The Affordable Care Act

 

Joseph F. Baugher

March 23, 2017

 

 

The Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA) or "Obamacare", is a United States federal statute passed by Congress and signed into law by President Barack Obama on March 23, 2010.  This essay is an attempt to give an explanation of the major features of the ACA, without getting involved in the controversial politics surrounding the Act.  This article is not intended to be a political screed, either for or against the law.  The intention is to stick strictly to the facts as to how the ACA is supposed to work

 

The ACA was enacted in order to increase the quality and affordability of health insurance for most Americans.  It also had the goal of lowering the number of uninsured individuals by expanding both public and private insurance coverage, and by reducing the costs of healthcare for individuals and the government.   The ACA strove to accomplish this by introducing a number of mechanisms—including the expansion of Medicaid eligibility in order to cover larger numbers of people, the addition of individual mandates requiring the acquisition of medical insurance by all, as well as adding mandates requiring that employers provide medical insurance to their employees.  In order to make medical insurance more affordable, the ACA also established insurance exchanges that would provide access to lower-cost medical insurance.   In addition, the ACA offers medical insurance premium subsidies for lower-income individuals.  The law also requires private insurance companies to cover all applicants within new minimum standards, and requires them to offer the same premium rates, regardless of pre-existing conditions or sex.   

 

The ACA provides additional reforms aimed to reduce costs and improve healthcare outcomes by trying to shift the American medical system towards quality over quantity through increased competition, regulation, and incentives to streamline the delivery of healthcare.

 

American Medical Insurance

 

First, a review of the different types of medical insurance available to Americans.

 

In America, there are basically three different ways that the costs of medical care are paid—by group insurance coverage provided by an employer, by the purchase of individual health insurance policies, or by government-provided and assisted health care programs. 

 

Employer-based group health coverage

 

For many Americans, group health insurance coverage is provided by an employer or by a union, in which the insurance is provided as a benefit for working for the employer or for being a member of the union.  The system in which medical insurance is provided by an employer is sort of an historical accident—it dates back to the wage and price controls imposed on the civilian economy during World War II.  During the war, employers could not raise salaries to attract employees, so they began to offer them benefits such as health insurance.

 

Prior to the ACA, employers were not actually required by any federal law to provide medical insurance to their employees, although most did so in order to attract and retain high-quality employees.  But some state laws (e. g. in Massachusetts and Hawaii) did require employers to provide medical insurance to their employees.  The details of employer-based medical insurance coverage are governed under federal law and are generally required to provide a guaranteed set of benefits, such as pregnancy care or mental health care.

 

Many colleges, universities, graduate schools, professional schools and trade schools offer a school-sponsored health insurance plan. Many schools require that a student enroll in the school-sponsored plan unless they are able to show that they have comparable coverage from another source.  Regular health insurance is sometimes available to members of associations. Associations such as the American Bar Association offer health insurance to their members by using an established insurance company to write the policies for a group plan.

 

This type of insurance is called group insurance, since all the full-time employees of a company are covered under the plan.  Generally, all full-time employees can participate in an employer group health plan regardless of the status of their health, and are not charged extra or denied participation because of a preexisting condition.  Group insurance has the advantage that it is generally less expensive than if each employee had to go onto the private marketplace and purchase their own individual medical insurance policy.  This is because of economies of scale, where premiums are lower when all employees participate, rather than just the sickest.   In most cases, an employee’s dependents are also covered.  In addition, most plans also cover a company’s retirees. 

 

The employer typically makes a substantial contribution towards the cost of this type of medical insurance coverage.   Typically, employers pay about 85% of the insurance premium for their employees, and about 75% of the premium for their employees' dependents. The employee pays the remaining fraction of the premium, usually with pre-tax/tax-exempt earnings.  But in recent years, employees have been asked to pay an increasing percentage of the cost of the premiums.

 

Most large corporation contract with a private insurance company to handle all the details of the medical benefits for their employees, but the costs of medical claims are usually paid out of the company’s own funds, with the insurance company simply acting as an administrator and processor of claims.   Such employer health plans are said to be self-funded. 

 

Health benefits provided by employers are also tax-favored.  Since employers can count health insurance for their employees as a business expense, the employer can write off the costs of employee health insurance coverage on their income tax return.  In addition, even though employer-provided health insurance is a part of the total compensation package provided to the employee, it is not taxed by the IRS.

 

There are some disadvantages in employer-provided health insurance.  Some of these disadvantages include disruptions related to changing jobs, the regressive tax effect (high-income workers benefit far more from the tax exemption for premiums than low-income workers), and increased spending on healthcare.  When employment ends, either by the employee changing jobs, getting laid off, or getting fired, the employer’s health insurance coverage also ends.  Although there are ways for employees to extend their employer-provided group coverage if their job ends (e.g. through COBRA), such measures are fairly expensive and are only temporary. 

 

But it is usually true that not all of a company’s employees are covered by their group health plan.  A company’s hourly employees are often covered separately by a union-provided health plan.  In addition, companies are not required to provide their part-time employees with healthcare coverage.  Neither the Fair Labor Standards Act (FLSA), nor any state law, defines exactly what it means to be a full-time employee, and the definition of a full-time employee is usually left up to the employer.  So, the definition of full-time employment will vary from organization to organization.  Traditionally, a part-timer is defined as one who works less than 40 hours per week, but some employers count as full-time if an employee works 30, 32, or 36 hours a week.  In many organizations, an important differentiation between full-time and part-time employment is eligibility for benefits such as access to group health insurance.   Many companies are increasingly relying on part-time employees, since they can save some money because they don’t have to provide them with medical insurance.   


Some smaller firms (3-199 employees) also offer employee health insurance, to their employees, but the percentage of such firms offering such insurance has declined in recent years.  Many of these small businesses have high employee turnover or a lot of part-time or hourly workers.  The economies of scale that are available to large employers are just not available to companies that have just a few employees.  In particular, self-funded health care (whereby an employer provides health or disability benefits to employees with its own funds rather than contracting with an insurance company) is often not a practical option for most small employers.

 

Another problem with these smaller group plans that sometimes they are medically underwritten, in which employees are asked to provide health information about themselves and their covered family members when they apply for coverage.  When determining the rates charged to the employer, insurance companies often use the medical information on these applications to determine the costs of covering the company’s employees.  If just one or two employees of these smaller firms have a serious medical condition, the rates charged by the insurance company can be jacked way up.  And if one of their employees becomes seriously ill, the costs can drive a small employer to virtual bankruptcy.  So there is every temptation for these small businesses to save costs by not offering medical insurance to their employees at all.

