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Discussion - Patient Protection and Affordable Care Act-Passed and signed March 23, 2010.
Filed Under Management and Beyond
The Posts on Health Care Reform are related to Chapters 6, 7, and 8 of the book, Benefits and Beyond.
This Post includes a description of the major points of the recently passed health care reform legislation. My purpose is to describe and explain these features for teaching purposes - not to provide a loose leaf benefit publishing service for benefit professionals. Also included will be some discussion points that Benefit teachers can raise in class after the students have read the Chapters and the relevant blog posts.
President Obama pushes health care reform in Congress
Patient Protection and Affordable Care Act of 2010
(Last revised: August 6, 2010)
Thomas E. Murphy
Highlights
This recently passed Act is intended to reduce the number of uninsured. The Act includes prohibitions against policy rescissions, having lifetime limits on health care spending, excluding any health related reasons for denying coverage (”guaranteed issue”), and denying or delaying coverage of pre-existing conditions. It also requires individual mandates to buy insurance and employer mandates to offer it. It creates state-based Insurance Exchanges where individuals and certain sponsoring employers can purchase health insurance presumably at lower costs. The major features do not go into effect until January 1, 2014.
The Congressional Budget Office estimates that 24 million persons will be enrolled in the Exchanges by 2019. The Act prescribes the essential design features (called an “Essential Health Benefit Plan” or “Essential Coverage“) and benefits that health care plans must provide. Individuals who cannot afford to purchase health care will be subsidized while certain small employers who wish to offer it may also receive tax credits. Persons who work for companies that offer health care but require cost sharing by participants that exceed government prescribed thresholds, may opt out of the employer plan and obtain insurance through an Exchange. Their employers must provide financial support for this coverage.
Medicaid eligibility is changed to accommodate more participants. The subsidies and increased access to health care will be financed by increases in payroll taxes for Medicare, taxes on certain industries, changes in several health care tax deductions, excise taxes on “Cadillac” health care plans, and fines paid by non-complying employers and individuals. The Act calls for major reductions in Medicare spending including provider reimbursements.
Here are some specifics. Not all of the provisions of the Act are included.
Individual Mandate
Effective January 1, 2014, citizens and legal residents must obtain an essential health care benefit (or, more specifically, “Essential Health Benefit Plan.”) Failure to do so will result in fines described below.
Employer Mandate
Employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit from the government to buy his own insurance will be assessed a fine of $2000 per full-time employee, excluding the first 30 employees. (Effective January 1, 2014)
Employers with more than 50 employees who provide health care coverage but who have at least one employee who receives a premium tax credit from the government, must pay a fine of $3000 for each employee receiving such credit, or $2000 for all full-time employees. (Effective January 1, 2014)
Employers with fewer than 50 employees are exempt from penalties. (Effective January 1, 2014)
Employers who offer essential coverage must also offer each employee with income below 400% of the Federal Poverty Level (FLP) and whose share of the premium is more than 8% but less than 9.8% of their annual income, the opportunity to opt out of the employer’s plan. In such case, the employer must provide a free choice voucher that can be used to offset the premium required in an Insurance Exchange. The amount of the voucher shall be no more that the employer’s cost of its sponsored health plan. Employers who offer vouchers are not subject to fines. (Effective January 1, 2014)
Employers with more than 200 employees must auto-enroll its employees in their health care plan. Employees can opt out of coverage if the plan’s actuarial value (the average percentage of health care costs paid by the plan sponsor) is less than 60%. (Effective January 1, 2014). In such cases the employer must provide a free choice voucher.
Employees and Individual Subsidies
Employees whose employers offer coverage are not eligible for premium credits unless the actuarial value of the employer’s plan is less than 60% or if the premiums required to be paid by employees is greater than 9.8% of the employee’s annual income.
For those whose annual income is between 133% and 400% of the FPL, the amount of the premium credits shall range from 2% of annual income to 9.5% of annual income and will be based upon the second level “silver plan” available in the Exchanges. Premium credits and cost sharing subsidies will be available only to U.S. citizens and legal immigrants.
