Why…?

The new health care reform legislation requires insurance companies to cover pre-existing conditions in children under age 19 on all plans starting on or after September 23rd, 2010.  This is good news to many families with children who have difficulty finding health insurance coverage.  However, to the insurance companies, this means added risk and costs.  When an insurance company offers coverage to a child with pre-existing conditions, most of the time they will have to pay claims which exceed the amount of the premiums they collect.  From a financial standpoint, this obviously is a bad idea.  In addition, many companies are worried that parents won’t have their children get health insurance until they are sick.  That’s called adverse selection (only the sick buy health insurance) and has to be avoided for health insurance companies to remain in business.  For these reasons, companies like UnitedHealthOne have decided to only offer child coverage when they have a parent or family on the policy as well.

This is an unintended consequence of the health care reform legislation.  It may force parents to buy expensive policies to cover their children when it would have been cheaper to buy separate policies for the parents and children.

This requirement may place a significant new burden on the accounting practices of these businesses.  For example, they may be forced to hire additional accounting services or purchase additional software to be able to comply with the law.

• A new 10% excise tax on indoor tanning services went into effect. Indoor tanning salons are required to levy this “sin tax” on their customers.
• The federal government started accepting applications for the new federal high risk pool, and they hope to begin coverage in August. Texas has opted out of administering another state run high risk pool and has chosen to let the federal government run the new high risk pool required by the recent healthcare reform legislation.  In order to qualify for the federal health insurance, an applicant must have been denied coverage from a private insurer and uninsured for at least six months. The funding allocated for this high risk pool is supposed to last until 2014; however, the Centers for Medicare and Medicaid Services (CMS) and the Congressional Budget Office (CBO) estimate that it may run out by next year.
• The federal government set up a new web portal, www.healthcare.gov, which is intended to help individuals and small businesses obtain information on health insurance options available to them.

The next wave of reforms will be coming at the end of September.  Please feel free to contact us for more information.

1. Cover at least 50% of the employee only cost of coverage
2. Have less than 25 full-time equivalent employees
3. Pay average annual wages below $50,000.

If an employer pays average wages below $25,000 and has 10 or fewer employees, they are eligible for the maximum tax credit of 35% of their premium costs.  The credit gradually phases out for businesses with average wages between $25,000 and $50,000 and for businesses with 10 to 25 full-time equivalent employees.

The IRS recently came out with new guidance for determining the amount of this tax credit.  The credit will now be based on a percentage of the lessor of the employer’s contributions and the amount the employer would have contributed if the employees’ premiums were equal to the average premium in the state.

For Texas, the Secretary of Health and Human Services (HHS) determined the average employee-only premium to be $5,140 and the average family premium to be $11,972.  Because some parts of the state have meaningfully higher premiums than others, HHS may determine average premium rates for specific areas of the state.

The National Association of Health Underwriters (NAHU) has prepared a brief with more detailed information.

As stated in their new’s release, “The decision to cease new sales was made after careful consideration of the recent healthcare legislation and based on the knowledge that the companies’ individual medical expense plans will not meet the requirements of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 recently enacted by the United States Federal Government.”

Despite the September 23rd deadline, several insurance carriers have already adopted this requirement.  For example, UnitedHealthcare and Humana are already allowing graduating students to remain on their parent’s health plan until age 26.  CIGNA has also announced that they will accelerate this extension of coverage to young adults as of June 1, 2010.

Adult children may qualify for dependent coverage even if they are married and/or live in a different household.  The requirement ends as soon as the dependent reaches age 26.

So what are the options for a dependent that is graduating or aging out of their parent’s policy prior to this statute taking effect?

• Check if their current insurance carrier has accelerated the extension of benefits to dependent children
• Purchase short term or individual coverage
• Purchase COBRA coverage.

The National Association of Health Underwriters (NAHU) has posted a memorandum with more information about this topic.