 

Nevertheless, many of these smaller businesses still want to provide some sort of medical insurance to their employees.  In the pursuit of lower costs, some of these smaller businesses offer what is known as “mini-med” plans, primarily to their lower-paid workers. These plans may pay for portions of a doctor’s visit or for prescription drugs, but they don’t handle catastrophic health events.  They often have rather low caps on the annual dollar amount of benefits that they will cover, and these caps can be as low as just a couple thousand dollars a year.  Even a relatively minor illness could drive one over this cap.  Many have rather high hospital co-insurance rate (as much as 30 percent), and even a short hospital stay can blow the patient right through the plan’s annual benefit cap.  Even some larger employers such as McDonald’s, Home Depot, CVS, or Staples offer these mini-med plans to their lower-paid employees. 

 

When an employee changes jobs, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides for both "group-to-group" and "group-to-individual" portability. When an individual moves from one employer's benefit plan to another's, the new plan must count coverage under the old plan against any waiting period for pre-existing conditions, as long as there is not a break in coverage of more than 63 days between the two plans. When certain qualified individuals lose group coverage altogether, they must be guaranteed access to some form of individual coverage.   But in order to qualify, they must have at least 18 months of prior continuous coverage. The details of access and the price of coverage are determined on a state-by-state basis

 

Unfortunately, employer-provided medical insurance is becoming more expensive with every passing year, and many employers now require that their employees shoulder more of the costs, with higher premiums being deducted from their paychecks and having to pay higher deductibles, copays, and coinsurance.   Some smaller employers are dropping health insurance for their employees altogether, forcing them to go onto the private market to get their health insurance, where the costs are usually much higher.

 

The percentage of non-elderly workers with employer-sponsored medical insurance coverage has been falling, from 68% in 2000 to 61% in 2009, the latest year for which data is available. While the primary cause of falling rates of insurance is the rising cost of health care for employers, the economic downturn of 2008 has swelled the ranks of the uninsured, in large part because workers who lose their jobs also lose employer-sponsored insurance

 

Many corporations provide medical insurance to their retirees and their dependents, in addition to a retirement pension.  Unfortunately, the costs of retiree medical coverage are rapidly rising (because people tend to live longer and have more serious and more expensive ailments), and many companies have been forced to cut back sharply on the medical insurance benefits for their retirees and their dependents.

 

 

Individual Health Insurance

 

Individual health insurance policies are purchased by people who don’t have access to any type of group employer or union group health insurance, such as people who are self-employed or who are unemployed.   About 9 percent of Americans are covered under health insurance purchased directly on the private market. 

 

Individual insurance policies are not dependent on any employer, so that the individual can take their policy anywhere they please.  However, a taxpayer cannot deduct the cost of individual insurance policy premium on their federal income tax returns, unless they itemize.  Even then, they can only deduct the premium if their total medical costs exceed 10 percent of their adjusted gross income, which effectively means that the premium for individual medical insurance is not tax-deductible for most people.  Some self-employed individuals can receive a tax deduction for their health insurance and can buy health insurance with additional tax benefits, but most consumers in the individual medical insurance market get no tax benefit at all. 

 

Individual medical insurance policies are primarily governed by state rather than federal law, and each state varies in the requirements placed upon insurers. Some states do not require the coverage of pregnancy, and some states allow medical underwriting on individual medical insurance policies, which means that people with pre-existing medical conditions could be charged higher premiums or denied coverage altogether.   Generally, since individual medical insurance does not have access to the cost-savings available in group insurance plans, the premiums tend to be higher and the out-of-pocket costs tend to be greater. 

 

The rapidly-rising costs of medical care have caused the premium price for individual medical insurance policies to ratchet steadily upward.  In addition, the deductibles, copays, and coinsurance that policyholders have to pay have also jumped way up.  In search of affordable premiums, many people are forced into what is known as “junk insurance”, which offers only skimpy coverage and has outrageously low limits on the amount that they will pay for medical coverage in a year or even in a lifetime.   Many even provide no coverage whatsoever for a stay in the hospital.  Many are merely medical discount programs that do not protect against a health-related financial calamity.  These junk insurance policies give people a false sense of security—the premiums are low, but when they get sick they find that most of their costs are not covered, and many are driven to bankruptcy.  They might think that they have good coverage, but they don’t.

 

 

Government-Run Medical Insurance

 

In addition, there are public government-run medical insurance programs that are available to certain people. 

 

The best known of  these is Medicare, which is available to US citizens or permanent residents aged 65 or older who have worked at least 40 quarters in a job that paid Medicare taxes, or who are married  to someone has worked for these 40 quarters.  Medicare is also available to some disabled people under age 65, and to people of all ages with permanent kidney failure who are being treated by dialysis or by a transplant.  There are four parts to Medicare, labeled A, B, C, and D.  Part A covers hospital stays, whereas Part B covers doctor’s bills and outpatient services.  Part C brings private insurers into the system, whereas Part D covers prescription drug costs.  For more information on Medicare, see http://www.joebaugher.com/medicare.htm

 

Medicaid is a means-tested welfare program that is available only to certain low-income individuals and families who fit into an eligibility group (disability, blind, aged, limited income and resources) that is determined by federal and state law.  Low income is only one criterion for eligibility—other criteria are assets and resources.  Under this program, Medicaid sends payments for the medical treatment of eligible recipients directly to the service provider.  Medicaid is jointly funded by federal and state money, but it is actually a state-administered program, and each state sets its own guidelines.

 

TRICARE is medical insurance for active-duty military personnel, military retirees, and their families.  The Veterans Administration also provides medical care for some veterans.

 

The Federal Employees Health Benefits (FEHB), created in 1960, provides civilian Federal employees, retirees, and their survivors with a wide range of health insurance plans.  A Federal employee can choose from among Consumer-Driven and High Deductible plans that offer catastrophic risk protection with higher deductibles, health savings/reimbursable accounts and lower premiums, or Fee-for-Service (FFS) plans, as well as Preferred Provider Organizations (PPO), or Health Maintenance Organizations (HMO) if you live (or sometimes if you work) within the area serviced by the plan.  The FEHB program also allows some insurance companies, employee associations, and labor unions to market health insurance plans to governmental employees. 

 

The Children’s Health Insurance Program (CHIP) is a joint state/federal program to provide health insurance for children in families who earn too much money to qualify for Medicaid, but yet cannot afford to buy private medical insurance.  The CHIP program may be known by different names in different states.

 

In 1976, some states began providing guaranteed-issuance risk pools, which enable individuals who are medically uninsurable through private health insurance to purchase a state-sponsored health insurance plan, but usually at higher cost. 

 

National Health Insurance

 

Over the years, there have been several attempts to introduce some sort of government-supported national health insurance program in the United States, such as that which exists in Canada and in several European nations.

 

Back in the early days, medicine was strictly a fee-for-service business, with patients being expected to pay all the costs out of their own pockets.  The first medical insurance policies were introduced in the late 1800s, but these were usually limited to employers and functioned more like workers compensation.

