Health Reform, Phase 1: What You Will See When

The massive health-care-reform law will plug the gaps in coverage for millions of Americans. But most of the changes don't take effect until 2014. By then, insurers won't be able to reject anyone because of a preexisting condition; individuals and small businesses will be able to purchase policies on insurance exchanges; and low- and middle-income people will get help with premiums.

The new law also requires all U.S. citizens and legal residents to have health insurance by 2014 -- or else pay a penalty (see the timeline on the facing page for key provisions and costs). This mandate is designed to prevent people from gaming the system and signing up for coverage after they get sick, which could boost rates for everyone. Businesses with 50 or more workers that don't provide insurance by 2014 may have to pay a fee.

If you already have health insurance through your employer, your coverage may not change much. But your wallet may feel the effects. High earners pay higher Medicare taxes starting in 2013. Starting in 2018, insurers will be taxed on a portion of high-cost "Cadillac" health plans. The higher costs will be passed on to companies, which are likely to pass them on to employees or trim coverage to fall below the tax threshold. (Employers must report the value of your health coverage on your Form W-2 starting with the 2011 W-2 you receive in 2012, but that doesn't mean benefits will be taxed.)The new law made few changes to health savings accounts, which will continue to be an attractive way to set aside tax-free money for medical expenses (see Easing Into Retirement). But contributions to a health-care flexible spending account will be limited to $2,500 starting in 2013. Some small businesses will get tax credits to help provide health-insurance coverage right away, and a few consumer protections will take effect very soon.

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Recent grads and young adults. Starting September 23, the law requires insurers to let children stay on their parents' policies until age 26. But some young adults may still be able to find a better deal. If you have to pay extra to keep your child covered on your policy, compare the cost with buying individual coverage -- in most states, a healthy twentysomething can buy health insurance for less than $150 per month. Get quotes at eHealthInsurance.com.

If you don't have to pay extra to cover your grad or if your child has health issues, keeping him or her on your policy wins out. Make sure your child qualifies as a dependent under your policy and lives in an area covered by your policy.Thirty states already have laws requiring insurers to let kids stay on their parents' policies until their mid or late twenties, and those states may continue to have more-generous eligibility criteria than the federal law (see www.naic.org for links to state insurance departments).

In other states, this year's new grads may need to find coverage until the new rule kicks in. They may temporarily stay on their parents' policy through COBRA or look for their own policy.

People with medical issues. Although the new law forbids insurers from denying children with preexisting conditions dependent coverage under their parents' plan starting September 23, older Americans with health problems have to wait until 2014 for guaranteed access. But the law does appropriate $5 billion for a high-risk pool, in effect from June 2010 until 2014, to help people otherwise locked out of the insurance system to buy subsidized policies. The new pool's policies must cap annual out-of-pocket spending at $5,950 for individual coverage or $11,900 for families (not including premiums), and premiums will be limited.

You need to be uninsured for at least six months to qualify for the new pool, a stricter requirement than some state pools impose now. States and the federal government are determining how existing state pools will interact with the new pool. If you have health issues -- whether or not you currently have coverage -- contact your state insurance department to find out what your options are. Go to www.naic.org for state contacts, or www.coverageforall.org for more resources.

Medicare beneficiaries. People who have Medicare Part D prescription-drug coverage will automatically receive a $250 rebate check this year if they reach the "doughnut hole." In 2010, the gap in coverage begins after you reach $2,830 in total prescription-drug spending and extends until your total drug costs for the year reach $6,440.

Starting in 2011, the doughnut hole will begin to shrink. Drug companies will provide a 50% discount on brand-name drugs in the coverage gap next year. After that, Part D beneficiaries will pay a smaller portion of their drug costs in the doughnut hole each year until 2020, when they have to pay just 25% of those costs.

Also in 2011, individuals who earn more than $85,000 (or $170,000 if married filing jointly) will have to pay a high-income surcharge for Part D premiums, as they do for Part B. And the government will start to reduce subsidies to Medicare Advantage plans next year, which could cause some private plans to raise premiums, reduce coverage or shut down.

For ongoing coverage and analysis of health-care reform, see our special report.