Let the Looting Begin!: Health-Care Changes Taxes to Start Taking Effect This Year

By Shannon Pettypiece and Alex Nussbaum
Bloomberg
Mar. 25, 2010

March 23 (Bloomberg) -- Indoor tanning salons will charge customers a 10 percent tax beginning in July in one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama.

Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law's provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House.

The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect.

"Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012," said Maury Harris, an economist with UBS AG, said in a research report.

High-Risk Pools

Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can't get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants.

Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc., the largest health insurer, will be banned within six months from dropping a person's coverage because of severe illness and from limiting lifetime or annual benefits.

Participants in Medicare, the U.S. government's health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out -- a coverage gap know as the "doughnut hole." The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California

In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income.

Employer Coverage

In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report.

A tax on high-cost "Cadillac" policies won't go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014.

By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS's Harris.

The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc., the largest U.S. chain, and its rivals.

Financial Disclosure

Insurers also will have to reveal how much of members' premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they'll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans.

Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified.

The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel's recommendations would take effect unless federal lawmakers substitute their own reductions.

To contact the reporter on this story: Alex Nussbaum in New York [email protected]; Shannon Pettypiece in New York [email protected]