 

During the 1920s, hospitals started offering services to individuals on a pre-paid basis, which lead to the development of Blue Cross organizations during the 1930s.

 

In the 1930s, during the New Deal, the Roosevelt administration explored possibilities for creating some sort of a national health insurance program.  But it was forced to abandon the project fairly early on, because the American Medical Association (AMA), a large association of physicians and a powerful lobby, fiercely opposed it, along with all forms of health insurance at that time

 

The system in which medical insurance is provided by an employer began to appear in a big way during World War II.  During the war, wage and price controls were in effect throughout the American economy, which meant that employers could not raise salaries to attract employees.  As an alternative, they began to offer their employees benefits such as health insurance.

 

President Harry S Truman made another attempt to develop national health insurance when he proposed a system of public health insurance in his November 19, 1945, address. He envisioned a national system that would be open to all Americans, but one which would remain optional. Participants would pay monthly fees into the plan, which would cover the cost of any and all medical expenses that arose in a time of need. The government would pay for the cost of services rendered by any doctor who chose to join the program. In addition, the insurance plan would give a cash balance to the policy holder to replace wages lost due to illness or injury. The proposal was quite popular with the public, but it was fiercely opposed by powerful lobbies such as the Chamber of Commerce, the American Hospital Association, and the AMA, which denounced it as “socialized medicine.”  The Truman proposal ultimately failed to develop any traction.

 

Medicare came in 1965 under President Lyndon Johnson.  Medicare is a federal social insurance program that provides health insurance to people over the age of 65, individuals who become totally and permanently disabled, end stage renal disease (ESRD) patients, and people with ALS.  The original Medicare was a single-payer system, administered by the Centers for Medicare and Medicaid Services (CMS) and financed by payroll taxes, by individual participant premiums, and by general Federal revenues.

 

Persistent lack of adequate medical insurance among many working Americans continued to create pressure for some sort of a comprehensive national health insurance system. In the early 1970s, there was fierce debate between two alternative models for universal coverage. Senator Edward Kennedy of Massachusetts advocated for a universal single-payer system, while President Richard Nixon countered with his own proposal based on mandates and incentives for employers to provide coverage while expanding publicly-provided medical coverage for low-wage workers and the unemployed. Compromise was never reached, and Nixon’s resignation and a series of economic problems later in the decade diverted Congress’s attention away from healthcare reform.

 

Shortly after his inauguration in 1993, President Bill Clinton offered a new proposal for a universal national health insurance system. Like Nixon’s plan, Clinton’s relied on mandates, both for individuals and for insurers, along with subsidies for people who could not afford insurance. The bill would have also created “health-purchasing alliances” to pool risk among multiple businesses and large groups of individuals. The plan was staunchly opposed by the insurance industry and by employers’ groups and received only mild support from liberal groups, particularly unions, which preferred a single-payer system. Ultimately it failed after the Republican takeover of Congress in 1994.

 

The Uninsured

 

The percentage of Americans with any sort of health insurance has been steadily declining since at least the year 2000. As of 2010 just under 84% of Americans had some form of health insurance coverage, which meant that more than 49 million people went without coverage for at least part of the year.

 

The expanding ranks of the uninsured are a grave national emergency.  Declining rates of insurance coverage and underinsurance are largely attributable to rising insurance premium costs, the inflation in the overall cost of medicine, as well as the high unemployment caused by the economic downturn during the Great Recession.  Even as the pool of people with employer-provided group plans or with private health insurance has shrunk, more and more Americans are increasingly reliant on public insurance such as Medicaid.  When an uninsured individual shows up at a hospital emergency room, they still must be treated, in spite of not being able to pay.  Since somebody eventually has to pay for this, the overall cost of medicine for everyone else is driven upward by the large ranks of the medically indigent.  Public insurance programs tend to cover more vulnerable people with greater health care needs.  Public programs now cover 31% of the population and are responsible for 44% of health care spending.

 

The Affordable Care Act

 

Finally achieving universal health coverage remained a top priority among Democrats, and passing a healthcare reform bill was one of the Obama Administration’s top priorities. The Patient Protection and Affordable Care Act that ultimately emerged was in many respects similar to the Nixon and Clinton plans, mandating medical insurance coverage for all, penalizing employers who failed to provide medical insurance for their employees, and creating mechanisms by which people could pool risk and could buy insurance collectively.  

 

Earlier versions of the bill included a proposal for a publicly-run insurer that could compete in the insurance market to cover those without employer-sponsored coverage (the so-called public option), but this was ultimately stripped from the final version of the law.  The bill passed the Senate in December 2009 and the House in March 2010, and signed into law by President Barack Obama on March 23, 2010

 

The ACA has two primary mechanisms for increasing insurance coverage: expanding Medicaid eligibility to include individuals within 138% of the Federal Poverty Level (FPL), and creating state-based insurance exchanges where individuals and small business can buy affordable health insurance plans on a regulated marketplace.  In addition, those individuals with incomes between 100% and 400% of the FPL will be eligible for subsidies and cost-sharing on these insurance exchanges.  Those people purchasing insurance policies on these exchanges are also eligible for income tax credits, provided that their incomes lie between 100% and 400% of the FPL.   The Federal Poverty Level is a measure of income level that is issued annually by the Department of Health and Human Services that is used to determine eligibility for certain programs and benefits.  It varies from year to year, depending on the rate of inflation.  In 2014, it was $11,670 for an individual, ranging upwards to $40,090 for a family of 8.

 

ACA drafters hoped that increasing the availability of medical insurance coverage would not only improve the quality of life for many people but would also help to reduce medical bankruptcies (currently the leading cause of bankruptcy in America).  It would also help to reduce the effects of “job lock, in which people were reluctant to change jobs, change careers, or to become individual entrepreneurs, lest they lose their employer-based medical insurance.  In addition, many believed that expanding access to coverage to all would help ensure that medical cost controls would successfully function.  For example, healthcare providers could more easily adapt to payment system reforms that incentivize value over quantity if their costs were partially offset—for example, by hospitals having to do less charity care or insurers having larger and more stable risk pools to distribute costs over larger numbers of people.

 

 

Insurance Exchanges

 

Perhaps the major part of the Affordable Care Act is the establishment of something known as the Health Insurance Marketplace or Exchange, which is a new way for lower-income individuals or for employees of small businesses who don’t have access to affordable employer-based group health insurance to get high-quality health insurance at reasonable rates, free from restrictions based on preexisting medical conditions.  The exchanges are regulated, online marketplaces, administered either by the federal government or by state government, where individuals and small businesses can compare and purchase private insurance plans.   The insurance exchanges are designed to create a market for private insurance in a way that addresses market failures in the current system (such as the high number of uninsured, medical bankruptcies, denial of coverage, coverage limits, unaffordability, and medical inflation)  through regulations.  In principle, the creation of these new large group markets would hopefully provide increased competition and drive costs down over time, making it possible for consumers to get more affordable coverage. 

