Trumpcare: A CFP-M.D. on what advisors need to know
Adviseos — and their clients — are grappling what the likely overhaul of the Affordable Care Act will entail and how it will change their practices and their financial planning. Here’s what you need to know.
Change in employer-based coverage
If the American Health Care Act goes forward as proposed, advisors will need to be vigilant and offer help to clients when selecting their employer-based plan.
Here’s why: Historically, employer-based coverage had many federal protections, including restrictions of caps on catastrophic coverage and limiting patient’s out-of-pocket spending for essential health benefits. The ACA allows states to waive essential health benefits, but they must always be above the very high federal standard created by the ACA.
With the AHCA, the definition of what will be considered essential will be narrowed significantly. A state can request a waiver to reduce essential benefits to the bare minimum, which many states will do. Care currently covered under the ACA, such as for pregnancy, mental health, contraception and preventative medicine, can be removed and it will meet the federal standard. Because of the low federal standard, employer-based plans in those states can also deny those benefits in their policy.
But here is one glitch many did not consider: The AHCA also allows for shopping for insurance across state lines. So now, a large employer can go into a state with low standards and purchase “skinny” employee coverage. Advisors will have a role to play in letting clients know what has changed, and alerting them to coverage and benefit amendments.
Coverage will once again be medically underwritten
Advisors will need to learn how to try to guide clients with health conditions for appropriate underwriting so they can get the insurance they need. Why is this? Under the ACA, premium charges are based on the cost of care in the area of coverage. This is called community rating. For example, cost of care in Chicago is higher than in Des Moines. The AHCA removes community rating, so now policies will now go back to underwriting for individual coverage and experience ratings for large groups.
Pre-existing conditions will be covered. However, clients will have to pay more for the pre-existing condition. According to the Center for American Progress, if a 40-year-old client has diabetes without any complications, it is estimated they will pay extra premium costs of $5,600 over the $4,020 yearly premium of a healthy individual. An individual with metastatic cancer will pay premium cost of $146,650 per year, effectively pricing them out of the market.
Given that the majority of the population has some underlying condition, very few people will receive the best rates for their health insurance. And once they become ill, the insurance could be eventually rendered worthless.
Unfortunately, clients may choose not to get care for certain illnesses to avoid labels and premium increases in the future. Advisors can help them prioritize and could even collaborate on trying to get them the insurance they need.
Older Americans will be charged five times younger people
In a blow for entrepreneurial clients, the AHCA will allow rates for older individuals to be set at five times the amount of younger individuals. The ACA allows older individuals to be charged up to three times the amount of younger people.
This may give considerable pause to anyone considering retirement before 65, as premiums may be unaffordable. This also will stymie efforts of clients who want to become consultants or start their own business as large companies will have more pricing leverage compared to the individual market.
On the good side – tax cuts
The main reason behind such a drastic overhaul of health care was to enable tax cuts. Since advisors take care of a primarily wealthy population, they most likely will see benefits. Gone will be the 3.8% surcharge on dividends, capital gains, and interest income for individuals with income over $200,000 and families with income over $250,000. The 0.9% Medicare surcharge will also disappear for the same cohort.
As people understand the ramifications of this new health plan, there may be significant political challenges to senators contemplating passage of the AHCA. It isn’t over until the bill sits on the president’s desk, so if your clients are unhappy with the proposed law, encourage them to call their senators.