Cost sharing subsidies and premium credits for eligible individuals must have the effect of increasing the actuarial value of the plan up to 94% for those whose income is between 100 to 150% of the FPL, 85% for those earning between 150% -200% of the FPL, 73% for those between 200% and 250%, and 70% for those between 250% and 400% of FPL. (Effective January 1, 2014)
Medicaid Coverage
Medicaid will be expanded to cover persons with incomes up to 133% of FPL based upon modified adjusted gross income. All newly eligible will be guaranteed the essential coverage of health care benefits. The federal government will finance this expansion of coverage by 100% from 2014-2016, by 90% in 2020 and thereafter. Primary Care provider reimbursement rates will be 100% of those offered by Medicare rates for 2013-2014. (Effective January 1, 2014)
Abortion
There can be no premium or cost sharing subsidies used to purchase any health insurance plan that covers abortion except in those cases where the procedure is used to save the life of the mother or in cases of rape or incest. Where a plan covers general abortion procedures, the individual must pay that portion of the premium attributable to such coverage separately.
Insurance Reform
Lifetime maximums, pre-exiting condition exclusions for children under age 19, and rescissions based upon health status are prohibited not later than 6 months from the effective date of the Act. By 2014, insurance companies can no longer apply pre-existing exclusions to anyone, must guarantee issue of a health policy regardless of health condition, must minimize their costs of administration (”medical loss ratios”), must provide the prescribed essential benefits in their plans, must limit cost sharing and provide a minimum 60% actuarial value. All new plans must provide “first dollar coverage” - no cost sharing - for preventive care. Finally, insurance companies will be required to submit premium increase proposals to a joint state and federal review group for approval.
Small Business Credits
Those small employers who offer health care and have no more than 25 employees whose average annual employee wage are less than $50,000 per can receive a tax credit of up to 35% of the employer’s cost of the plan, provided this cost represents at least 50% of the total or 50% of the benchmark premium. (Effective: 2010-13).
A 100% tax credit will be available for those employers with 10 or fewer employees whose annual average wages are less than $25,000.
After 2014, certain small businesses as defined by the law will be eligible to receive tax credits from 50% to 100% of the premium paid to an Insurance Exchange on behalf of their employees.
Reinsurance and Early Retirees
For those employers who provide health care to retired employees age 55 or above, but who are not eligible for Medicare, the Act provides for a reinsurance program reimbursing such employers in the amount of 80% of claims above $15,000 up to $90,000. The reimbursement must be used to lower the costs of enrollees in the program. This program runs from the date of enactment until January 1, 2014
Financing
The Medicare payroll tax for individuals will increase from 1.45% to 2.35% on earnings over $200,000 (single), $250,000 (married couples). There will also be a new 3.8% tax on unearned income for higher income tax payers. (Effective: January 1, 2013)
The law will increase the threshold for deductible medical expenses from 7.5% of adjusted gross income to 10%; the increase not applicable to individuals over 65 for tax years 2013-2016. (Effective: January 1, 2013)
Flexible spending account (FSAs) contributions cannot exceed $2500 annually and must apply to prescribed medicines and treatments, not over-the-counter items.
The excise tax on non-medical distributions from HSAs will increase from 10% to 20%. (Effective January 1, 2013)
There will be a tax on individuals without qualifying health care coverage of the greater of $695 up to a maximum of three times that amount or 2.5% of household income. This will be phased in beginning 2014 with an individual annual fine of $95; the fine increases over time to the above-described $695 levels.
An excise tax of 40% on the amount of a health care plan that exceeds $10,200 (single) or $27,500 (family) in aggregate value will be levied on either the company that insures or the employer who sponsors such a plan. This is often called the “Cadillac Plan tax.” Adjustments of the above amounts can be made for plans covering higher risk employees. (Effective January 1, 2018)
The ability of employers to take a tax deduction for the $1300 Medicare Part D subsidies received from the government in exchange for continuing to offer retiree health care will be eliminated effective January 1, 2013.
