Affordable Care Act (Obamacare)

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The  Patient  Protection and  Affordable  Care  Act, usually known  simply as the Affordable  Care Act (ACA) or Obamacare, became  law on March  23, 2010. Its main goals are to make health  insurance and  health  care  more  accessible,  more  efficient, and  more  affordable. Those most immediately affected are people not previously covered by Medicare,  Medicaid,  or  private  health  insurance, but all Americans are expected to benefit from the reforms. The ACA contains  905 pages. This entry will summarize the law’s main highlights: the individual and group private insurance market reforms,  including  the  exchanges,  the  individual and employer mandates, and the rulings on premiums  and cost sharing; the expansion of Medicaid;  and the measures  suggested to improve the health  care system. It examines  those  aspects of the ACA that  have  been  most  contested  since the  passage   of  the  law.  This  examination  will reveal that  the implications  of the legal challenges to   the   individual   mandate  and   the   premium subsidies are intertwined.

The Individual Mandate

Section 1501, Subtitle F, “Shared Responsibility  for Health Care, Part I—Individual Responsibility,” requires adults over age 26 to maintain a minimum level of essential  insurance  coverage  or  to  pay  a penalty that  will be increased  over time. Beginning in 2016, the penalty is $695 per adult and $347.50 per child or 2.5 percent of the family income, whichever  is higher.  However,  individuals   up  to age 30 are allowed  to have less extensive coverage  (for example, high-deductibles), and parents’ policies can cover resident  adult  children  through age 26.

The individual  mandate is essential to the viability of the law because  insurance  pools  are priced according   to  the  average  cost  to  the  insurer  of insuring   the  pool  of  subscribers.   If  people  can choose whether to buy insurance, the most high-risk people  will be more  likely to  buy  insurance,  and this  will drive  up  the  policies’ premiums.  This  is known   as  adverse  selection.  As the  price  of  the insurance   rises,  more  young  and  healthy  people will decide that  it is not  worth  buying  insurance. As they leave the pool of insured, this further  raises the price and  discourages  even more  people  from buying  insurance.   This  is  known   as  the  “death spiral,” since  it  may  ultimately   cause  insurance markets  to fail. Thus, the argument that  requiring everyone  to  buy  insurance  will  increase  demand and drive up the price is faulty. The price depends on who  is in the insurance  pool, not how many.

Another   requirement of  the  ACA  compounds the  problem   of  establishing   a  viable  insurance market  without the  individual  mandate: The  law prohibits insurers from excluding coverage for preexisting  medical  conditions. Without the mandate, a person  could  wait  until  she or he got sick to buy an insurance  policy.

The law states  that  the mandate “substantially affects interstate commerce,” and this tying of the requirement to  the  Commerce  Clause  in the  U.S. Constitution became the basis of several legal disputes,  which  were settled  by the U.S. Supreme Court  in June  2012.  The Supreme  Court  did not uphold the Commerce Clause’s basis for the individual  mandate but  ruled  that  the penalty  for not   complying    with   the   mandate   could   be considered  a tax and as such is legal and consistent with the Constitution, thus sidestepping  the objection   that   the  federal  government  does  not have  the  power   to  compel  citizens  to  purchase health  insurance  (or any product).

The Employer  Mandate

Firms  with   50  or  more   employees   must   offer health insurance coverage or pay a fee per employee, excluding the first 30 employees. Firms with 50 or more employees that provide health insurance to employees, at least one of whom receives a federal tax credit toward the premium, are required  to pay fees based on the amount of the employee subsidies (see the section “Insurance Subsidies and Reduced Cost Sharing for Low-Income Subscribers”). Employers   with   25   or   fewer   employees   with average  annual  wages under  $50,000 are  eligible to receive tax credits if they offer employee health insurance.