 

These insurance plans are offered by private insurance companies, and are not government-provided medical insurance.  The ACA does not create any new private or public health insurance—it simply creates subsidized and regulated marketplaces where people can compare and buy private health insurance policies from private insurance companies, using group buying power.

 

Only approved plans that meet certain standards are allowed to be sold on the exchanges. The ACA mandates minimum benefits and minimum values for plans, which means that fewer numbers of Americans will struggle with health insurance costs and taxpayers and hospitals will struggle less with medical debt and unpaid bills.   Under the ACA, insurance companies cannot turn you down if you have a pre-existing health condition nor can they charge you more than a healthy person of your age or refuse to pay for treatment of your pre-existing condition.  And they cannot charge women more than men for coverage.  The company cannot cancel your coverage if you develop an illness while covered.  In the past, insurance companies have been accused of using technicalities (like an error on an application) to take away coverage and even make customers pay back money spent on claims, a practice called rescission.  Now, rescission is allowed only if it can be shown that you deliberately lied on your application.

 

The ACA also ends lifetime or yearly limits on essential health benefits, and insurance companies will not be able to set dollar limits on what they will spend on you for these services.  This helps to ensure that health care services are more affordable and helps hospitals avoid getting stuck with unpaid bills from patients who visit the emergency room but cannot pay.  However, plans will still be able to limit coverage of non-essential services.  These plans must pay 100 percent of the costs of preventive care, and patients won’t have to pay anything out-of-pocket for vaccinations or health screenings.

 

The new law also requires that the plans cap the maximum annual out-of-pocket costs for enrollees.  The current limits are $5,950 for an individual and $11,900 for a family, and will be adjusted over time based on increases in premiums.

 

Several methods will be employed to make these plans more affordable.  Regulations intended to reduce prices through competition will make plans and prices more transparent and price comparisons will be made more accessible for consumers with online information; and federally approved, multi-state plans will be phased into state exchanges to help guarantee enough options.  Price regulations will be implemented, and medical underwriting will not be allowed. 

 

Smaller employers can go onto the Marketplace to purchase group medical insurance policies for their employees, so that they can have access to larger pools of buyers, which offer the buying power that only large firms have had in the past.  These small firms will have access to the subsidies that are offered through the Marketplace.  However, firms with over 100 full-time employees (50 in some states) cannot use the Marketplace.

 

Despite some controversy, members of Congress and their staffs will participate in this system: they are required to obtain health insurance through the exchanges or through plans that are otherwise approved by the bill (such as Medicare) instead of the Federal Employees Health Benefits Program that they currently use.

 

The exchanges will take the form of websites where the private plans that are allowed to be sold within them will be regulated and easily comparable with each other.   Consumers will be able to visit these websites or ring a call center, compare the plans that are on offer, fill out a form to the government that will be used to determine their eligibility for subsidies, and then purchase the insurance of their choice from the options available during limited open enrollment periods.   

 

Individual ACA-compliant plans are rated with “metal” designations, which help consumers compare plans with each other.  Generally, the more “valuable” the metal, the higher the premium and the lower are the out-of-pocket costs.  There is plenty of variation from one carrier to another, both in terms of plan design and premium price, but policies are labeled based on their actuarial value, or the percentage of costs that the plan covers before the out-of-pocket maximum is reached.

 

Bronze plans will cover roughly 60 percent of costs, Silver plans 70 percent, Gold plans 80 percent, and Platinum plans 90 percent. All plans are subject to out-of-pocket maximums which cannot exceed $6,350 for an individual or $12,700 for a family in 2014.  Premium subsidies for eligible applicants can be applied to any of the “metal” plans, but cost-sharing subsidies are only available on Silver plans.

 

In addition to the four “metal” plans, there is also a catastrophic health plan available through the Marketplace for people under age 30 and for people with hardship exemptions.  These plans have low premiums, but very high out-of-pocket costs.

 

The ACA introduces an open enrollment period during which eligible individuals can enroll in a Qualified Health Plan in the Marketplace.  For coverage starting in 2015, the open enrollment period is Nov 15, 2014 to February 15, 2015.  In subsequent years, the open enrollment period will start on October 15 and end on December 7.  This is the only time during which you can purchase a new Marketplace plan.  If you are already enrolled in a Marketplace plan, you can renew your current health plan or choose a new one during this window.  This window was introduced to prevent a person from simply applying for a policy immediately after they get sick.  If you miss this window, you will have to wait until the next open enrollment period to apply for a plan or to make any changes in your coverage.  However, you might be able to qualify for special enrollment periods outside this limit if you experience certain events such as moving to a new state, changes in your income, loss of other health coverage, or changes in your family size.

 

Under the ACA, states have the option (but not the requirement) to set up their own independent statewide insurance exchanges, but the insurance policies sold there must conform to the regulations and requirements imposed by the ACA.  If their state indeed runs an exchange, consumers can go onto these state exchanges and compare and purchase medical insurance policies.  Federal assistance is available to these state-run exchanges, but federal regulations require that the state be able to prove that its exchange is self-sustaining and independent in order to receive any funding.  There are state-run exchanges in 13 states and in the District of Columbia.  There are another 7 “partnership” states that regulate health plans and handle customer outreach, but rely on Federal government to handle the actual enrollment.  But there are 30 states which have not set up any type of state-run exchange, and they are not required to do so.  But if a state declines to set up an insurance exchange, then their citizens can go on to an exchange run by the Federal government, at a website known as www.healthcare.gov.  

 

The official ACA website at www.healthcare.gov got off to a rocky start during the initial rollout on Oct 1, 2013.  The website crashed, probably because so many people were trying to use it at the same time, and also due to some software glitches.  There were long waits to log onto the website, and long wait times once online.  A lot of people were angered and frustrated by these outages, and the problems were a great embarrassment for President Obama.  But these problems have now been largely fixed, and the website now works fairly well.

 

Cost Assistance, Subsidies, and Tax Credits

 

Another feature of the insurance exchange is the availability of premium subsidies and out-of-pocket cost assistance for lower-income individuals.  Lower-income individuals with annual incomes between 100 and 400 percent of the Federal Poverty Level (FPL) who purchase insurance plans via the exchanges will be eligible to receive federal subsidies on a sliding scale to help pay the premium costs.  For example, a single person making less than $46,680 would be eligible for a subsidy.  The CBO estimates that the average Marketplace subsidy per eligible subsidized enrollee will be $5290 in 2014.  Those making less than 250 percent of the FPL may also qualify for out-of-pocket cost assistance.

