The Patient Protection and Affordable Care Act

(as amended and supplemented by the Health Care and Education Reconciliation Act of 2010)

Rotary Club of ToledoSeptember 17, 2012

Dennis P. Witherell, J.D.Shumaker, Loop & Kendrick, LLP

Part I –Access to Affordable Care

1. Medicaid expansion

2. Tax credits for individuals

3. Individual mandate

4. Employer mandate

5. Premium subsidies for employers

Part I –Access to Affordable Care (cont.)

6. Creation of Health Insurance Exchanges

7. Essential benefit package

8. Guaranteed Issue and Community Rating

9. Other rules for private insurance

10. Other tax changes

11. Medicare Part D “Donut Hole” eliminated

Details: Medicaid expansion

• States that choose to participate have Medicaid coverage expanded to non-Medicare eligible persons under 65 up to 133% of the federal poverty line and provide essential benefit package

• Federal funding (100% in 2014-16, 95% in 2017, 94% in 2018, 93% in 2019, and 90% thereafter)

• Increase in Medicaid payment to 100% of Medicare for primary care physicians

Details: Tax Credits for Individuals

• For those with household “Modified Adjusted Gross Income” (“MAGI”) between 100% and 400% of poverty level -- sliding scale

• MAGI includes tax-exempt interest and foreign income

• Policy must be purchased through Exchange• Premium assistance• Assistance with out-of-pocket expenses

Details: Tax Credits for Individuals

• Helps eligible persons whose employer plan is likely to cover less than 60% of healthcare costs or whose employee portion exceeds 9.5% of household MAGI

• Subsidies not to be used for abortion services if not necessary to save life or in case of rape or incest; insurers that offer such services must segregate funds

Details: Individual Mandate• Citizens and legal residents required to have minimum

essential coverage or face penalty• Penalty – greater of

– Fixed amount per person (2014 – $95; 2015 – $325; 2016 – $695), cap of 3 times this amount per family; minors are considered as ½ person, but not for cap;

– Percentage of household MAGI in excess of Tax Filing Threshold (2014–1%; 2015–2%; 2016–2.5%)

• Penalty capped at average national premium for plan that covers 60% of expected costs

Details: Individual Mandate• Tax Filing Threshold– personal exemption plus standard

deduction. (For 2014, $9,350 for individuals, $18,700 for married couple filing jointly, and $26,000 for married couple with 2 children.)

• Exemptions:– household MAGI below Tax Filing Threshold – lowest cost plan available exceeds 8% of MAGI– financial hardship as determined by HHS Secretary– religious objections– Native Americans– those lacking coverage for less than 3 months; – undocumented immigrants – incarcerated persons

Details: Employer Mandate

• Employer group has 50 or more FTEs (i.e. more than 30 hours); part-timers counted prorata

• Penalty triggered if any employee qualifies for subsidy

• If employer offers no coverage, penalty is $2,000 per year per actual FTE in excess of 30 FTEs; part-timers not counted.

Details: Employer Mandate

• If employer offers coverage that is inadequate, penalty is lesser of above amount or $3000 for each actual FTE who receives a tax subsidy:– Doesn’t cover 60% of expected costs– Employee premium contribution exceeds 9.5% of

household MAGI

• Employers with more than 200 employees required to automatically enroll employees (employee can opt out)

Details: Premium Subsidies for Employers

• Small business tax credit for employers with fewer than 25 employees and average wages of less than $50K who purchase insurance (phased in)

• Reinsurance—temporary program for employers who provide coverage to retirees over 55 who are not eligible for Medicare

Details: Health Insurance Exchanges

• State-based organizations through which individuals and small businesses can purchase qualified coverage

• At least 2 multi-state plans must be offered in each Exchange (one must be nonprofit and one must not cover abortions except to extent allowed)

Details: Health Insurance Exchanges

• Creates co-op program to foster creation of nonprofit member-run insurance companies

• Creates 4 benefit tiers and catastrophic plan for each Exchange

• Increased transparency of health plans

Details: Essential Benefit Design

• Requirement for plans offered on exchanges

• States can define within certain limits

• Limits on copayments and deductibles

Details: Guaranteed Issue and Community Rating• Will require policies to be issued regardless

of any medical condition

• Community rating - will require insurers to offer the same premium to all applicants of the same age and geographical location without regard to gender or most pre-existing conditions (excluding tobacco use).

