Perhaps the most hated piece of the Patient Protection and Affordable Care Act (PPACA or ACA) — also known as “Obamacare” — is the individual mandate.
This is the piece of the law that requires every citizen to secure private health insurance for himself or herself, or to pay an annual penalty for failing to do so.
It’s no surprise, then, that legislation intended to replace ACA — known as the American Health Care Act (AHCA) and currently working its way through Congress — kills the individual mandate, no longer requiring everybody to sign up for health insurance.
It’s not looking likely that the AHCA legislation will pass, but because the individual mandate is so controversial, future attempts to tweak or replace ACA will no doubt tackle the mandate as the United States attempts to figure out how to get spiraling health care costs under control.
What does this mean for real estate agents?
Why an individual mandate to begin with?
To understand the potential repercussions, it helps to parse the arguments given for including the individual mandate in the original legislation.
Risk pools
All insurance companies use “risk pools” to manage and protect against risk. If a risk pool contains a large proportion of individuals who are considered “riskier” to insure than the general population, then it will cost more money to insure that risk pool.
Consider auto insurance — unlike health insurance, for the most part, insurance premium rates are stable from year to year, unless you’re involved in an accident. Insurance companies attribute this stability to the very large risk pool of auto insurance; you can’t legally drive without it, so the vast majority of people who drive also purchase insurance and are in the car insurance risk pool.
Good drivers and bad drivers, risky drivers and safe drivers, young drivers and middle-aged drivers and elderly drivers — all are included in the risk pool.
Who wasn’t insured?
Prior to the ACA, health insurance was delivered primarily through full-time employers. Most large companies offered health insurance for employees who worked 40 hours or more a week as a benefit (and often their spouses and families, too), but they were not required to offer any health coverage.
As a result, employees at many small businesses, part-time employees, the self-employed and independent contractors were on their own when it came to health insurance. According to insurance companies, this meant that there was a significant number of healthy Americans who could help offset the risk pool but were not currently enrolled in health insurance coverage.
That included real estate agents. As independent contractors, agents who weren’t enrolled under a spouse’s health care plan typically didn’t have a lot of coverage options.
Pre-existing conditions, lifetime limits and age limits
One thing the ACA accomplished that most Americans generally support was removing the ability for insurance companies to restrict or deny insurance to certain groups of people, or to place lifetime limits on the amount of money an individual could receive for health care purposes.
This means that insurance companies can’t tell somebody with a pre-existing condition, “Sorry, we won’t insure you because you’ve been diagnosed with something chronic.” They also can’t create limits on the amount of insurance money an individual can claim and refuse to pay out beyond that limit, which they were allowed to do prior to the ACA, and children are allowed to stay on their parents’ insurance until they are 26 years old.
However, insurance companies argued that they couldn’t keep costs reasonable for people who want health insurance if they didn’t have larger risk pools. Getting rid of conditions around who could purchase insurance and how long they could keep it would increase the number of high-risk patients in the risk pools, and to balance that out and keep prices somewhat reasonable, insurance companies needed more low-risk patients in the risk pools.
Hence, the individual mandate. If every American were required to purchase health insurance — healthy and unhealthy Americans alike — then the risk pools would be big and balanced enough to offset the cost of including riskier patients.
Employers of a certain size were also mandated to offer health care coverage to full-time employees (who work 29 hours or more each week), but part-time employees, the self-employed and independent contractors would now be required to purchase health care insurance on either the state or national exchange or face an annual financial penalty.
Again: That meant real estate agents.
Why didn’t it work?
There’s a problem with this picture, critics might note, and it’s this: Health insurance hasn’t gotten cheaper during the past three years, despite the individual mandate.
Why?
“The big problem, which neither party wants to confront, is that the penalties for not insuring are too low,” said Alain Enthoven, professor emeritus of economics at Stanford Graduate School of Business, in a Q&A in January. “As a result, not enough young healthy people signed up, and the insurance companies are losing money. That’s why premiums are going up.
“Number one, we have to stop the adverse selection spiral. That means giving the individual mandate some teeth,” he added.
“You have to have a balanced risk pool,” confirmed Susan L. Combs, founder of New York insurance brokerage Combs & Company and a PPACA Certified Expert.
And the process for enrolling and disenrolling from health insurance purchased on the exchange needs to be better structured in order to manage that risk pool.
“The many exchanges are not being held to the same esteem as group plans are,” she said.
To sign up for a group plan, the enrollee (usually an employee) needs to have experienced a “qualifying event” — getting hired at a new company, losing a spouse’s health insurance, having a baby and so on. Enrollees must typically provide proof that the qualifying event happened.
Federal exchanges don’t have the same standards — enrollees are asked if they experienced a qualifying event, but oftentimes no proof is required. “With the federal exchanges, they’re typically taking people’s word for it,” Combs explained. “People are coming in when they find out they need to have surgery and after a month they drop the insurance because paying the penalty is cheaper than paying the premium.”