 

People who purchase insurance policies on the Marketplace are also eligible for income tax credits, provided that their annual incomes fall between 100 and 400 percent of the FPL.  The amount of the tax credit is based on a sliding scale, with greater credit amounts available to those with lower incomes. 

 

Persons with incomes falling below the FPL are not eligible for subsidies in the exchanges, but they may be eligible for Medicaid assistance in some states.  Those making less than 138 percent of the FPL may qualify for Medicaid, assuming that they live in a state that has implemented Medicaid expansion under the ACA.  Some may also be able to receive cost-sharing subsidies.  Some self-employed individuals who purchase their own health insurance may be able to deduct the cost of their premiums on their federal income tax returns. 

 

King v. Burwell

 

Recently, a serious danger to the insurance exchanges emerged.  In November of 2014, the Supreme Court announced that it would hear the appeal in the King v. Burwell case.  This case hinged on what is essentially a typo in the ACA.  There is a phrase “established by the State” in the ACA which was said to mean that you can only get a subsidy if you signed up on a state-managed exchange, and that the federal government cannot subsidize insurance for residents of any state that has declined to set up its own exchange.   Residents of the states which provide health insurance via the federal government’s HealthCare.gov website, rather than through a state-run exchange, might have lost their subsidies.  The loss of these subsidies might make medical insurance unaffordable to millions of people.   However, even if the Supreme Court agreed with the appeal and invalidated healthcare subsidies for people using the federal exchange, people using state-run exchanges would still be eligible for subsidies.  But many states do not run their own exchanges, and if millions of people suddenly lose their subsidies, there will be pressure on states that don’t run their own marketplaces to set one up.

 

It is obviously true that Congress certainly didn’t intend for subsidies to be denied to people who used the federal government’s HealthCare.gov website.   But I suspect that the chances are fairly small that Congress will be able to fix this problem anytime soon.  People using independent state-operated exchanges would have probably been fairly safe, no matter what the Supreme Court ruled, but the residents of states which have refused to set up their own exchanges might have lost their subsidies, placing the entire system in jeopardy.  In addition, states that rely on a partnership with HealthCare.gov might also have been in some trouble.  For example, Illinois partners with HealthCare.gov, and people who try to sign up for an insurance policy on the Illinois exchange at GetCoveredIllinois are directed to HealthCare.gov to actually enroll in a plan.  Fearful that user subsidies might be in jeopardy if the Supreme Court ruled that people who use the federal exchange are not eligible for premium subsidies, the Illinois state legislature may have been forced to attempt to set up some sort of separately-run state-based insurance exchange.  But this may have turned out to be rather expensive, even with federal assistance.  Alternatively, Illinois could have contracted with another state that already has a fully independent exchange to run the Illinois exchange.

 

But on Jun 25, 2015, the Supreme Court, in a 6 to 3 decision, ruled that Congress did indeed intend that subsidies be made available to people who used the federal government’s exchanges.   People who use the federal exchange will still be able to receive insurance subsidies, provided that they are eligible.  If the Supreme Court had ruled the other way, this would have been a major blow to the ACA, since medical insurance would have probably become unaffordable for many people who lived in states which did not set up their own exchanges.

 

Employer Mandate

 

Prior to the ACA, employers were not required to provide medical insurance to their employees (except in Massachusetts and Hawaii).    The ACA adds a requirement that businesses which employ 50 or more people must offer health insurance to their full-time employees (defined as those who work 30 or more hours per week), or else they will now have to pay a tax penalty if the government has subsidized a full-time employee's healthcare insurance through tax deductions or other means. This is commonly known as the employer mandate.

 

However, no company with fewer than 50 full-time employees will be subject to this mandate, but the law does provide tax credits for small businesses that want to provide health insurance coverage to their employees.  If a small business has 25 or fewer full-time employees, they can apply for tax breaks of up to 50 percent (35 percent for non-profits) of their contributions to their employees’ premiums

 

Smaller employers can go onto the Marketplace to purchase group medical insurance policies for their employees, so that they can have access to larger pools of buyers, which offer the buying power that only large firms have had in the past.  These small firms will have access the subsidies that are offered through the Marketplace.  However, firms with over 100 full-time employees (50 in some states) cannot use the Marketplace.

 

The intent of the employer mandate is to help ensure that existing employer-sponsored insurance plans that people like will stay in place.   It was felt that there was a danger that employers might be tempted to drop their current employee medical insurance plans once the insurance exchanges began operating as an alternative source of insurance, and saving money by forcing their employees on to the exchanges.  

 

The ACA also imposes certain requirements on employer-based health coverage.  Employers that provide health coverage will not be able to limit eligibility for coverage based on the wages or salaries of full-time employees.  No group health plan may impose any pre-existing condition exclusions or discriminate against those who have been sick in the past.  Group insurance plans that cover dependents must extend coverage to adult dependents through age 26.  The coverage must be “affordable”, which means that the employee’s share of the premium cost for employee-only coverage (not the entire family) must not exceed 9.5% of their yearly household income.  The health plan must meet the minimum value requirement, where the plan’s share of the total cost of covered services must be at least 60 %

 

Can a person who is already being covered by an employer group medical insurance plan go onto the exchange and purchase a policy there?  The answer is, yes they can, but there are significant restrictions.  Under the law, those workers whose employers offer "affordable coverage" will not be eligible for subsidies in the exchanges. To be eligible for a subsidy the cost of employer-based health insurance must exceed 9.5% of the worker’s household income. In January 2013 the Internal Revenue Service ruled that only the cost of covering the individual employee would be considered in determining whether the cost of coverage exceeded 9.5% of income. However, the cost of a family plan is often higher, but the ruling means that those higher costs will not be considered even if the extra premiums push the cost of coverage above the 9.5% income threshold. The New York Times said this could leave 2–4 million Americans unable to afford family coverage under their employers’ plans and ineligible for subsidies to buy coverage elsewhere.

 

Most employers do not offer health insurance benefits to their part-time employees, and they are not required to do so by the ACA.  But the ACA takes the step of defining what is meant by a full-time employee, namely as one who works 30 hours or more a week.  This definition has caused some unintended consequences.  In order to comply with the new government regulations and provide health benefits to their 30-plus hour a week part timers, this would mean a significant increase in their benefits costs.  The clear solution is to put a cap on all part-time employees’ weekly hours at 29.  This will cut the hours for part-time employees, resulting in lost income.  A lot of retail and hospitality industries rely heavily on large numbers of part-time employees, most of which do not get any benefits.  So part-timers will suffer a double hit—not only will they earn less money, they will also miss out on health insurance at work.  Nevertheless, these part-timers may benefit from the ACA’s premium subsidies or an expansion of Medicaid, and they may qualify for discounted premiums on private insurance policies.