Details: Other Rules for Private Insurance

• Temporary high risk pool for individuals with pre-existing conditions

• Health plan rebates for amounts not spent on care

• Condition continued participation in exchanges on legitimacy of premium increases

• Limits waiting periods for coverage

Details: Other Rules for Private Insurance

• Standard for financial and administrative transactions

• Dependent coverage for children up to 26

• No lifetime or annual limits,

• No pre-existing condition exclusions,

• No rescission unless fraud

• Limited deductibles

Details: Other Tax Changes• Excludes non-prescribed OTC drugs from HRA or

FSA; no tax-free reimbursement under HSA• Limits annual salary reduction contributions to

Health FSAs to $2500• Penalty on HSA distributions for nonqualified

purposes increased from 10% to 20%• Increases Medicare payroll tax for individuals

earning over $200K ($250K for married filing jointly) from 2.9% to 3.8%

• Applies Medicare tax to investment income

Details: Other Tax Changes

• Increases threshold for deductions for unreimbursed medical expenses from 7.5% to 10% of AGI

• 40% tax on rich plans (on issuer)• Eliminates tax deduction for employers who receive

Medicare Part D retiree drug subsidy• New fees on pharmaceutical manufacturers and health

insurers• 2.3% tax on certain sales of medical devices• 10% tax on indoor tanning

Details: Elimination of Medicare Part D “Donut Hole”• The amount a senior pays in prescription drug

costs above $2,830 and below $4,550 • $250 rebate in 2010• 50% reduction by 2011• 50% discount on certain brand name drugs

purchased inside the coverage gap • Full elimination by 2020

Part II – Restructuring the Delivery System to Change the Value Equation

• Dartmouth Atlas of Health Care

• McAllen, Texas article in New Yorker magazine

• Medicare Payment Advisory Committee Report to Congress, Regional Variation in Medicare Service Use (January 2011)

Focal Points

• Evidence-based medicine• Primary care emphasis• Reduction of medical errors• Transition problems/lack of coordination• Provider access to cost and quality info• Financial incentives• Prevention and wellness

Failure of the Competition Model

• Over-inclusiveness of providers by employer-sponsored plans

• Unenforced steerage requirements

Elements of Pay-for-Performance System

• Evidence-based utilization protocols

• Coordination of care

• Avoidance of adverse outcomes

• Active management of chronic illness

• Preventive care and wellness

• High value of care rendered in comparison to peer providers.

Medicare Payment Changes• “Value-based” hospital payment system

• Bundled payments for all care rendered during an episode of care

• Reduced payments to hospitals with excess readmissions

• Payment denials for hospital-acquired conditions

• Medical homes and primary care

Prevention/Wellness (Medicare/Medicaid)

• Coverage of preventive services (removal of cost-sharing for Medicare-Medicaid)

• Development of evidence-based and community-based prevention and wellness initiatives

Prevention/Wellness (Other)

• Grants for employers that offer wellness programs

• Allows employers to offer rewards, including premium discounts and enhanced benefits of up to 30% of cost of coverage for participation in wellness and meeting health-related standards

• Chain restaurant and vending machine disclosures of nutritional content

Accountable Care Organizations (ACOs)

• Mechanism for shared governance

• Receives payments from Medicare and distributes among providers

• Responsible for quality, cost, overall care

• Cost savings awarded to ACO (provided quality standards are met) - to be shared among providers

ACOs – Theory

• Local physicians and other providers can best decide what practice protocols and other methods will result in cost effectiveness without hurting quality

• By forming an ACO, participating providers can share in the cost savings achieved if quality standards are met

• Effect on private insurance