John’s ACA lecture to Executive MBA class at NJIT

Patient Protection and Affordable Care Act (PPACA)

John J. Sarno, Esq.

Business and Public Policy

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Patient Protection and Affordable Care ActMarch 23, 2010

A New Era for America2

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U.S. Supreme court heard oral argument on the constitutionality of the Affordable Care Act on March 26-28, 2012

Insurance Reform

High-risk pool created (2010) Dependent coverage to age 26 (2010) Children with pre-existing conditions cannot be denied coverage (2010) No denial for pre-existing conditions eliminated (2014) No Charge for annual wellness visit (2014) Guaranteed issue policy (2014) Modified community ratio (2014) 80 – 85% medical loss ratio (2014) Long-term insurance program (2014) No pre-existing condition exclusions (2014)

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All Plans Must Provide Essential Health Benefits

“Essential Health Benefits” requires minimum set of benefits, with no lifetime of annual coverage limits

Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse coverage Prescription drugs Rehab services and medical devices Preventative and wellness/chronic disease management

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“Free” Preventive Care

No Co-Pays

No Out-Of-Pockets

No Deductibles

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Automatic Enrollment

All new “full-time” employees will be automatically enrolled, subject to regulations. Notice will include opportunity to opt out. Current employees will be auto enrolled

Applies to employers with 200 or more “full-time” employees and who offer a health care plan. “Full-time” employees means on average 30 or more hours per week.

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Non-Discrimination Rule

Employers cannot discriminate in favor of highly-compensated employees.

Same basic plans on same terms to all employees.

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Health Delivery Reforms

Research on best provider practices Research on comparative evidence outcomes Pilot program that pays for outcomes on flat fee

basis rather than fee for service for treatments Medical IT Standards for extended living arrangements Hospice, home-health reimbursement

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Community Investment

Health Care Clinics

Primary Care Training

Grants to States

Diversity and Cultural Competency

Education Curricula Development in Health Sciences

Food Labeling

The Health Insurance Exchange

Uninsured individuals not eligible for Medicare or Medicaid will be permitted to purchase insurance through state Exchanges (purchasing pools).

Individuals will be eligible for subsidies.

Employers with fewer than 100 employees will be permitted to enroll.

Employer eligibility may be expanded in 2017.

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Exchange Enrollment

October – December, 2013

2.2 Million Americans

23% - 18 – 34

15% - 35 – 44

22% - 45 – 54

33% - 55 – 64

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Wellness and Prevention Programs

75 cents of every dollar is spent on chronic diseases

100 billion dollars of health care is directly attributable to behavior

The Act amends HIPAA, permitting premium discounts to employees who participate in wellness programs.

Insurers that sell in the Exchange must provide discounts for wellness and health promotion activities.

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Smokers can be charged up to 50% more for coverage purchased in the Exchange.

Employees who participate in HIPAA-approved wellness programs can receive up to 30% off in premium.

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Minimum Essential Coverage Requirement

(the Personal Mandate 2014)

A federal requirement that individuals purchase health care insurance or pay penalty up to 2.5% of income is unprecedented.

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All five congressional committees reported out a bill containing the Individual Mandate

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6 lobbyists for every member of Congress

Insurance Industry - $100 million

Pharma - $110 million

Providers - $80 million

Hospitals - $90 million

Medical Device - $30 million

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The pharmaceutical industry alone spent over $600,000 per day in lobbying (2.3 lobbyists per member of Congress)

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Hospitals, physicians, insurance companies and others agree that without the Individual Mandate the consumer protection and benefits reforms would ruin the health care market

Florida v. U.S. Dept. of HHS11th Cir. Court of Appeals (2011)

Congress has no authority to require citizens to purchase health care insurance. Remainder of law remains intact.

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Thomas Moore Law Center v. Obama6th Cir. Court of Appeals (2011)

Congress has authority to enact personal mandate under commence clause.

