WHAT IS THE AFFORDABLE CARE ACT?
The Patient Protection and Affordable Care Act (PPACA), commonly referred to as the Affordable Care Act (ACA) or Obamacare, was signed into law on March 23, 2010 by President Barack Obama and was amended by the Health Care and Education Reconciliation Act signed into law on March 30, 2010. The ACA has put many changes into effect that impact all aspects of the healthcare system.
A Brief History of the Affordable Care Act
While campaigning in the general election of 2008, future president Barack Obama made healthcare reform one his top priorities, and he began work on a reform plan soon after his inauguration in January of 2009. Throughout 2009 and into early 2010, the United States Senate and House of Representatives both worked on healthcare reform bills. Due to a variety of political circumstances, the Senate's healthcare bill, the Patient Protection and Affordable Care Act, was ultimately enacted on March 23, 2010 with the Health Care and Education Reconciliation Act amendment following days later. This amendment was necessary in order to gain House approval for the PPACA.
The Affordable Care Act's primary goals are to increase health insurance coverage in the United States and the quality and affordability of health insurance while also increasing the quality of medical care provided to patients. The law attempts to accomplish this through a variety of provisions including expansion of Medicaid eligibility, an individual mandate that requires the vast majority of legal residents of the United States to obtain health insurance, an employer mandate that requires large employers to provide affordable health insurance for full time employees, and what's known as guaranteed issue, which prohibits insurers from denying applicants coverage due to pre-existing conditions.
There are both proponents and critics of the ACA, but we will not get into that discussion here. Our goal is to offer an objective and unbiased summary of how the Affordable Care Act exists currently and how patients, employers, and providers are affected. We will also discuss the ways in which the ACA is going to be funded as that has implications for all stakeholder groups.
Provisions of Obamacare
Effective dates for the many ACA provisions vary with some beginning as soon as the Act was signed into law and others phased in through 2020. However, many significant provisions, including the individual mandate, are effective in 2014. While detailing every provision of the Act is outside our scope, here we'll briefly explore the main provisions and how they affect patients, employers, and providers. Please click on the links in each area to explore the topics in further detail.
ACA provisions that impact PATIENTS include:
- The individual mandate requires all US citizens and legal residents to obtain qualifying health insurance coverage with some exemptions. Those who do not comply will face tax penalties. The individual mandate is effective January 1, 2014, but those who obtain coverage by March 31, 2014 will not face penalties.
- Health insurance marketplaces/exchanges are established to aid individuals in obtaining health insurance coverage. The exchange serves as an online marketplace for the uninsured and those currently purchasing individual plans. Those who receive coverage through their employer or through public health insurance like Medicare and Medicaid generally won't have a need for the marketplace. The marketplaces opened on October 1, 2013. States have the option of operating their own exchange, operating an exchange in partnership with the federal government, or allowing the federal government to run the exchange. To find out your state's status, click here.
- Premium credits and cost-sharing subsidies are available to individuals whose income is between 100% and 400% of the federal poverty level and who obtain private coverage through the marketplace/exchange. Those who receive coverage through an employer are generally not eligible for premium credits unless the employer plan does not meet certain requirements. Premium credits and cost-sharing subsidies go into effect on January 1, 2014, and some small businesses are eligible also.
- The ACA requires guaranteed issue, which prohibits insurers from denying applicants coverage due to pre-existing conditions. A related provision is the partial, or adjusted, community rating that prohibits insurers from setting premium prices based on health status. In other words, all applicants of the same age and geographical area must be offered the same premium price regardless of gender or pre-existing conditions, although those who use tobacco can incur a surcharge. These provisions generally apply to individual and small group plans and are effective January 1, 2014.
- Medicaid expansion goes into effect January 1, 2014 and broadens Medicaid eligibility to all non-Medicare eligible persons under age 65 with incomes up to 133% of the federal poverty level. Under current law, undocumented immigrants are not eligible for Medicaid. States may opt out of Medicaid expansion if they prefer, and several have done so. To find out your state's status, click here.
- The ACA defines minimum standards for health insurance plans in the marketplace including essential health benefits and minimum essential coverage. Services covered under these standards include preventive services at no out-of-pocket cost to the patient, emergency room and hospital care, outpatient care, and prescription drug coverage among others. Other new provisions include a ban on lifetime benefit limits, a ban of annual spending caps on essential health benefits (effective January 1, 2013), and young adults are allowed to remain on their parents health insurance plan until they turn 26.
- The medical loss ratio, which went into effect on January 1, 2011, requires insurers to spend 85% of their premium dollars for large group health plans and 80% of their premium dollars for individual and small group health plans on clinical services, quality, and other medical costs, and they must provide a rebate to consumers if they do not reach those percentages. The purpose is to ensure that health plans are spending the bulk of their premiums on patient care and not executive salaries and shareholder dividends. Health plans started reporting on the medical loss ratio is 2010, and rebates were effective on January 1, 2011.
- Medicare payment reform benefits Medicare patients by gradually decreasing the coinsurance rate in the Medicare Part D coverage gap, or "doughnut hole", from 100% to 25% by 2020. Pharmaceutical manufacturers are required to provide a 50% discount on brand-name prescription drugs filled in the doughnut hole beginning in 2011. In addition, federal subsidies will be phased in beginning in 2013 that will cover 25% of brand-name drug costs in the coverage gap by 2020, which will effectively close the doughnut hole in 2020. Federal subsidies for generic drugs will be phased in beginning in 2011 and will cover 75% of generic drug costs for prescriptions filled in the doughnut hole by 2020.