Reforms  Of The Insurance  Marketplace

Creation Of Exchanges (Insurance Marketplaces)

In an  attempt to  make  health  insurance  more affordable and  widely available,  the law provides for the establishment of health insurance exchanges. These exchanges are modeled on the Massachusetts health   care  reform   law   enacted   in  2006.   The original  ACA specified  that  each  state  “not  later than  January  1,  2014” establish  an  exchange  in order   to  facilitate   a  market   for  individual   and small  businesses   to  purchase   “qualified” health plans that  would  be regulated  with respect to coverage  and  pricing.  To  be qualified,  a basic  set of services must be covered, no previous medical conditions should be excluded, and there should be no price   discrimination.  Over   time,   lifetime   and annual  limits to pay-outs  must be eliminated  from qualified  policies. Technical  support and  financial assistance  were to be provided  by the federal government to the states to help them set up the exchanges.

However, 34 states have failed to establish exchanges. The law provides that the federal government can facilitate  exchanges  in states  that do not have their own. Some states have established exchanges   jointly  with  the  federal   government; others  have  no  state  exchanges  but  use federally facilitated  marketplaces; and  in some  states,  residents  must  go  directly  to  the  U.S. Government Web site to sign up.

Insurance Subsidies And Reduced Cost  Sharing For Low-Income Subscribers

Section 1401,  Part I, Subtitle E, “Affordable Coverage  Choices  for All Americans,” provides health insurance premium assistance to low-income taxpayers in the form of refundable  tax credits for portions  of  premiums   paid  for  qualified   health plans.  The  subsidies  are  available  only  to  those with incomes that  fall between  the federal poverty level (FPL) and  400  percent  of the  FPL. The  bill states  that  subsidies  are  to  be available  for  insurance  purchased through an exchange,  with  subsidies  also  available  for  some  low-income  families with access to employment-based group insurance.

The law also requires  that  out-of-pocket limits be lowered for low-income subscribers who qualify for subsidies. After a certain amount has been paid out for qualified  medical expenses in a given year, the insurance  plan  must  cover 100  percent  of the additional expenses.

A  law  suit,  King  v.  Burwell,   challenged   the legality of subsidies for those not purchasing insurance  on state exchanges. The basis for the suit was a sentence in the ACA tying eligibility for subsidies to insurance  purchased on exchanges “established by the State under  section 1311.” On June 25, 2015,  the Supreme  Court  ruled  that  the clear intent  of the  law  is to  include  subsidies  for insurance   purchased on  federal  exchanges,  since the  ACA allows  states  to  opt  out  of establishing their own exchanges.

If King v. Burwell  had  been upheld,  this ruling would not only have imposed a major hardship on millions of low-income  households but would also have threatened the very survival of the ACA. For, according to the ACA, low-income families and individuals  cannot  be  required  to  buy  insurance that  is for  them  unaffordable, defined  as costing more than  8 percent of their annual  income. Thus, the viability of the individual mandate is contingent on subsidies  being available  to many  low-income Americans  who do not qualify for Medicaid.

Expanding  Medicaid

Title II, Subtitles A to J, covers the public programs Medicaid  and CHIP (the Children’s  Health Insurance  Program).

The ACA allows states to expand Medicaid eligibility   to   households  with   incomes   up   to 133  percent  of  the  FPL. Because  of  the  way  in which  modified  gross  income  is  defined,  the  de facto ceiling is 138 percent  of the FPL. States that expand  Medicaid  coverage receive federal subsidization  of a large part  of the cost of the expansion: The federal government covers 100 percent  of the cost  for  2014–16; 95  percent  for  2017–19; and 90  percent   from  2020   on.  As  of  March   2015, 30 states, including  the District of Columbia, have adopted the program; 3 are considering  adoption; and 18 have not done so.

States  that   have  failed  to  expand   Medicaid argue  that  they  have  not  done  so  because  they cannot  afford  the cost of the expansion even with the subsidies,  because  they fear that  the subsidies will be discontinued in the future, or, in some cases, because  of  an  aversion  for  expansion of  federal programs or for the ACA in particular.

The failure of states to participate in the expansion  of  Medicaid   threatens  the  ACA’s  goal  of nearly universal health insurance coverage for Americans. Many people with incomes well below the  FPL  are  ineligible  for  both   Medicaid   and private  market  premium  subsidies  (in  states  that have   not   expanded  their   Medicaid   programs). In  2015,   the  national  median   level  of  income (for  parents)   covered  by  Medicaid   was  only  44 percent   of   the   FPL.  Some   states   provide   no Medicaid  coverage for adults who are not parents, no  matter  how  low their  incomes. Thus,  it is the very lowest-income  adults  who  are most  likely to have  access to  affordable health  care  blocked  by their state’s failure to expand  Medicaid.