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NFIB v. SebeliusU.S. Supreme Court (2012)

Personal Mandate exceeds Congress’ power to regulate commerce but is a valid tax

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Congressional Authority

Express authority to regulate interstate commerce

Express authority to tax and spend for the general welfare

Power to enact “necessary and proper” laws to execute express authority

U.S. Health Care Spending

About 16% of the U.S. economy (in 1950, 5%)

Estimated $2.24 trillion in 2009

Most health care spending per capita in the world

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Health Care Spending Per Capita (2003)

United States $5,711

Luxembourg $4,611

Switzerland $3,847

Norway $3,769

Belgium $3,044

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Health Care Outcomes – U.S.

33rd among developed nations in infant mortality (6.3/1,000)

50th in life-expectancy (78-years)

Most people are insured through an employer-sponsored plan (177 million Americans, 62% of people are under age 65)

99% of employers with 200 or more employees offer health insurance

78% - 10 to 24 employees

49% - 3 to 9 employees

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Who is Insured?

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Employer-Plan Crisis

Premiums have grown 4-times faster than wages since 1999.

Average employee contribution has gone up 200% since 2000.

Out-of-pocket and co-payments have gone up 115% since 2000.

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Who is Insured (continued)

About 70 million Americans are insured under a “public plan”

Medicare Medicaid

Government spends about 42% of every dollar spent on health care

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Average Health Care Spending by Age (2006)

$8,776

$4,863

$2,305

$1,441

$1,267

$1,508

$0 $2,000 $4,000 $6,000 $8,000 $10,000

65 an older

45 - 64

25 - 44

18 - 24

5 - 17

under 5

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Spending during the last year of life accounts for 27.4% of total Medicare spending.

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Race and Medical Care (U.S.)

Life expectancy for blacks is six years shorter than whites

Black babies are almost three times as likely as white babies to die before first birthday

Blacks get bypass operations at a rate of one-quarter that of whites

Blacks get angioplasties at one third the rate of whites

Blacks wait longer for kidney transplants

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Estimated 46 million Americans lack health care insurance (15% of U.S. population)

The Uninsured

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Who Are The Uninsured?

27 million have personal income over $50,000 66% of uninsured have family incomes of $45 - $85,000 14 million are eligible for Medicaid on the Children’s

Health Insurance Program 10 million ‘illegal’ aliens 1/3 are between 18 to 29 years of age

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Commerce Clause

“The Congress shall have power to regulate commerce with foreign nations and among the several states, and with the Indian tribes.”

Article I, Section 8

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Congressional Authority to Regulate Commerce

Sherman Antitrust Act (1890)

Federal Meat Inspection Act (1906)

Pure Food and Drug Act (1906)

Food and Drug Act (1906)

Federal Trade Commission Act (1914)

Pure Milk Act (1923)

Import Milk Act (1927)

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United States v. DarbyU.S. Supreme Court (1941)

Fair Labor Standards Act upheld

Minimum wageOvertime payChild labor restrictions

Court defers to Congress in determining

what constitutes interstate commerce.

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Wickard v. FilburnU.S. Supreme Court (1942)

Federal law regulates wheat production. Filburn, a small farmer, produces wheat over his designated allotment. The surplus was used for feeding his poultry and livestock, and was not sold in the marketplace.

Holding: Congress has the authority to regulate any article or product that could be sold in interstate commerce.

Can Congress require Americans to engage in commerce, i.e.: purchase healthcare insurance?

NO

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Congress can regulate commerce but can not be able to require someone to engage in commerce.

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The Power to Tax and Spend

Congress has authority “to pay the debts and provide for the common defense and general welfare of the United States” and “to lay and collect Taxes, Duties, Imports and Excises”.

Can Congress tax (penalize) a decision not to purchase health care insurance?

YES

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About 500,000 New Jerseyans are eligible to purchase a healthcare plan on the Health Insurance Marketplace

Most work full-or part-time for a small employer About 80% will be eligible for a subsidy 525,000 undocumented workers in N.J. not eligible

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Eligibility for Premium Subsidy

Individuals with incomes up to 400 FPL.

