Obamacare by the numbers

Few pieces of legislation in recent years have been as controversial as the country's new health care overhaul, known officially as the Patient Protection and Affordable Care Act (PPACA) and informally as Obamacare.

Long before the Supreme Court upheld the law in July, insurance companies and employers, large and small, were preparing for its implementation. But despite all the preparation, insurance companies and business executives alike say a great deal of confusion remains. That uncertainty has probably been exacerbated by the flow of misinformation, disinformation and hyperbole in a presidential election year.

As is the case for all businesses, however, the bottom line for travel retailers is that the impact of the PPACA on any given agent or agency will depend entirely on his, her or its size and business model.

Agencies with 50 employees or more probably are already offering their staff health insurance, because it's a highly effective tool for attracting and retaining the best employees. For such agencies, assuming they are providing a plan that covers 60% or more of their employees' health care costs -- including premiums, copays and coinsurance -- the new law will have almost no effect.

Essentially Obamacare requires this size agency to provide coverage that ensures their employees are not paying more than 9.5% of their total household income for health insurance. This lowest level of required coverage, called the bronze level, is fairly bare bones, with relatively high patient deductibles.

The challenge will arise for agencies with more than 50 employees that pay less than 60% of their employees' health care premiums, said Bob Joselyn, president and CEO of Joselyn Tepper and Associates and of Travel Agency Management Solutions (TAMS), a networking, financial benchmarking and best practices group.

For example, some agencies have capped their premium payments in recent years at specific dollar amounts because health insurance premiums have been rising so rapidly. In these cases, employees have the option to purchase subsidized insurance from exchanges, state-based insurance markets with millions of people participating.

The rationale for the exchanges is that big pools of participants spread the risk, which should make health insurance more affordable.

However, in this scenario, the employer faces penalties starting at $2,000 or $3,000 per employee per year.

Joselyn said most TAMS members, a group of about 170 agencies that represent a good cross section of the agent community, offer health insurance. Its members' annual sales range from $3 million to hundreds of millions and tend to be affiliated with Virtuoso, Signature Travel Network, Ensemble Travel Group, American Express, Travel Leaders or other hosting companies and consortia.

Travel agencies with fewer than 50 employees are exempt from the PPACA. These agencies can continue to operate without offering insurance and not have to pay a penalty. In short, said Cynthia Cox, policy analyst for the Kaiser Family Foundation, a nonpartisan, nonprofit information clearing house and health policy research organization, Obamacare will have no impact on these agencies if they don't want to offer health care coverage.

On the other hand, the impact of the exchanges might make health insurance more affordable for these agencies, enabling them to offer the same kinds of benefits big agencies offer and thus to compete with them for quality employees.

Moreover, agencies with fewer than 25 employees who offer health insurance coverage qualify for a tax break, as long as they pay at least half the cost of their workers' premiums.

The exchanges were created to give individuals and small companies the kind of buying power that big companies enjoy. But health care is an extremely complex market, and it is still too early to know if the exchanges will actually lower premiums. If they do, it will probably be because they attract more young adults, which would be good for everyone -- first, because it would mean that young adults would be insured when they do need health care and, second, because as a group, younger adults are healthy and require little medical care, so their inclusion drives down the cost of premiums for everyone.

But young adults do get sick, and today, few people in their 20s and early 30s have health insurance unless it is a benefit of employment or they are covered by a parent's policy.

In fact, according to the U.S. Department of Health and Human Services, adults ages 19 to 30 make up a third of the uninsured population; 30% of them have no health care coverage whatsoever, compared with just 17% for adults ages 30 to 64. Their lack of involvement in the health insurance market means that insured populations end up footing the national health care bill in the form of higher premiums.

The power of massive numbers

Whatever the participation by various age groups ends up being, exchanges are expected to push down premiums simply because the broad range of people participating in them spreads risk. Professional employer organizations, or PEOs, already do this, which is a key reason for their growing popularity.

Basically, PEOs are human resource providers to which small companies can outsource their HR work. Typically, they count a large number of small companies among their clients, so the PEO can pool the buying power of all of these companies to get the same kind of health care pricing that big companies get. PEOs offer more than just health care benefits, of course, but their success is widely seen as an indication of how exchanges could affect the pricing of health insurance.

Cox said the exchanges will serve as one-stop shops for both individuals and small businesses, offering four levels of coverage: bronze, silver, gold and platinum.

In that respect, they are crucial for home-based agents who are self-employed or who work for an agency that does not provide health care coverage.

But while the exchanges will help push down the cost of premiums, Obamacare requires that they buy a minimum level of health insurance. This requirement, known as the individual mandate, is the most controversial and politically least popular part of the act, according to the Kaiser Family Foundation.

The rationale for the individual mandate, which is a way of forcing everyone to participate, is to spread the risk across the largest possible population. You have to have healthy people and sick people alike participating to keep health insurance, and health care itself, affordable. Moreover, with everyone mandated to participate, health insurance companies are no longer allowed to deny people coverage or charge them a higher rate if they have a pre-existing condition.

The PPACA has tried to make this individual mandate easier to swallow by providing substantial subsidies to help families keep their premiums to no more than 8% of their total income, in many cases even less.

In raw numbers, this means that people who make four times the poverty level will qualify for subsidies that reduce their insurance costs to between 2% and 9.5% of their income. Right now, four times the poverty level would amount to about $92,000 for a family of four or $45,000 for a single adult.

Families and individuals who make more than that do not get a subsidy and will have to pay the full cost of their health care coverage. But if that coverage costs more than 8% of their total income, they do not face a penalty if they opt not to get coverage.

So, for example, if you're single and buying your own health care coverage, age 40 and making $50,000 a year, you could find yourself paying $4,500 a year in premiums. That's about 9% of your income.

If you're 55, single and making $50,000, that premium jumps to $8,400, or about 16% of your income.

In either case, the cost would amount to more than 8% of your total income, so you face no penalty if you opt out of health insurance.

This means there still will be middle-income people, both single and married, who don't qualify for subsidies and will continue to face high premiums. However, they still have the ability not to buy health insurance and won't pay a penalty.

Even so, many economists and health care providers predict that premiums will be pushed lower under the PPACA -- on average, some 7% to 10% lower than they are now, according to Congressional Budget Office projections.

In addition, it is widely expected that the health care coverage will be more comprehensive than it is now. Insurance plans have to cover what the PPACA terms "essential health benefits," which each state will define. The new health plans will also have to cover certain preventive health services without any copayment, and the law ends lifetime limits on coverage.

Joselyn said there are some temptations retailers probably would do well to avoid.

For example, he said, an agency that now offers health care coverage to its employees might be tempted to drop that coverage because paying the penalty would be far less expensive than offering health insurance. Depending on the size of the agency, the penalty could be as much as $2,000 or $3,000 per employee per year, which is far less than what health insurance premiums would cost.

However, dropping health insurance would put agencies at a disadvantage in the employment marketplace. Even if the company paid the penalty, it would have to make up for the loss of health insurance in some other way. Joselyn does not see that as a viable option for larger agencies.

Follow Kate Rice on Twitter @krtravelweekly.