 

Many observers have expressed concerns that the employer mandate of the ACA creates a perverse incentive for business to employ more people part-time instead of full-time.   Some small business owners have reported that they have delayed hiring because of the new law, and many have cut hours, or plan to do so in the future.   Some full-time workers may be even be cut back to part-time.  Several businesses and the State of Virginia have clarified the contracts of their part-time employees by adding a 29-hour a week cap to reflect the 30-hour threshold for full-time hours, as defined by the law.  Employers such as Walmart, Target, and Trader Joe’s have stopped offering any health insurance to employees who work less than 30 hours per week, forcing these workers onto the ACA insurance marketplace to buy new plans.  Detractors claim that the ACA employer mandate will force more and more workers into part-time employment patterns, where they not only lose their medical insurance but also have their salaries and working hour cut. 

 

The problem is especially acute in academe.  Many colleges and universities rely heavily on part-time faculty (known as adjuncts) to teach their classes.  This helps to save the school money, since part-timers usually get lower salaries and usually don’t get any benefits such as health care insurance.  Prior to the ACA, most schools and colleges limited their part time faculty to teaching only 11 credit hours per semester or quarter, a workload of about 33 hours per week on the average.  In anticipation of the original employer mandate deadline requiring medical insurance be provided to people who work more than 30 hours per week, a lot of colleges and universities have cut back on the teaching loads of their part-time faculty, limiting their adjuncts to teaching no more than 9 credit hours per semester or quarter, which translates to only about 27 hours per week, assuming a ratio of two hours of preparation time for every hour spent in the classroom.  Lots of adjuncts have found that they have had the numbers of courses that they are allowed to teach sharply cut.  This is an unintended consequence of the new health law.

 

But some labor market experts claim that increases in the numbers of part-timers in the American economy are not clearly attributable solely to the implementation of the ACA.   Other factors play a role, especially the impact of the Great Recession.  Employers save in other ways in hiring more part-timers—they not only save in not providing them with medical insurance, they also save in not having to provide them with retirement pensions or other benefits.  Part-timers are cheap labor, and in a tight job market it is very easy for employers to find lots of them.

 

However, the temptation for employers to convert their work force to part-time is partially offset by other factors.   Offering healthcare coverage helps to attract and retain good employees, which increases productivity and reduces absenteeism.  In addition, the trading of a smaller full-time workforce for a larger part-time work force carries extra costs of training and administration for a business.  A work force dominated by part-timers would have greater employee turnover, lower employee morale, and probably lower productivity.

 

The second provision changing work week incentives is the ACA provision that full-time employees and their families cannot receive subsidized health coverage on the ACA’s health insurance exchanges (hereafter, “exchange subsidies”) unless their employer fails to offer “affordable coverage”.  In other words, employees of a company that offers insurance coverage will only receive a government subsidy if they work part time or spend time off the payroll entirely.  This is, in effect, an implicit tax on full-time employment.  The forgone subsidies include cost-sharing assistance—federal dollars that reduce a family’s health insurance deductibles and copayments—as well as premium assistance administered through the federal personal income tax. Altogether, these subsidies can easily be worth more than $10,000 per year.  

 

There is a penalty imposed on employers with over 50 full-time equivalent employees who don’t offer health insurance to their full-time employees.  The annual fee is $2000 per employee.  The fee is officially referred to as a “shared responsibility payment”.   In July 2013, the Internal Revenue Service delayed enforcement of the penalty for one year.  For companies with 100 or more full-time employees, the mandate was delayed for one year and did not take effect until 2015. For companies with 50 to 100 full-time employees, the mandate was delayed an additional year and did not take effect until 2016.

 

Another feature of the ACA is a 40 percent excise tax on the value of employer health insurance benefits that exceed a certain threshold ($10,200 for individuals and $27,500 for family plans) .  This tax will begin in the year 2018.  This has been referred to a “Cadillac” tax, a reference to the Cadillac automobile, which has been a symbol of American luxury for a long time.  The threshold is $10,200 for individual coverage and $17,500 for family coverage.  The thresholds increase for individuals in high-risk professions and for employers that have a disproportionately older population.  These plans are targeted because of small or non-existent copays or deductibles, or very high caps that encourage the overuse of medical care, all of which drive up the overall cost of medicine.  The employer or the plan administrator is responsible for paying the tax, not the beneficiary.  However, in order to avoid this tax, a lot of employers may be tempted to cut benefits and shift workers into plans with higher deductibles, or to impose more costs on employees.

 

 

Individual Mandate

 

Perhaps the most significant change created by the ACA is the requirement that all Americans must have health insurance coverage, even those who are not working for any employer or who are not covered by any sort of public insurance program .  

 

Prior to the implementation of the ACA, there was no federal law requiring individuals to have health insurance coverage.  But starting in 2014 under the ACA, all Americans must have at least minimal health coverage or they will have to pay a penalty to the IRS.    If you don’t have adequate health insurance through an employer group plan, through Medicaid, through Medicare, or through any other public insurance programs (such as TRICARE), you must purchase an individual medical insurance policy, either on the exchanges or on the private market.  The deadline for obtaining coverage without incurring any penalty was March 31, 2014.  

 

The individual health insurance mandate applies to the self-employed as well as to everybody else. This is true whether you are a self-employed sole proprietor, a partner in a partnership or limited-liability company, or an employee of your own small corporation.

The law includes subsidies to help people with low incomes to comply with the mandate.

 

The thinking behind the Individual Mandate was to ensure that adequate numbers of relatively healthy people will have medical insurance, which will spread the risk around and supposedly ensure that premium costs will remain relatively reasonable.   Without a mandate, people might be tempted to wait to apply for a medical insurance policy until they actually needed medical care, recognizing that medical underwriting is no longer allowed and that issuance of coverage would now be guaranteed.  If it turns out that only sick people actually get medical insurance, the treatment of their medical maladies will become increasingly more expensive, which  will drive up premium prices.  This in turn would lead to healthier people deciding not to buy any insurance at all, figuring that they could always get it if their health changed.  This would force insurers to raise rates still further to cover their expenses, which would lead to even more healthy people opting out.   This would result in what is known in the trade as an “insurance death spiral”, leading to progressively fewer numbers of healthy individuals and increasing numbers of unhealthy people getting medical insurance, leading to progressively higher and higher premium costs, driving still more people out of the market.  Eventually, the premiums become so high that no one can afford them, and the system entirely collapses.  It was felt that the absence of the Individual Mandate would have likely caused the exchanges as a whole to enter this insurance death spiral.

