the new reporting requirements, and second, it will provide time for employers to adapt health coverage and reporting systems. It is important to note that the delay also takes a controversial piece of the law off the table before the midterm congressional elections.
According to the Treasury, rules regarding the delay will be proposed this summer. Employers will be encouraged but not required to adopt and follow those reporting requirements in 2014. The full text of the announcement by the Treasury can be found at

What Does This Mean?

Aside from the delay in employer reporting under IRC Sections 6055 and 6056, and the delay in the play-or-pay penalties, the Treasury says the delays will not affect employees’ access to the premium tax credits nor any other provision of the PPACA. Even if one accepts that statement at face value, employers need to begin considering the potential impact of the delay as we await details from the government that will provide answers to the following questions:
§ What is the practical impact of the delay in play-or-pay penalties on counting employee hours in 2014 (i.e., will employers be required to identify full-time employees in 2014 for any other reasons, aside from play-or-pay, such as inquiries from public health insurance exchanges)?
§ Will employers still need to distribute the mandatory notice to employees regarding public health insurance exchanges by October 1, 2013? If so, should that notice be modified to reflect the delay in the employer play-or-pay mandate? Similarly, what is the relevance of information in the government’s model notice regarding details of the employer’s group health plan in view of the delay in the play-or-pay mandate?
§ If employers will not be subject to the play-or-pay mandate in 2014, how will public health insurance exchanges determine eligibility for the premium tax credit (recalling that individuals are ineligible for the credit if they have been offered minimum essential coverage that is affordable and of minimum value)?
§ Will the public health insurance exchanges still be contacting employers in 2014 to verify employee information (in some cases) on employees’ full-time status and health coverage contributions (for purposes of the premium tax credit) — even though employers will not be subject to penalties under the play-or-pay mandate? If so, will the affordability and minimum value of employer coverage still need to be determined in 2014 for purposes of the premium tax credit if those same elements of the play-or-pay requirements are waived for employers in 2014?
§ How will the individual mandate be affected by the delay in the employer play-or-pay mandate? Will there now be political pressure to delay the individual mandate if the employer play-or-pay mandate has effectively been deferred to 2015?
Meanwhile, it seems relatively clear that other provisions of the PPACA that become effective in 2014 can proceed without being affected by the one-year delay in the employer play-or-pay mandate. For example, the annual distribution of Summaries of Benefits and Coverage (SBCs), compliance with the new out-of-pocket maximum limits and 90-day waiting period limit on group health plans, as well as the annual $63-per-covered-life, transitional-reinsurance fee do not appear to be affected by the delay.
Employers should anticipate questions and concerns from stakeholders about this latest development. Employees, vendors, line supervisors, senior management, board members and others will all react to media coverage of the delay, and some confusion should be expected. Employers should begin to consider some thoughtful messaging about this development even as we await details from the Treasury.


The main elements of the PPACA were designed to take effect in 2014 in a sort of health care reform grand opening. The announcement of the delay by the Treasury on July 2 appears to set the stage for a “soft opening” for health care reform in 2014. For employers, most of the implications will flow from the one-year delay in enforcement of the play-or-pay penalties and the delay in information reporting under IRC Sections 6055 and 6056. While nothing in this latest bit of drama suggests that health care reform is going away, further guidance will be needed from the government to understand the full implications of the delay for employers. That guidance is promised by the Treasury this summer, and Towers Watson will be following those developments closely in order to assist plan sponsors through this period.