- As of January 1, 2013, higher income individuals began paying an increased Medicare tax rate on earnings over $200,000 for individuals and $250,000 for married couples filing jointly as well as an additional 3.8% Medicare tax on unearned, or investment, income. Also, all tax filers can now only deduct qualified medical expenses that exceed 10% of their adjusted gross income as opposed to the previous threshold of 7.5%.
- Miscellaneous provisions include requirements for health plans to standardize an appeal process for coverage determination and claims for all new plans and to use a uniform Summary of Benefits and Coverage (SBC) and a Uniform Glossary when presenting health plan benefits for comparison. Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA's), and Health Savings Accounts (HSA's) cannot be used for over the counter medications without a prescription and the tax on distributions from an HSA that are not used for qualified medical expenses increases as of January 1, 2011. Also, FSA contributions are capped at $2500 per year effective January 1, 2013. States may prohibit health plans participating in their Exchange from providing coverage for abortions, and premium tax credit and subsidy funds cannot be used for abortion except to save a woman's life and in cases of rape or incest.
ACA provisions that impact EMPLOYERS include:
- The employer mandate applies to large employers with 50 or more full-time employees and/or full-time equivalents (FTE's) and states that if the employer does not offer health insurance coverage that provides minimum essential coverage, is affordable, and meets minimum value requirements, and any employee seeks coverage in the marketplace and qualifies for a tax credit or subsidy, the employer can incur penalties. In other words, the ACA does not specifically require employers to provide coverage, but it does penalize them if they do not and their employees seek subsidies in the health insurance marketplace/exchange. The employer mandate goes into effect on January 1, 2015.
- Small employers, those having 2-49 employees, are not subject to the employer mandate. However, they are able to participate in the health insurance marketplace and may qualify for subsidies, so legislators hopes that this encourages them to provide coverage for their employees.
- Employer-sponsored health plans must have a maximum annual deductible of $2000 for an individual and $4000 for a family. Grandfathered plans may be exempted. These caps are effective January 1, 2014.
- Many of the ACA taxes and fees impact employers either directly or indirectly. If an employer is self-funded, meaning that the employer administers its own health benefits, some of the taxes and fees that apply to insurers apply directly to the employer including the Excise Tax, also known as the Cadillac Tax, and the Patient-Centered Outcomes Research Institute (PCORI) Fee. For employers that are not self-funded, the cost of ACA taxes and fees, including a new annual Insurer Fee, is often passed along in the form of higher premiums from the insurance company.
- Employers with 200 or more full-time employees and equivalents are required to automatically enroll employees in health insurance plans offered by the employer unless the employee opts out.
- The ACA prohibits patient eligibility waiting periods in excess of 90 days for group health coverage, effective as of Jan 1, 2014. In other words, workers eligible for health benefits must be covered by the 91st day after satisfying employment eligibility requirements.
ACA provisions that impact PROVIDERS include:
- The primary Obamacare provision that impacts medical providers is Medicare payment reform. The ACA plans to save money by reducing Medicare spending in a number of ways, many of which will affect healthcare providers. Since Medicare reimbursement usually serves as a basis for private payor reimbursement, these changes could have a drastic affect on how providers are reimbursed for services. Perhaps the most well known example of Medicare payment reform is the Accountable Care Organization reimbursement model. Two other examples are the Medicare hospital value based purchasing program in which Medicare is attempting to pay hospitals based on quality measure performance and the Bundled Payments for Care Improvement (BCPI) initiative in which Medicare is bundling payments based on episodes of care as opposed to paying for services individually.
- There are many quality initiatives that are tied into the ACA, and this places a burden on providers to report on necessary quality measures and other metrics.
- Primary Care Physicians have had their Medicaid payments increased to 100% of Medicare rates for 2013 and 2014 and have been provided a 10% bonus payment from Medicare in 2011 through 2015.
- Hospitals are facing potential Medicare payment reductions if they have excessive hospital readmissions (effective in 2012) or if their patients obtain certain hospital-acquired conditions (effective in 2015).
Who Pays for the Affordable Care Act?
The ACA is being funded by a variety of taxes, fees, and other offsets, some of which we've mentioned already like the increased Medicare tax rate on high income individuals and the Excise (Cadillac) Tax. Here is an overview of the primary funding methods.
- Penalty payments by uninsured individuals
- Penalty payments by employers
- Increase in the Medicare tax rate for high income individuals
- New annual Insurer Fee
- Excise (Cadillac) Tax on health insurance premiums that exceed certain thresholds
- New annual fee on manufacturers and importers of brand-name pharmaceutical drugs
- New 2.3% excise tax on manufacturers and importers of certain medical devices
- Increase of the 7.5% adjusted gross income threshold on medical expense deductions to 10%
- Limit Flexible Spending Account (FSA) annual contributions to $2,500
- Other sources of revenue, including a 10% sales tax on tanning beds
- Reduction in certain Medicare hospital payments
- Reduction in Medicare home health payments
- Reduction in funding for Medicare Advantage plans
Essential QSA Knowledge
Hopefully this has given you a general understanding of the Affordable Care Act. A big thing for consumers to keep in mind is that if you currently receive coverage through an employer, most likely not much will change in terms of your health benefits or how you receive them. However, if you are uninsured or are currently purchasing an individual plan, the health insurance marketplace and other requirements of the ACA will most likely change the way you obtain and maintain health insurance coverage.
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