 

The type of coverage you’ll need to have in order to avoid the penalty is called minimum essential coverage.   Minimum essential coverage includes Marketplace insurance, most private major medical plans that are sold off the marketplace, Medicare, Medicaid, CHIP, and most employer-based coverage.  Things that qualify as minimum essential coverage include:

·         Employer-sponsored coverage (including COBRA coverage and retiree coverage)

·         Coverage purchased in the individual market, including qualified health plans offered by the Health Insurance Marketplace (also known as an Affordable Insurance Exchange)

·         Medicare Part A coverage and Medicare Advantage plans

·         Most Medicaid coverage

·         Children’s Health Insurance Program (CHIP) coverage

·         Certain types of veterans health coverage administered by the Veterans Administration

·         TRICARE

·         Coverage provided to Peace Corps volunteers

·         Coverage under the Non-appropriated Fund Health Benefit Program

·         Refugee Medical Assistance supported by the Administration for Children and Families

·         Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)

·         State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)

 

However, minimum essential coverage does not include coverage that provides only limited benefits, such as coverage only for vision care or dental care, and Medicaid covering only certain benefits such as family planning, workers’ compensation, or disability policies.  Short term plans and other non-compliant plans purchased outside an insurance company’s open enrollment period will not count either.

 

Many people are exempt from the mandate. Excused from this requirement are people who are members of a recognized religious sect exempted by the Internal Revenue Service.  Undocumented immigrants don't have to comply because they're not even allowed to use the ACA’s new insurance exchanges to buy coverage.  Many Native Americans also don't have to comply, nor do those whose religious beliefs reject health insurance, people who don't make enough money to file federal income taxes, and people who can't find a health plan that costs less than 8 percent of their incomes.  There is also a "hardship exemption,” one for which many people who are having financial difficulty may potentially qualify.  The CBO estimates that in 2016, about 24 million Americans will be exempt from the Mandate.

 

The penalty for not having medical insurance is imposed by the Internal Revenue Service.    The exact amount of the tax penalty is based on household income, as reported on your Form 1040.   This penalty is scheduled to be phased in over the next several years as follows:

 

·         for 2014, the penalty is the greater of $95 or 1% of income

·         for 2015, the penalty is the greater of $325 or 2% of income

·         for 2016, the penalty is the greater of $695 or 2.5% of income, and

·         after 2017, the $695 amount is indexed for inflation.

 

The penalty for children is half the amount for adults and an overall cap will apply to family payments.  But there's a limit to how much anyone would ever pay. The penalty is capped at the national average annual price for a "bronze" health insurance plan on the ACA exchanges, the lowest-level plan available to everyone.

The penalty really only applies to taxpayers who can afford medical insurance but who do not purchase it. The Congressional Budget Office says that out of the 30 million non-elderly Americans it estimates will not have health insurance in 2016, only about six million of them will be subject to the tax. The remainder will be exempt because their income is too low or because they qualify for another exemption

So, over the next few years, remaining uninsured when you can afford to buy coverage will get rather expensive. While the penalty is often actually cheaper than the cost of health insurance, you don't get anything in return and you are still responsible for paying your own medical bills.

However, collecting the penalty may be a bit of a challenge.  The ACA doesn't let the IRS come after you if you don't pay the penalty.  Failing to pay the penalty isn't a crime. The government cannot garnish your wages or put liens on your property to collect the money. Basically, the only way the IRS can get the money is to deduct it from your tax refund.  But if you aren’t owed a refund, you are basically exempt from the penalty.  What's more, the IRS really doesn't have any way of checking whether you are really insured if you simply say you are when you file your taxes. 

The ACA was extremely controversial, with many charging that the individual mandate was unconstitutional.  On June 28, 2012, the United States Supreme Court upheld the constitutionality of the ACA’s individual mandate as a valid exercise of Congress’s taxing power, in the case National Federation of Independent Business v Sebelius. 

 

Expansion of Medicaid Eligibility

 

Another prominent feature of the ACA was the expansion of eligibility for Medicaid assistance.  Each state operates a Medicaid program that provides health coverage for lower-income people, families and children, the elderly, and for people with disabilities. The eligibility rules for Medicaid are different for each state, but most states currently offer coverage for adults with children at some income level.  Currently

Medicaid pays for health care for more than 74 million people nationally.  All 50 states participate in the Medicaid program, but some states have very narrow eligibility requirements for Medicaid, leaving many working adults uncovered, and the ACA Medicaid eligibility expansion attempts to close this gap.   A large fraction of those people who obtained medical insurance through the ACA did so through Medicaid expansion.

 

The Affordable Care Act required states to expand Medicaid coverage to everyone making less than 133% (138% under effective definitions of income) of the Federal Poverty Level, or lose federal funding to Medicaid.  Medicaid expansion helps to cover the gap between current Medicaid eligibility and families being able to afford private health insurance using the Marketplace subsidies.  There were a lot of people who didn’t make enough money to qualify for subsidies on the exchange, but made too much money to qualify for Medicaid.  It was estimated that about half of the uninsured in America would be covered by Medicaid expansion if it were to be applied nationwide.  This also would ensure that there would be less unpaid emergency care brought on by lack of coverage.  Medicaid expansion has resulted in a marked reduction in unpaid bills at hospitals, which in turn reduces the need for hospitals to pass along these costs to taxpayers and people with health insurance.

 

However, in the Supreme Court decision that upheld the constitutionality of the ACA’s individual mandate, the Court also held that states cannot be forced to participate in the ACA's Medicaid expansion under penalty of losing their current Medicaid funding.  19 states have declined to participate in the Medicaid expansion.  Those states which reject Medicaid expansion can maintain their pre-existing Medicaid eligibility thresholds, which are usually significantly below the ACA proposed threshold of 133 % of the poverty line for most individuals.  Also, many states do not make Medicaid available to childless adults at any income level. 

 

In states that do expand Medicaid eligibility, the law provides that the federal government will pay for 100% of the expansion for the first three years and then gradually reduce its subsidy to 90% by 2020.   Several opposing states argue that the 10% of the funding of the expansion that they will be responsible for will be too much for their states' budgets.   However, studies suggest that rejecting the expansion will cost states more than expanding Medicaid due to increased spending on uncompensated emergency care that otherwise would have been partially paid for by Medicaid coverage.

 

The intention of the ACA was to make sure that everyone who makes less than 400 percent of the FPL would either be eligible for subsides on the Exchanges or be able to go onto Medicaid.  But for those states which rejected Medicaid expansion, there will be many people who make too much to be eligible for Medicaid but not enough to be eligible for subsidies on the Exchanges.  This leaves a coverage gap between those who qualify for Medicaid (as low as 50 percent of FPL in some states) and those who qualify for marketplace subsidies (between 100% and 400% of FPL). Fortunately, those who fall in the coverage gap are exempt from the mandate; therefore, they will not be penalized for not having insurance if their state chooses not to expand Medicaid. Studies of the impact of state decisions to reject the Medicaid expansion, as of July 2013, calculate that up to 6.4 million Americans could fall into this coverage gap.

