The State of PPACA Moving Forward

By Chris Hidalgo

Starting on October 1, 2013, open enrollment will begin and insurance companies will compete in a health insurance exchange pool, decreasing insurance premiums in the process. The Patient Protection and Affordable Care Act (PPACA) requires most U.S. citizens to get health insurance by the year 2014 or pay hefty taxes as the years go on. 

According to an article by LifeHealthPro, new PPACA insurance rules will ban most personal health information in decisions on whether to sell an individual coverage to older, sicker Americans. On the flip side, most young adults may see an increase in coverage prices but are expected to benefit from the changes.

To reduce the uncertainty of having a new influx of newly insured individuals, PPACA has established three specific programs:

Risk Adjustment Program

• Provides increased payments to health insurers that enroll higher-risk individuals
• Applies state-by-state to health plans in both the individual and small group markets

Risk Corridors Program

• Limits the extent of an insurer’s gains and losses from 2014 through 2016
• Applies to qualified health plans offered through an exchange in the individual and small group markets 

Transitional Reinsurance Program

• Helps stabilize premiums for coverage in the individual market during the first three years the health insurance marketplaces are in operation
• Applies to commercial health insurance in the individual market

Actuaries at Oliver Wyman, a consulting firm controlled by an insurance broker, suggest that the actual effects of PPACA might be different than what supporters of the law expect. One example is that they estimate that a new PPACA premium tax starting in 2014 could increase health premium prices significantly all by itself.

The Health Insurance Tax (HIT) is an annual fee placed on health insurers. According to an article by William Gallagher Associates, HIT will bring in an estimated $87.4 billion over the first decade. It will be a fixed-dollar amount starting at $8 billion in 2014 and rising to about $14 billion in 2018, possibly increasing premium rates to 3.7%. After that, HIT rises according to an index based on net premium growth. Since the tax is not deductible for federal taxes, insurers will probably collect a total of $73 billion in extra premiums to cover the $60 billion cost of the payments to the government. 

However, this complex tax could end up benefiting the life insurance industry. Investors will take note of the fact that the inside build up of all insurance products including universal life policies is neither included in Modified Adjusted Gross Income (MAGI) nor is it Net Investment Income (NII) subject to the 3.8 percent tax in PPACA. MAGI does not include death benefits nor is the NII subject to tax. Therefore, life products with inside build up could be more profitable.

2014 is just around the corner for these tax or tax-related provisions to be in place. The system is changing with hopes of improving the healthcare system. As always, there are two sides of the argument. Only time will tell before the impact of PPACA is truly felt.