Special taxes on the pharmaceutical industry sector will be levied in aggregate amounts of $2.8 billion in 2012, to $4 billion in 2017, and $2.8 billion in 2019.
Similarly the insurance sector will pay aggregate additional taxes of $8 billion in 2014 to 14.3 billion in 2018. Future special taxes will be based on premium growth. There are special exceptions for non-profit insurance companies.
There will be a 2.3% excise tax on the sale of any taxable medical devices. Effective: December 31, 2012.
There will be a special excise tax of 10% on tanning studio services.
Annual compensation for executives of health insurance providers in excess of $500,000 per year will have limited deductibility. (Effective: January 1, 2009)
While not a “financing source” the sponsors of the Act have included provisions that will reduce the annual cost of Medicare by approximately $500 billion through the elimination of fraud and waste, changes in reimbursements to medical providers, and other cost cutting measures.
Two Types of Exchanges Created
The Act requires the creation of state-based Exchanges for individuals (The American Health Benefit Exchanges) and small employers (The Small Business Health Options Program). Qualifying individuals and employers with fewer than 100 employees can acquire health insurance in their respective Exchanges. Beginning in 2017, employers with more than 100 employees can also obtain insurance in the Small Business exchanges. Multi-state and regional Exchanges can be created, and each Exchange must include one non-profit insurance plan must and one must offer abortions within the boundaries of federal law.
Co-Op Plans and Compacts
The creation of consumer operated health plans that are non-profit and member run shall be encouraged and funding will be available to encourage their creation. (July 1, 2013)
Interstate Insurance Competition
Starting in 2016, states may enter into Compacts that permit the purchase of health insurance plans across state lines.
Plan’s to be offered by the Exchanges
There shall be several types of plans offered: (1) Bronze - this will offer essential health benefits and cover 60% of the benefit costs with out-of-pocket maximums of $5950 (single) and $11,900 (families). (2) Silver will provide 70% benefit cost coverage with the same out-of-pocket maximums. (3) Gold will cover 80%, and (4) Platinum, 90%, and, (5) catastrophic plans will be available to those up to 30 years of age. These plans can use the current high deductibles found in HSA plans. Such plans, however, must not apply the deductible to preventive care or three annual primary care visits. This plan is only available in the individual market..
The same out-of-pocket maximums apply to all plans except they will be proportionately lower for individuals whose income ranges from 100% to 400% of the FPL.
Health insurance plans participating in the Exchanges must guarantee issue and renewability and adjust rates based only on specified criteria. There are other administrative requirements for plans that include reporting and disclosure, marketing, providing call centers, and simplified forms.
States can elect to provide Basic Health Plans for their citizens and residents whose income is between 133% and 200% of the FPL, provided the plans conform to the Act’s requirements.
Until 2017, only small employers with fewer than 100 employees may elect to participate in Exchange Plans. Thereafter, larger employees may participate as well.
Health and Human Services shall establish criteria for participation in Exchanges and shall certify an Exchange to offer health benefits under the Act.
Plan Design
The Act defines an Essential Health Benefit Plan as one that provides comprehensive benefits, that has not less than 60% actuarial value, and one where the deductibles do not exceed those of the current HSA plans. The required design features include ambulatory care, emergency care, hospitalization, lab service, obstetrics, gynecology, pediatric care, rehab, wellness, oral and vision care. Preventive care will not be subject to deductibles and co-pays. Effective Date: January 1, 2014.
Grandfathered Plans
Grandfathered individual and employer-sponsored plans are exempted from offering the Essential Health Benefit Plan. They are defined as a group health plan in effect on March 23, 2010 and apply to current participants and future enrollees. They are considered under the law to be Minimum Essential Coverage (or, an Essential Health Benefit Plan).
