Health Care Reform in the United States

HEALTH CARE REFORM IN THE UNITED STATES

Craig B. GarnerGarner Health, LLC1299 Ocean Avenue, Suite 400Santa Monica, CA 90401(310) [email protected]

An overview of the 2010 Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act

(updated July 2012)

Since the creation of Medicare in 1965, health care in the

United States has faced a multitude of challenges on

virtually all possible fronts. Today, critics contend that

health care is overregulated, underfunded, and the system

fails to reflect the expectations and demands of modern

society.

As health care expenses in the United States approach 18%

of the nation’s GDP, as many as 50 million Americans are still

without health insurance, and medical bills are one of the

leading causes of individual bankruptcy today. After many

failed attempts at reform over the decades, 2010 marked the

year for change.

The Cost: $940 billion over ten years.

Would expand coverage to 32 million uninsured Americans.

In 2014, everyone must purchase health insurance or face a $695 annual fine (some exceptions apply).

Expands Medicaid to include more families who did not previously qualify.

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act into law (followed by the Health Care and Education Reconciliation Act).

HEALTH CARE REFORM BY THE NUMBERS*

* Estimated projections at the time of passage.

WILL THE AFFORDABLE CARE ACT (ACA) SAVE HEALTH CARE?

THE HEALTH INSURANCE EXCHANGE

Under the ACA, the health insurance exchange is a marketplace created to offer affordable, high-quality health insurance options. The exchange is designed to help families who have no insurance or do not get adequate insurance at work and cannot afford to buy it in the costly individual or small group market. It is also for small businesses that cannot afford small group health insurance.

When federal guidelines were released in the summer of 2011, the comparison was made between purchasing health insurance online and employing the Internet to buy airline tickets and make hotel reservations.

In 2010, the ACA established temporary, high-risk pools in each state to provide health coverage to individuals with pre-existing medical conditions and who have been uninsured for at least six months.

By 2014, state-based health insurance exchanges should provide consumers with a variety of private health insurance plans to consider. This would include comparisons of covered services, premiums, co-pays and deductibles, as well as out-of-pocket limits on expenses.

Each exchange will focus on individuals and small employers with 50 to 100 employees.

In 2017, states will have the opportunity to opt out of the federal requirements establishing an insurance exchange if they can show the ability to provide coverage comparable to the new Federal law.

Illegal immigrants will not be eligible to participate in any State exchange..

THE HEALTH INSURANCE EXCHANGE (continued)

Platinum, with coverage at 90% of the full actuarial value of the essential benefits package.

Gold, with coverage at 80% of actuarial value.

Silver, with coverage at 70% of actuarial value.

Bronze, with coverage at 60% of actuarial value.

Catastrophic, a high-deductible plan available to people under age 30 and to people who qualify for an exemption (because other coverage is not affordable).

THE HEALTH INSURANCE EXCHANGE (continued)

FIVE CATEGORIES OF STATE EXCHANGES

The Exchange will be governed by a five-member board appointed by California’s Governor and the legislature.

California will also set up the Small Business Health Options Program, which will assist qualified small employers in facilitating the enrollment of their employees in qualified health plans offered.

California will be active in establishing a competitive process to select participating carriers.

California will require plans to make available to the general public claims payment policies and practices as well as periodic financial disclosures. California will also require public disclosure of data on enrollment, dis-enrollment, and denied claims, among other things.

CALIFORNIA’S PROPOSED HEALTH INSURANCE EXCHANGE

HEALTH CARE REFORM -- COVERAGE UP TO AGE 26

Dependent (Adult/Child) Coverage to Age 26:

For plans that provide coverage for dependents, the plan must now cover dependents (adults/children) to age 26 (this is generally tax free to the employee).

This was effective for plan renewals beginning on or after September 23, 2010.

This also applies to employers with cafeteria plans, as well as self-employed individuals who qualify for the self-employed health insurance deduction.

“Grandfathered plans” are not required to cover adults/children to the age of 26 if the adult/child is eligible to enroll in another eligible employer-sponsored health plan.

This limited exemption ends on the first plan renewal beginning on or after January 1, 2014.

New regulations expand this coverage for children of same-sex domestic partners for Federal Employee Health Benefits Program enrollees.