Children  and pregnant women are treated differently.  The  Omnibus  Reconciliation Acts  of 1989 and 1990 extended  Medicaid  eligibility to all pregnant  women   and   children   up  to  age  8  in families earning  up to 133  percent  of the FPL. In 1996,  when  eligibility  for  Medicaid  and  Welfare were uncoupled, Congress  established  the CHIP as Title XXI of the Social Security Act. The CHIP was designed  for  children   from  low-income   families whose income places them above the Medicaid eligibility threshold but below the level that  makes private  health  insurance  affordable. It is available to children who do not qualify for Medicaid  whose families  have  incomes  below  200  percent  of  the FPL. The ACA set up a commission, the MACPAC (Medicaid and CHIP Payment and Access Commission), to work out ways of simplifying and better coordinating CHIP and Medicaid  payments.

The ACA also includes certain  other  provisions for expanding Medicaid  and streamlining  it. It expands drug coverage to include more new singlesource (nongeneric)  drugs. It provides  support for hospitals  that have a disproportionate share of Medicaid   patients. It  raises  reimbursement rates for  physicians  treating  Medicaid  patients  to  near parity   with  those  treating   Medicare   patients. It coordinates dual-eligible  beneficiaries,  for  example, those covered by both Medicare and Medicaid.

Other Provisions

One part  of the ACA that  has caused considerable confusion  is Part II, Section 1251,  which states,

—–Nothing in this Act (or an amendment made  by this  Act)  shall  be  construed to  require  that  an individual   terminate  coverage   under   a  group health   plan   or   health   insurance   coverage   in which  such  individual  was  enrolled  on  the  date of the enactment of the Act.

Since the individual  mandate requires  that  people have  a  “minimal level”  of  “essential” insurance coverage (or be subject  to a fine), some insurance policies  available  in  the  market   did  not  qualify. This  caused  insurers  and/or  employers  to discontinue some plans. In some cases, individuals and families found their former plans still available but  now  considered   substandard, thus  exposing them  to penalties.  Opponents of the ACA argued that  the law falsely asserts that  people will be able to continue  to enroll in their  current  plans  if they so  choose.  Because  of  widespread criticism  and unhappiness on the part  of consumers,  there  was leniency   in   the   implementation  of   the   ACA, allowing   at   least   temporary  grandfathering  of some substandard plans.

Improving Efficiency:  Controlling Costs While Improving Quality

Cost  Control

A number  of reforms  included  in the ACA aim to  reduce  the  level of health  care  costs,  not  just slow their rate of increase. These include the following:

  1. Improved monitoring of fraud  and abuse in the Medicare  and Medicaid  programs: The nonpartisan Congressional Budget Office estimates  savings of $7 billion over 10 years from the reduction in fraud  in these programs.
  2. Reducing unnecessary paperwork by imposing uniform  electronic standards of record keeping and operating that apply to private insurers, Medicare,  and Medicaid:  The Congressional Budget Office estimates savings to the federal government of $20 billion over 10 years and to insurers, physicians, hospitals, and other providers,  tens of billions per year. Electronic record keeping will also improve the efficiency and quality of health care by reducing the amount of duplication in diagnostic  testing of patients.
  3. Implementing machinery to expedite  the approval of generic biologic agents: This will be cost saving by providing  less expensive substitutes for drugs with a brand  name.
  4. Medicare will also save money by calculating payment  for complex  imaging under  the assumption that  the machines  must operate 75 percent  of the available  time. The current formula  assumes 50-percent  usage.
  5. One of the biggest savings, at least during the first years of the ACA, will be the elimination of heavy subsidization of the privatized  Medicare Advantage  plans that  have been subsidized  to an extent  that  the cost per beneficiary  is much higher than  for those enrolled  in traditional Medicare  Part B. New benchmarks for payments  to Medicare  Advantage  plans will be established  based on competitive  bidding.
  6. An excise tax is to be imposed on “Cadillac” plans—plans that,  in 2018,  will charge premiums greater  than  $27,500 for families and $10,200 for individuals,  excluding  vision and dental  benefits. An excise tax of 40 percent  will be imposed  on the portion of the health insurance  premium  exceeding the limits. After 2020,  the premium  threshold for the tax will increase at the rate of inflation  in the economy. The tax should  create incentives for insurance companies  to devise more cost-effective health plans with lower premiums.