$46,000 / year (2013)

$94,200 / year (family of 4)

Expected amount of subsidize for N.J. - $700 million

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Notice to Employees – October 1, 2013(thereafter at the time of hire)

Part A: General information about Health Insurance Marketplace, coverage standards and help paying premiums.

Part B: General information about coverage offered by

employer (if any)

Detailed information about plan is optional.

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Employer Healthcare Plans

Essential Benefits Consumer Protections Minimum Value Affordable

Employee will not get subsidy if employer offers coverage that meets standards.

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Health Insurance Marketplace

A one-stop web portal where individuals and small businesses can shop for plans, compare prices, and receive other information.

Plans must 1) offer essential benefits, 2) have consumer protection standards, 3) have a minimum value, and 4) be affordable.

States define “small business.” Cannot exceed 50 employees.

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“Average” Employer Plan

“Essential Health Benefits” requires minimum set of benefits, with no lifetime of annual coverage limits

Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse coverage Prescription drugs Rehab services and medical devices Preventative and wellness/chronic disease management

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Consumer Protections

All Plans No lifetime maximums of essential benefits No annual maximums on essential benefits, except as

allowed by the secretary of HHS Provide coverage for children up to age 26 No pre-existing condition exclusion on children under

age 19 No rescissions of coverage

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Consumer Protections(continued)

Cover preventive services at 100% Includes immunizations, child preventive care and women’s

health screenings

Insured health plans must comply with nondiscrimination requirements

Generally prohibits discrimination in favor of highly compensated individuals as to eligibility and benefits under the plan

New Appeals process for insurers Waiting periods cannot exceed 90-days for employee

or dependent otherwise eligible to enroll

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Minimum Value

Platinum (pays 90 percent of the value of benefits)

Gold (80%)

Silver (70%)

Bronze (60%)

Exchange Enrollment

October – December, 2013

7% - Platinum

13% - Gold

60% - Silver

20% - Bronze

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Affordability

Full-time employee cannot pay more than 9.5% of household income for his/her share of premium for single coverage. Lowest cost plan.

Safeharbor: Employer may use W-2 income for employee. (Box 1)

Rate of Pay Safeharbor – Hourly rate multiplied by 130 hrs/month. Determine affordability using monthly premium based on monthly wage. For salaried employee, monthly wage can be used. Does not apply where wages were reduced during the year.

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Maximum Out -of-Pocket Premium Payments

400% of poverty level

Single - $4,115

Single/Spouse - $5,537

Family 3 - $6,958

Family 4 - $8,379

Source HHS (2009)

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The Marketplace, Prices and Subsidies- N.J.

29 plans within 4 categories

Platinum

Gold

Silver – benchmark plan (70% of healthcare costs)

Bronze

October – December, 2013

4 of 5 enrollments eligible for subsidy

54% - women

46% - men

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Family Income and Gender

Women contribute 42.29% of family income (2009)

5% (1970)

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Wages

About half of all jobs in U.S. pay $20/hr or less.

Women earn about 80 cents of every dollar a man earns.

Women managers make 73 cents

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Percentage of the unionized workforce

has decreased every year since its peak

in 1955 (35%)

7.4% in 2006

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Reasons for Decline

Technological advancements Outsourcing Worker mobility and immigration Organizational changes (teamwork, checks

and balances) Social legislation (wage and hour, OSHA,

FMLA, etc.)

Unemployment and Gender

Since 2000, manufacturing has lost six million jobs

Men represented 80% of job losses during 2007-09 recession

1 in 5 working-age men are unemployed (2012)

In 2012, N.J. had 3.9 million jobs, down from 4.13 million in 2008

Men and women competing for retail and service jobs.

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More Women in the Workplace

Half of the work force are women; 2/3 are of child-bearing age

Women comprise the majority of professional, technical, administrative support workers

Women comprise the majority of sales and service workers

Immigration and Age

Average age of Hispanics in U.S. is 27.