NEW PROTECTIONS FOR INDIVIDUALS

The ACA ensures that insurance companies and health plans provide simple summaries of what is covered and for what services individuals must pay directly.

The ACA requires a uniform glossary of terms commonly used in health insurance coverage such as “deductible” and “co-pay.”

Federal tax credits and cost-sharing reduction payments will also reduce the cost of insurance for low income individuals, leading to the expectation that more people will obtain coverage on their own. In some cases, this may reduce the need for employer provided health insurance.

The Congressional Budget Office estimates that when the ACA is completely phased in, the premium tax credit will help 20 million Americans afford health insurance.

NEW PROTECTIONS FOR INDIVIDUALS (continued)

The Reform Law is designed to make individual health insurance policies more affordable and available by: (1) mandating “community rating” so that individual rates can only vary based on location or rating area, age of the insured, and tobacco use; and (2) by barring the exclusion of coverage for preexisting conditions.

In 2011, new federal regulations required health insurance companies to disclose and justify any rate increase of 10% or more. For an insurer to increase rates in excess of 10% for any insurance product sold to individuals (or small groups), it must first file a “preliminary justification.” If state or federal officials disagree and find the increase unreasonable, the insurer must then file a final justification.

THE INSURANCE MANDATE FOR INDIVIDUALS

Individual Penalty for Not Obtaining Coverage:

Individuals who do not obtain or retain qualifying health care coverage will be required to pay a penalty as part of their income tax returns. Many low income individuals who are not required to file income taxes are exempt from the mandate.

In 2014, the penalty is $95 or 1% of the individual’s income, whichever is greater.

By 2016, the penalty increases to $695 or 2.5% of income.

For families, the maximum penalty is three times the per-person flat-dollar penalty. The penalty for dependent children without coverage is half the cost of the individual flat-dollar penalty.

THE INSURANCE MANDATE FOR INDIVIDUALS (continued)

How Individuals Can Meet the Health Insurance Mandate:

By enrolling in a government program such as Medicare, Medicaid, TRICARE, or Children’s Health Insurance Program (CHIP).

By participating in qualified insurance offered by your employer.

By purchasing a qualified insurance policy through a state exchange or directly from an insurer.

To be qualified, a plan must cover certain “essential health benefits” at least up to at least 60% of actuarial value.

ESSENTIAL HEALTH BENEFITS

Beginning in 2014, all health plans (with certain exceptions) should reflect the following scope of benefits:

Ambulatory Patient Services

Emergency Services

Hospitalization

Maternity and Newborn Care

Mental Health and Substance Use Disorder Services

Prescription Drugs

Rehabilitative and Habilitative Services and Devices

Laboratory Services

Preventive and Wellness Services

Pediatric Services (including oral and vision care)

MEDICAID EXPANSION

Under the ACA, the Medicaid expansion includes:

Coverage for all individuals under the age of 65 with incomes below 133 percent of the federal poverty line.

Regulations under also establish health insurance programs for new Medicaid beneficiaries that satisfy the threshold requirements under the individual mandate.

The Federal Government will cover 100 percent of the states’ costs for insuring new Medicaid beneficiaries under the expansion in 2014, 2015 and 2016.

Coverage then drops by one percentage point between 2017 and 2020, leveling out after 2020 at 90 percent.

THE SUPREME COURT HAS SPOKEN

On June 28, 2012, the U.S. Supreme Court confirmed the constitutionality of the ACA.

The ACA’s individual mandate is constitutional.

For purposes of the Anti-Injunction Act, the individual mandate is a penalty, not a tax.

Authority for the ACA exists in Congress’s power to lay and collect taxes.

The Medicaid expansion provisions survive, but the Federal Government is prohibited from penalizing states that choose not to participate in by taking away their existing Medicaid funding.

SOME DISAGREE WITH THE MAJORITY OPINION

Chief Justice Roberts ended the majority opinion by stating: “[T]he Court does not express any opinion on the wisdom of the ACA. Under the Constitution, that judgment is reserved to the people.”

In their dissenting opinion, Justices Scalia, Kennedy, Thomas and Alito disputed that Congressional taxing authority should control, but nonetheless took issue with the Government’s position that “the very same textual indications that show this is not a tax under the Anti-Injunction Act show that it is at tax under the Constitution. That carries verbal wizardry too far, deep into the forbidden land of the sophists.”