Linking Payments To Quality Outcomes

A  long-run   goal  of  the  ACA  is  to  gradually replace  the  fee-for-service  method  of reimbursing health  care providers  with  value-based  payments, which link payment  to quality outcomes. This type of  payment   scheme  is to  be  applied  to  hospital purchasing programs, long-term  care and rehabilitation    facilities,   ambulatory   surgery    centers, hospices, and physicians and nurses. It requires extensive   reporting  and   feedback   about   things such     as    hospital     readmission    rates     and well-thought-out methods  of estimating  the “value” of all kinds of medical treatments, as well as accurate reporting of the quality of care provided by individuals  and institutions.

There  will also be a national pilot  program on payment  bundling for Medicare services to provide pricing  that  encourages  integrated care during  an illness episode.

Value-linked  pricing,  whether  in the private  or public sector, will not be easy to institute. Professionals   working   on  health  care  reform  in many   countries,    including    Britain’s   National Health   Service,  who  are  attempting  to  develop value-based  standards of evaluation are facing considerable difficulty in doing so.

Improving Community Health

Many  programs are to be instituted within  the ACA to improve  the quality  of health  care and to promote community health.  These  programs are explained  in Titles  III through V of  the  act  and include the following:

  1. A Center for Medicare  and Medicaid Innovation to be established  within  the Centers for Medicare  and Medicaid  Services
  2. Support for emergency medicine research  to be jointly administered by the National Institutes of Health,  the Agency for Healthcare Research and Quality,  the Health  Resources  and Services Administration, and the Centers  for Disease Control and Prevention
  3. Community-based care programs, including community health teams to support patientcentered  medical homes
  4. More support for programs to prevent  chronic disease and for community wellness programs; technical  assistance  to be also provided  for employer-based wellness programs
  5. Development grants to increase the supply of health  care workers  and to improve  the quality of their training

Many of these programs should probably be considered  items on a “wish list” since they are conditional  on  Congressional funding  appropriations.

However,  this ambitious set of programs has been designed  to  be  largely  paid  for  by  projected  cost savings to be implemented within the ACA.

The Effect Of The ACA On The Rate Of Uninsured

Establishing the health insurance exchanges, expanding Medicaid,  including adult children through age 26  on  parents’  policies,  and  creating insurance subsidies have greatly reduced the proportion  of  uninsured  Americans.   The   rate   has dropped from 20.3 percent at the beginning of open enrollment in 2013 to 13.2 percent in March  2015, with 14.1 million adults gaining health insurance coverage   (including   3.4   million   young   adults between the ages of 19 and 25). By May 2015, 10.8 million had been added to Medicaid  and CHIP and 9.6 million to employer-sponsored plans.

Bibliography:

  1. Artiga, Samantha, Jennifer Tolbert, and Robin  “Year Two of the ACA Coverage Expansions:  On the Ground Experiences From Five States.” The Henry  J. Kaiser Family Foundation Report,  June 22, 2015.
  2. Gruber, Jonathan. “The Impacts  of the Affordable  Care Act: How  Reasonable Are the Projections?” National Tax  Journal, v.64/3 (2011).
  3. Harrington, Scott E. “U.S. Health-Care Reform: The Patient Protection and Affordable  Care Act.” Journal of Risk  and Insurance, v.7/3 (2010).
  4. Oliver, Adam. “The US Supreme Court  Decision on the Constitutional Legitimacy of the Affordable  Care Act.” Health  Economics, Policy and Law, v. 8/1 (2013).
  5. United States Statutes  at Large, 111th  Congress, 2D Section, 2010,  124,  Part I, 120-1024. Washington, DC: U.S. Government Printing  Office, 2012.

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