Grandfathered plans, within 6 months of enactment, must provide dependent coverage for children up to age 26, prohibit rescissions for health conditions, and eliminate waiting periods for coverage in excess of 90 days. By 2014, grandfathered plans must also prohibit the pre-existing condition exclusions for children under age 19, and lifetime and certain annual maximum coverage limits.
On June 14, 2010, the Department of Labor (DOL), Department of Health and Human Services, (HHS), and the Internal Revenue Service issued an Interim Final Rule relating to Grandfathered Plans. The Rule lists a number of plan changes that could result in the loss of grandfathered status. Most items on the list deal with the elimination of coverage for particular conditions, and significant increases in cost sharing for participants.
Note: the DOL, HHS, and IRS recently published additional Rules pertaining to pre-exisiting condition exclusions, lifetime and annual limits, rescissions, and other patient protections. You can see the the Interim Final Rule at: DOL, Employee Benefits, Interim Final Rules. Query: do any of these apply to Grandfathered Plans? Query: how will these rules affect the underwriting of health plans?
Medicare Changes and Pilot Studies
There are numerous provisions dealing with pilot studies for Medicare, reducing and re-aligning payments for providers, requiring hospitals to disclose their charges, encouraging the idea of quality outcome analyses, continuing to study the Value Based Purchasing Program that would require Medicare to withhold a portion hospital reimbursements depending upon the hospital’s quality performance, and requiring reductions of payments to hospitals for conditions caused by the hospitalization.
The Act provides for graduated subsidies beginning in 2011 for drug costs that are within the interim deductible (”the donut hole”) for Medicare Part D. This “donut hole” will eventually be eliminated leaving only the standard (currently $250) deductible for Part D.
Medicare Advantage Plans, that have been running at costs above traditional Medicare per patient rates, will sustain a reduction in revenue from Medicare of about $130 billion over 10 years. Eventually, the amount paid to Advantage Plans will be in parity with the average costs per beneficiary under Medicare.
Wellness, Tort Reform, and Long-term care
There are also pilot study funds for Wellness Programs in Medicare and an analysis of tort reform approaches.
Starting in 2011, health insurers must pay rebates to participants if the company’s medical loss ratios are lower than specified levels.
Also, beginning in 2011, employers must offer their employees the opportunity to make payroll deductions to purchase government sponsored long-term care insurance. This is called the “Class Act” - The Community Living Assistance Services and Supports Act).
For some helpful sources of information on the Patient Protection and Affordable Health Act (PPACA) see:
1. Text of Public Law 111- 148 (March 2010. See: full text of Act at: http://dpc.senate.gov/dpcdoc-sen_health_care_bill.cfm/. For compliance issues, the Kilpatrick Stockton, LLP Benefits Consulting firm has developed a list of government websites where each legislative title and agency guidance and compliance issues pertaining to PP and AHA are explained: See: http://www.kilpatrickstockton.com/
2. Summary of Employer Penalties under PPACA, Congressional Research Service, April 5, 2010 (www.crs.gov/ )
3. Health Reform for Hospitals and Health Systems, McGuire Woods, April 14, 2010 (www.mcguirewoods.com/ )
4. Health Care Reform, are you prepared - a timeline for employers, The Littler Group, April 2010 (www.littler.com/ )
5. 5. Focus on Health Reform, Summary of Health Reform Law, April 8, Kaiser Family Foundation (www.kff.org/ )
The administrative costs of creating and running Exchanges will be partially funded by the Federal Government until 2015 when the Staes must assume full funding support. .
The Government identifies several types of plans that must be offered in the Exchanges. See discussion below.
What About Further Reform and a Single Payer System?
While a “Single Payer” program - in essence a universal health care plan - was not included in the final bill, it might be interesting to learn more about such an approach. To hear and see more view the following PBS Bill Moyer’s Journal on health care reform featuring discussions about Single Payer. PBS on Single Payer
Last Revised: August 6, 2010
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One Response to “Discussion - Patient Protection and Affordable Care Act-Passed and signed March 23, 2010.”
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This is a very helpful Post. Thanks. JM