HEALTH CARE REFORM FOR BUSINESSES IN 2014

The new law does not require employers to offer health insurance coverage to their employees.

For “large employers” (those with 50 or more full-time employees) the law imposes a penalty ($2,000 per employee) if any of their full-time employees qualify for and receive federal subsidies.

The large employer penalty does not apply for the first 30 employees.

For small businesses that are not required to provide health coverage, generous new tax credits will be available to those businesses with low-paid employees to encourage them to provide qualified health insurance for their employees.

HEALTH CARE REFORM FOR BUSINESSES (continued)

Limitations on Pre-Existing Conditions and Plan Limits

Currently, group health plans are not able to impose pre-existing condition exclusions on children under age 19.

Additionally, group health plans are not able to impose lifetime or restrictive annual limits on benefits under the plan.

Beginning in 2014, a group health plan will not be able to impose any annual limits.

In addition, effective in 2014, group health plans will be completely prohibited from imposing pre-existing condition exclusions on plan participants.

HEALTH CARE REFORM FOR BUSINESSES IN 2018

There will be a 40% tax on expensive heath care plans, dubbed "Cadillac plans."

These high cost health plans are defined as having a value of $10,200 for a single employee or $27,500 for a family.

There are exclusions for high risk jobs and other special occupations.

SMALL BUSINESS HEALTH CARE TAX CREDIT

The Health Care Insurance Reform legislation seeks to expand coverage by providing generous tax credits to small businesses with low-paid employees (which historically have not provided employee health insurance). This change has already led to a significant increase in the number of such businesses providing insurance.

Must cover at least 50% of the cost of health care coverage for some of its workers based on the single rate.

Must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).

Must pay average annual wages below $50,000.

The credit is worth up to 35% of a small business’ premium costs in 2010 (25% for tax-exempt employers). On January 1, 2014, this rate increases to 50% (35% for tax-exempt employers).

HEALTH INSURANCE PLAN CHOICES FOR SMALL BUSINESSES

In November 2011, the federal government released a new tool for small business owners to compare the benefits and costs of health plans, and even research locally available products, so they can choose the best options for their employees.

At www.HealthCare.gov, small business owners can research:

Insurance product choices for a given ZIP code, sorted by out-of-pocket limits, average cost per enrollee, or other factors.

A summary of cost and coverage for small group products that shows the available deductibles, range of co-pay options, included and excluded benefits, and benefits available for purchase at additional cost.

The ability to filter product selection based on whether the plans are Health Savings Account eligible, have prescription drug, mental health, or maternity coverage, or allow for domestic partner or same sex coverage.

THE FUTURE OF HOSPITAL REIMBURSEMENT?

In April 2011, CMS published regulations that provided a roadmap for the future of hospital reimbursement.

Authorized within the ACA, CMS will start paying hospitals Medicare “bonuses” based upon overall performance, adherence to quality measures, and patient satisfaction.

This hospital value-based purchasing program is another step toward shifting the reimbursement infrastructure from cost-based to performance-driven.

THE FUTURE OF HOSPITAL REIMBURSEMENT (continued)

Beginning in October 2012, hospitals can share bonus money from an $850 million fund based upon their performance scores.

The following year, hospitals will face a 1% reduction overall on Medicare payments under this system.

By 2015, hospitals with poor performance ratings may be excluded from the bonus pool and face additional cuts in reimbursement.

THE FUTURE OF HOSPITAL REIMBURSEMENT (continued)

Also effective October 2012, hospitals with the highest rates of readmission can lose as much as 3% of reimbursements.

"The incentives we're putting into place have created a whole new way to think about hospital care." --Jonathan Blum, deputy administrator of CMS

HOSPITAL PERFORMANCE MEASURES

Hospitals must closely track their performance on various measures of quality, patient experience, and operations. This includes the following examples:

Readmission rates for cardiac cases

Readmission rates for pneumonia patients

Mortality rates for cardiac and pneumonia patients

Average waiting time in the emergency department

Patients who would recommend a hospital

Patients who were happy with their levels of communication with doctors and nurses

Bundled Payments for Care Improvement Initiative

Last year CMS released the Bundled Payments for Care Improvement Initiative, a program designed to encourage a team of providers to work together to treat certain episodes of care for one bundled payment per patient.