Non-Hispanic whites - 42

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The Workforce is Getting Older

In 1970, the median age of workers was 28 In 2002, the median age was 35 By 2030, the median age will be over 40

Reality Check: Every 7.5 seconds someone

in America turns 50 years of age

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Workforce Education Level

52% of U.S. population ages 16 – 65 cannot pass the GED test

ETS Report (2003)

Functional Illiteracy:12% White25% Asian33% African-Americans49% Hispanic

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27-year old earning $25,000/year

Silver plan - $260/month

with subsidy - $145/month

Family of 4 earning $50,000

Silver Plan - $943/month

with subsidy - $282/month

Bronze Plan with subsidy - $131/month

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Employee Protections

Employer can not interfere or discriminate against an employee for seeking or receiving subsidy.

Does failure to provide notice constitute “interference?”

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Delayed until January 1, 2015

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“Large” Employer Penalty

Employers with 50 or more “full-time” employees will be penalized for not offering coverage or coverage that does not meet standards.

All employees counted in a calendar month (part-time, temporary, seasonal).

“Full-time” employee is someone who is employed to perform services on average of 30-hrs per week or 120 hrs/month.

Part-time employees are grouped together to create “full-time” equivalents.

Aggregate number of hours worked by part-time workers in any month and divide by 120 to determine number of full-time equivalents.

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Penalty for not offering insurance or to less than 95% of full-time employees and at least one FTE receives a subsidy to pay for insurance on the Exchange

$2,000 per full-time employee after first 30 employees

Penalty for offering unaffordable or less than minimum value when employer offers to at least 95% of FTE and at least one FTE receives subsidy

$3,000 for each full-time employee receiving a subsidy or $2,000 per full-time employee after first 30

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Auditing and Enforcement

U.S. Department of Treasury (IRS) U.S. Department of HHS U.S. Department of Labor

Combined databases – Form W-2, Form 5500, Social Security Administration database.

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W-2 Reporting

Employers are required to disclose the value of health coverage provided to an employee on a W-2

This value includes medical coverage, HRA contributions, and possibly EAPS and wellness programs Contributions to HSAs, Archer MSAs, and health FSAs are

not included Need additional guidance Does not include Dental or Vision care

Effective for taxable years beginning January 1, 2011

Coordinated Care

Creates incentives for “Accountable Care Organizations”.

Team of healthcare providers are paid incentives to lower costs and keep patients out of expensive emergency room visits.

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Medical Care Shortages

Scholarships and loans for primary care physicians, nurses and physician assistants.

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Expansion of Medicaid

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Medicaid Eligibility

Up to 133% of poverty level

Family of 4-$31,325 / year

October – December, 2013

71,000 enrolled (NJ)

300,000 eligible

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Industries with Most Minimum Wage Workers

Leisure and Hospitality (includes restaurants and food service)

Retail

Other Services

Fast – Food Industry

Median hours/week - 30Median wage/hr - $8.69

52% of families of front-line, fast-food workers rely on public assistance - $7

billion/year

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Minimum Wage and Public Assistance

Supplemental Nutrition Assistance – eligibility at 30/ hrs/week at minimum wage (A parent with 2 children making minimum wage receives $276/month)

NJ FamilyCare – Parents with incomes up to $31,322 for family of four; Adults without children $15,282

Housing Assistance – Low-income individuals whose housing costs exceed 30% of household income

Collectively worth $18.62/hr if eligible for all maximum assistance – Cato Institute

Hospital Readmissions Reduction

Reduces payments to hospitals for excess readmissions

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Contraception Coverage Mandate (No-Cost Coverage)

Hobby Lobby v. Sebelius (10th Cir)

Conestoga Wood Specialties v. Sebelius (3rd Cir)

Does a profit-making, secular employer have a right to exercise religion?

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Citizens United v. Federal Election Comm.U.S. Supreme Court (2010)

Corporations have First Amendment right to political speech. Congress cannot regulate campaign contributions made by Political Action Committees.

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Government as a “Stakeholder”

53% of CEOs say government and regulators will be among the stakeholders with the biggest economic impact on their companies over the next 3-5 years.

McKinsey Global Study

2011

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Thank You

Questions?