What would happen if the individual mandate went away?
The proposed American Health Care Act legislation aims to offset the loss of the individual mandate by tacking a 30-percent penalty onto anybody who dropped a health care plan and then later re-enrolled.
So any real estate agents who are currently doing the enroll-and-drop dance to manage their health care would find themselves paying significantly more the next time they tried to enroll in a plan. Agents who are maintaining coverage from month to month wouldn’t see that increase, though (in theory) — and given the increasing costs of insurance, many independent contractors would happily drop health insurance and find catastrophic-only coverage, or do without insurance entirely and pocket the difference.
“I couldn’t care less” about the individual mandate, said Teresa Boardman, a broker-owner based in Minnesota’s Twin Cities. She said she would make sure that she’s insured with or without a mandate.
“The only reason I have health insurance — and I argue back and forth with myself over this — is I’m afraid my appendix will suddenly rupture and I’ll lose my house, or I’ll break my leg and I’ll lose my house,” she explained.
“Basically the health insurance does not give me any access to health care,” she added. “I pretty much stopped going to the doctor and going to the clinic. I know what I need; I get my cholesterol and blood sugars checked through Target.”
Boardman said she does take advantage of her health savings account (HSA), however — an account into which independent contractors can deposit money earned, tax-free, and withdraw it without penalties throughout the year to pay for their health care costs.
“It doesn’t offset my exorbitant insurance cost,” she notes, but she puts the maximum allowable amount in the HSA every year and uses it, “and especially last year, that ended up being a nice little tax break for me,” she said.
And she works hard to maintain her health so she doesn’t need to use the insurance she’s secured, Boardman adds.
“I have a better diet than I’ve ever had in my life. I’m doing yoga, I walk four miles a day, I ride my bike — I do everything I can because my goal is to age out of the system and hope that Medicare’s still there,” Boardman concluded.
What are some positives about the proposed changes?
Agents like Boardman who are using HSAs might have noticed that the American Health Care Act proposes to increase those from $3,400 to $6,550. “Real estate agents in my area typically have more high-deductible plans, so the health savings plan increase is good for them,” noted Combs.
Another proposal involves providing tax credits for health insurance that can be used outside of state or national exchanges — giving independent contractors more plan choices and offering more competition for their plan dollars.
“I think that would actually be one benefit to independent contractors because they could have more flexibility in choosing insurance that’s going to be suitable to their needs,” said Combs. “Also, you get the full credit if you make $75,000 and under; that’s a benefit to independent contractors who are making above the 400-percent of the FPL [federal poverty line] cap now.”
Although it wasn’t outlined explicitly in the American Health Care Act, there is another proposed change (submitted in the Small Business Health Fairness Act in February) floating through the legislature that would give small businesses — like brokerages — “an option to access affordable health insurance coverage through Association Health Plans (AHPs),” according to a letter supporting the bill that was signed by the National Association of Realtors.
According to NAR and others, this would be “a step towards building a more competitive market.”
Realtor (and other) associations can currently offer a health care marketplace for individual members — NAR and California Association of Realtors are two that do — but giving businesses across state lines the ability to negotiate for health care as a group could make a big difference to some brokers. “AHPs will allow small business owners to band together across state lines through their membership in a bona fide trade or professional association to purchase health coverage,” reads the letter.
Although many advocates are in favor of allowing both businesses and individuals to shop for health insurance across state lines, health care networks are assembled locally. So a Kansas real estate agent who thinks insurance prices look better on the Texas exchange should think twice before deciding that’s the best option — she’d find herself traveling to Texas every time she wants to see a doctor.
What next?
“What we’ve been saying to our clients is, ‘Look, we’ve got to go with the law of the land today — we didn’t start prepping you for the ACA ’til the ACA came into law. Take a step back and calm down,'” said Combs.
The Congressional Budget Office (CBO) released a cost estimate for the American Health Care Act last week, and the numbers aren’t looking promising for the proposed revamp.
The CBO estimates that under the proposed legislation, 21 million Americans would be uninsured by 2020, and 24 million by 2024. “In 2026, an estimated 52 million people would be uninsured, compared with 28 million who would lack insurance that year under current law,” said the CBO.
Future attempts to repeal ACA are virtually guaranteed to tackle the individual mandate — either strengthening it or exterminating it.
But costs won’t go down for individuals or employers until more plan diversity is allowed, say experts; the “10 essential benefits” currently required by the ACA don’t give insurance companies the option to offer more stripped-down plans or to remove benefits from plans for people who don’t need them (for example, women who have had hysterectomies probably don’t need maternity and newborn care in their plans, nor do most women over 50 years old).
Those 10 essential benefits include:
- Outpatient care
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health services and addiction treatment
- Prescription drugs
- Rehabilitative services/devices
- Laboratory services
- Preventive services/wellness visits
- Pediatric services
“You get what you pay for; insurance is always a scale,” Combs said.
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