Instead of separating Medicare payments for each service involved in treating a patient, a “bundled system” is a single payment for a defined group of services, irrespective of the nature of the entity providing the care (i.e., a single entity, such as a hospital, or several different, multidisciplinary providers).

CMS has defined four models of care:

Model 1 (inpatient stay only)

Model 2 (inpatient stay plus post-discharge services)

Model 3 (post-discharge services only)

Model 4 (inpatient stay only with a prospectively determined bundled payment rate)

HEALTH CARE REFORM AND THE PHYSICIAN

In 2015, roughly 750,000 physicians in the Medicare program will be asked to revalidate their individual enrollment records during a massive anti-fraud effort mandated by the ACA.

CMS intends to weed out only those people who should not have billing privileges, but physicians are concerned that legitimate health professionals may face disruptions in their practices.

HEALTH CARE REFORM AND THE PHYSICIAN (continued)

The new law also requires a value-based purchasing modifier that would adjust physician fees based on quality and efficiency measures.

Although the adjustments will not start until 2015, CMS may start measuring physician performance in 2013.

Although the adjustments will not start until 2015, CMS may start measuring physician performance in 2013.

2013: CMS may start measuring physician services to determine modifier adjustments in the future.

2015: CMS starts applying the modifier to specific physicians and groups.

2017: CMS starts applying the modifier to all physicians and groups.

HEALTH CARE REFORM AND THE PHYSICIAN (continued)

Recent regulations addressed additional changes to the physician fee schedule, payments for Part B drugs, and other Medicare Part B payment policies to ensure that the Medicare payment systems are updated to reflect changes in medical practice and the relative value of services.

It would also implement provisions of the ACA by establishing a face-to-face encounter as a condition of payment for certain durable medical equipment (DME) items.

In addition, it would implement statutory changes regarding the termination of non-random prepayment review under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

Finally, this proposed rule also includes a discussion regarding the Chiropractic Services Demonstration program.

HEALTH CARE REFORM AND PREVENTATIVE CARE

“The Affordable Care Act helps stop health problems before they start.” --HHS Secretary Kathleen Sebelius

The ACA is about:

Pilot Programs

Preventative Health Care Services

Forward Thinking Research

HEALTH CARE REFORM AND PREVENTATIVE CARE (continued)

Last summer’s regulations required all new private health plans to cover several evidence-based preventive services l ike mammograms, colonoscopies, blood pressure checks, and childhood immunizations without charging a copayment, deductible or coinsurance.

The ACA also made recommended preventative services free for Medicare beneficiaries.

Regulations also focused on preventative care for women to ensure a full range of recommended preventative services and screenings without cost sharing.


Beginning in 2014, employers may use up to 30% of their employees’ health insurance premiums for outcome-based wellness incentives.

Employees can receive rewards such as a discount or rebate on a premium, a waiver of a deductible or copayment, or some additional benefit not included under the plan.


The ACA also created the Patient-Centered Outcomes Research Institute (PCORI) to produce groundbreaking, evidence based information pertaining to health care that will be easily accessible to both doctors and patients.

PCORI will focus on several areas of interest, including ways to deliver health care “without bias” and identify existing gaps affecting women, low-income populations, minorities, children, and the elderly, among others.


This also includes the National Prevention, Health Promotion, and Public Health Councils, charged with the task of developing health care prevention strategies for large-scale future use.

A report issued by the ACA’s Prevention and Public Health Fund estimates that a $10 per person investment each year in community-based, preventative health programs could result in an annual savings of more than $15 billion over the next five years.


Regardless of its emphasis on our nation’s future well-being, ACA now finds itself in the crosshairs as Congress tries to repair America’s global credit score.

How will the debt ceiling legislation impact the government’s ability to fund health care in the future?

http://www.healthcare.gov

http://www.cms.gov

http://www.dhcs.ca.gov

http://www.cdph.ca.gov

http://www.calhospital.org

http://www.garnerhealthcare.com

Additional Resources

Health & Medicine

Health Care Reform in the United States