RICHMOND — The federal health care reform legislation passed earlier this year is more about reforming the insurance industry rather than health care, the 16 people who attended a workshop at the Richmond Chamber of Commerce learned this past week.

Jim Dingus with BB&T Health Insurance Service, who has worked in the insurance business since he graduated from Eastern Kentucky University in 1972, gave a two-hour briefing on what is formally titled the Patient Protection and Affordability Act.

Although “everybody” believes health-care cost should be contained, there is “very little” in the new legislation that will lower costs, Dingus said.

The reform act’s biggest impact will be felt by the insurance industry and by employers who provide health-care benefits to their employees, he said.

Several areas of the bill will not take effect immediately, but will be phased in over the next eight years.

Some terms used in the act remain unclear or, in some cases, undefined, with the Secretary for Health and Human Services (HHS) empowered to make those determinations, Dingus said.

The most perplexing, if not contradictory, part of the bill is the definition of “small business,” Dingus said. In some instances, it appears to be a firm with more than 50 employees. In others, the definition seems to be 100 or more.

Some immediate effects of the legislation include:

• Children of employees may be covered under a parent’s family insurance until they are 26, even if a child is married.

• Children with pre-existing conditions may not be excluded from coverage.

• Insurance must cover preventive care services (which Kentucky law already requires).

• No lifetime limits on out-of-pocket patient costs with annual limits in effect only through 2014.

• Employer-provided insurance may not discriminate between employees. This will prevent employers from providing enhanced insurance benefits based on an employee’s length of service.

Other items insurance plans and consumers must address during 2011 include:

• Over-the-counter drugs can no longer be counted as medical expenses unless prescribed by a doctor.

• Withdrawals from medical savings accounts for non-medical purposes will be subject to a 20-percent penalty.

• W-2 reporting of health insurance benefits value just as wages and salaries are reported.

Dingus said he fears this last requirement may be a precursor to taxing the value of health insurance as income.

Many other requirements will be phased in from 2012-2018 under the reform act, including additional Medicare tax on an individual’s investment income in 2013 and penalties for non-coverage by employers starting in 2014.

The $3,000 annual penalty that employers will be charged for not providing health insurance for their workers may be less than the cost of providing coverage, Dingus said.

Some employers, therefore, may take that option, pushing employees into the insurance “exchange” created by the reform act.

Employers who depend on highly skilled and motivated workers, however, will be less likely to take that route, Dingus said.

The reason employers began to offer health insurance benefits was to attrack and retain talented employees, he said, and that incentive remains.

If health insurance benefits are taxed, however, that may change.

Firms with 25 or fewer employees who earn an average of $50,000 or less will see some immediate benefits of the reform act.

They may qualify for a tax credit of up to 35 percent of premiums paid for their employees during 2010.

Even with a 35-percent tax credit, many small businesses in the hospitality industry, such as small restaurants and motels, do not have sufficient profit to justify providing employees with health insurance, Dingus said.

This provision is one “carrot” waved in front of small businesses as an incentive to offer health insurance to employees, said Lisa Foley of Baldwin CPAs, which co-sponsored the workshop with the chamber of commerce.

The most controversial part of the reform bill, a requirement that uninsured individuals purchase health insurance, already failed its first constitutional challenge in federal court in Virginia. Dingus said he hopes the issue is put on a fast track for review by the U.S. Supreme Court so the issue can be settled.

Among the more curious provisions of the reform act is a 10-percent tax on tanning salons to help fund the program.

The act levies a 3.8 percent tax on investments and a 0.9 percent tax on individual incomes greater than $125,000 or joint incomes of $250,000 to help support the Medicare program.

If the health care reform act remains largely unchanged, Dingus said he expects to see an “urbanization” of health care in Kentucky. Competition among the many health-care providers in the large metropolitan areas such as Louisville, Lexington and Northern Kentucky helps keep costs down.

“That’s the only way this plan can survive,” he said.

Much of Kentucky, however, remains rural with few providers who have little competiton and, thus, little incentive to reduce costs.

Dingus said well-intended legislation, such as Kentucky’s 1984 health care reform act, has served to limit health care services. Kentucky’s act reduced some co-pays for doctor visits to as little as $5 in some cases. The result was a six-fold increase in doctor visits between 1984 and 2004.

“There is no way that rate of increase can be justified,” Dingus said.

Kentucky took a positive step in health care reform, he said, by defining what justifies a hospital emergency room visit, “an extremely acute state of being.” The new federal reform, however, offers no such definition, but should, he said.

Even with the restricting definition, hospital emergency room visits in rural Kentucky remain unacceptably high, Dingus said.

National health care reform is so poltically charged that many of the reforms, especially those that take effect after 2012, could change with election outcomes, she said.

Frequent updates are posted on the website, www.baldwincpas.com, said Baldwin associate Myron Fisher.

Bill Robinson can be reached at brobinson@ richmondregister.com or at 624-6622.