Health-Care Law a Shot in the Arm for U.S. Workers
One of American workers’ great anxieties--losing health insurance--will soon be relieved with a new bipartisan health-care law designed to make medical insurance portable.
The U.S. economy should get a boost as well after the legislation is signed by President Clinton, a move expected Wednesday. Although a far cry from the universal health-care plan that was shot down early in Clinton’s term, the new law at least makes it possible for anyone currently insured to keep their coverage.
The bill has been trumpeted for its ability to end the “job lock” for workers who won’t change positions or strike out on their own for fear of losing coverage for preexisting conditions. And although there is no guarantee about the price of health insurance, the bill also has provisions that will allow self-employed workers to write off more of the cost.
“It could make the labor force more flexible, and that’s very beneficial in the long run,” says Jack Kyser, chief economist for the Economic Development Department in Los Angeles.
In California, the bill will specifically help workers at large firms because smaller firms are generally covered by a state law that already provides portability--and even some rate protections--to employees switching among firms that have between three and 50 workers.
California law doesn’t apply to large company plans governed by the federal Employee Retirement Income Security Act, or ERISA, which has had no portability provisions.
Although the new law takes effect July 1, 1997, it can already affect employee decisions. Entrepreneur wannabes need not delay pursuing their dream. Existing federal rules for the Consolidated Omnibus Budget Reconciliation Act, or COBRA, allow employees to stay in a company health plan, at their own expense, for 18 months after they leave. The period is 36 months for a divorced spouse or surviving family members after death.
Thus, anyone who left a job with COBRA coverage this year will be able to get insurance after it expires under the new law--as long as they don’t let coverage lapse.
Despite the new flexibility, the federal law does little to lower the cost of health insurance, which is one of the main reasons why many small companies and individuals don’t have coverage.
“It will make things easier for many small-business owners and their families--and for workers who are looking to hang out their own shingle,” says Jim Weidman, spokesman for the National Federation of Independent Business in Washington. “But in terms of it being a comprehensive solution, no, it’s not. Affordability is likely to become more of a problem rather than less.”
Here’s a look at how the federal Health Insurance Portability and Accountability Act will work.
Employee Impact
Under current ERISA law, when you switch jobs there’s a break in your health insurance coverage. Coverage through the old company stops. Coverage through the new company starts. That break subjects you to preexisting-condition clauses that deny coverage for a set period--usually a year--for any ailment that was diagnosed before you switched plans.
For that reason, pregnant women who were going from one big employer to another would often opt for high-cost COBRA coverage until after the baby was born.
Some people with chronic illnesses feel unable to switch jobs at all because the new health plans could exempt them or family members from coverage for those ailments indefinitely.
Those who want to strike out on their own have feared losing coverage because there was no guarantee that they could buy an individual policy.
But starting next July, anyone who had coverage for at least 18 months will have the right to buy an individual policy--regardless of their health.
And individuals need wait through only one preexisting waiting period, which most workers have already done with their first employer, as long as they maintain insurance coverage with no more than a 63-day gap between purchasing policies. The catch: There are no restrictions on the rates. If you are not healthy and you hope to buy an individual health policy, your insurer could demand unaffordable rates.
The portability bill urges states to enact market reforms to help keep rates affordable even for the sick, but it is impossible to say how those potential reforms might work out.
However, if you are going from a large to a small employer that offers health insurance, you are in a better position.
Because of California’s 3-year-old law, employees of covered small businesses going from one plan to another are guaranteed full coverage--with no restrictions on preexisting conditions, says Bill Robinson, an agent specializing in group plans with the National Business Insurance Agency in West Hollywood.
Better yet, the California law--AB-1672--imposes some restrictions on rates too.
It doesn’t require a company to offer insurance or say what rates insurers can charge, but it does say insurers must post standard small group rates. Rates offered to any individual group, no matter how well or sick, can only deviate above or below those standard rates by a factor of 10%, Robinson adds. (Until July, the figure was 20%.)
Breaks for Small Businesses
The biggest break in the law for entrepreneurs is simply the confidence that they can keep coverage after they leave the corporate womb.
The self-employed tax breaks are also significant. Now individuals can deduct 30% of their health insurance costs against business income. Starting in 1997, that would rise to 40%; in 1998, to 45%; 50% in 2003; 60% in 2004; 70% in 2005; 80% in 2006.
Small businesses in California are generally covered by state law, but the federal law will provide a new option for small employers that have high-deductible health insurance. The legislation includes a limited pilot project to test medical savings accounts, a much-ballyhooed concept that would allow workers to establish tax-favored savings accounts to pay for uninsured medical expenses.
Opponents argued that such accounts would allow healthy people to opt out of the general insurance system, so a major initiative did not make it into the final bill. But a small number of companies will be allowed to try them out, as long as the total number of participants does not exceed 750,000. Details and applications are not yet available.
Changes for Big Companies
Large employers will have to alter some specific details in the health plans offered to workers, such as the new 12-month limit on excluding preexisting conditions. Moreover, they’ll need to keep records indicating who was insured, who wasn’t and who was subject to a preexisting condition restriction.
Those records will be needed to establish a worker’s eligibility under the portability law.
* Tom Petruno’s column does not appear today.