 

Some of the current drawbacks to Medicaid include limited access to health care and low doctor payouts.  Because of the low payouts, many doctors will not accept Medicaid patients, and the quality of the care can be rather poor.  The ACA proposes to raise the amount that doctors get under Medicaid to the same levels as Medicare, and provides free or low-cost preventive services, including routine vaccinations.

 

Children On Their Parent’s Health Plan

 

Another feature of the ACA was to allow children to remain on their parents’ employer-provided health plan until they reach age 26.   Effective September 23, 2010, if an employer-sponsored health plan allows their employees' children to enroll in coverage, then the health plan must allow employees' adult children to remain on their parents’ health plan until they reach age 26. Some group health insurance plans may also require that the adult child not be eligible for other group health insurance coverage, but only before 2014.

 

This extension of coverage will help cover one in three young adults, according to White House documents.  In the present economy, young college graduates are finding that the job market is extremely tight in many fields, forcing them to remain living with their parents at home for longer periods of time.

 

Changes in Individual Insurance Plans

 

Individual health insurance will still be available outside the Marketplace, which you can obtain through a broker or directly from the provider.  But the ACA applies almost the same set of requirements for insurance sold on the individual market as those sold on the Exchanges.  Under the ACA, starting on January 1, 2014, all private insurance plans (both on and off the Health Insurance Marketplace) must provide the following Essential Benefits:

 

·        No denial of coverage or increased premiums for pre-existing conditions

·        All plans are prohibited from rescinding coverage except in instances of fraud or misrepresentation.

·        Plans cannot establish lifetime or unreasonable annual limits on the dollar value of benefits.

·        All plans offering dependent coverage must allow unmarried individuals to remain on their parents’ health insurance until age 26.

·        Certain preventive services such as mammograms and annual checkups must be provided for free.

·        Any willing provider of health care services must be allowed to participate in the plan.

·        Emergency services must be covered without prior authorization.

·        Must cover outpatient care

·        Must cover hospital care, including skilled nursing care

·        Maternity and newborn care

·        Mental health services and addiction treatment

·        Prescription drug coverage

·        Rehabilitative services

·        Laboratory services

·        Pediatric services

 

Although all qualified plans must offer these essential benefits, the scope and quantity of services under each category can vary from one plan to another.

 

While there are no official government-imposed open enrollment periods for private health insurance purchased outside the Marketplace, most private insurers have adopted this practice to avoid sick people going without  coverage and signing up at the last minute.   Nevertheless, many private insurance carriers will still sell insurance outside their open enrollment periods, but most of these plans are short-term policies which offer only minimum coverage.

 

But customers who purchase medical insurance plans on the individual insurance market, outside the Marketplace Exchanges, are not eligible for any government-provided subsidies on their premium costs, nor are they eligible for any government assistance in paying out-of-pocket costs, nor are they eligible for income tax credits.  So, if you are making less than 400 percent of the Federal Poverty Level, you can probably get a better deal by going onto the Medical Marketplace Exchanges.  If you are considering purchasing a medical insurance policy outside the Marketplace, the first thing to do is to figure out if you qualify for a premium subsidy or a cost-sharing subsidy within the exchanges, based on your household income. If you do, you’ll definitely want to get your health insurance through the exchange, because that’s the only way that the subsidies are available.  However, if you are relatively well-off, you probably won’t qualify for any sort of subsidy, and you might well get a better deal on the private market outside the Exchange.

 

Plans that do not satisfy these requirements can no longer be sold, and some existing plans that do not meet these requirements must be cancelled.  If your individual plan gets cancelled, you can buy a plan that the company offers in its place, or you can go on the Marketplace.  You will be eligible for a Special Enrollment period to enroll in a new Marketplace plan.  This period starts 60 days before your individual plan ends, and ends 60 days after your coverage ends.  Otherwise you will have to wait until the next Open Enrollment period to sign up for a Marketplace plan. 

 

But what about individual medical insurance policies that were in existence before the ACA went into effect?  Can they still be kept?  Plans that were purchased before March 23, 2010 (the day that the ACA became law) are said to be grandfathered.  They do not have to follow the ACA’s rules and regulations and they don’t have to offer the same set of benefits, rights, and protections that the new plans must provide.  Grandfathered plans are exempt from requirements to provide certain types of preventive health coverage, they don’t have to provide certain patient protections, they can use medical underwriting, and they don’t have to comply with restrictions on insurance premiums.   Insurance companies cannot enroll new people in these grandfathered plans after March 23, 2010 and have that new enrollment count as a grandfathered policy.  But insurance companies can continue to offer these plans to people who were enrolled before that date.  But these plans do have to eliminate lifetime limits on coverage, and they do have to provide limits on rescissions.   However, they don’t have to end yearly limits on coverage, and they don’t have to cover you if you have a pre-existing condition.

 

But if you like your grandfathered plan, you may be able to keep it, so long as your state agrees with the extension and your insurer agrees to keep on providing it.  In most cases, your health insurance provider will inform you if you have to switch plans for 2015 (this was extended to 2017), but some states with working health insurance marketplaces have rejected the new 2015 deadline and will enforce the original 2014 deadline.  If you currently have a grandfathered plan, it could lose its grandfathered status if it undergoes any significant changes, such as reducing coverage, raising deductibles, coinsurance or copayments,  increasing annual limits by high amounts, raising copayment charges, or significantly cutting or reducing benefits.   

 

Furthermore, the law does not prohibit insurers from cancelling older plans for other reasons, such as a determination that a plan has become too expensive to maintain or because there were not enough customers for the plan.  I think that a lot of insurers blamed “Obamacare” for these cancellations, when other factors were really to blame.  But many of these cancelled plans were really substandard.  Among the plans that have been cancelled are the “junk-insurance” plans that cover only a couple of thousand dollars of costs a year, along with the so-called “mini-med” policies that are offered by some employers to their lower-paid employees.  But many of the holders of these cancelled plans can probably get a much better deal if they go onto one of the insurance exchanges.

 

At various times during and after the debate surrounding the ACA, President Obama stated that "if you like your health care plan, you'll be able to keep your health care plan”.   But in the fall of 2013 millions of Americans with individual policies received notices that their insurance plans were being terminated, and several million more are in danger of seeing their current plans cancelled.  A lot of people were upset when they found that their individual medical insurance policies—which they were perfectly happy with--were cancelled because the Affordable Care Act regarded them as being substandard.   On November 7, 2013, President Obama stated: "I am sorry that [people losing their plans] are finding themselves in this situation based on assurances they got from me", and he promised to work to help the affected Americans.   Various acts have been introduced in Congress to allow people to keep their existing individual insurance plans.  President Obama's previous unambiguous assurance that consumers' could keep their own plans has become a focal point for critics of the ACA and a political liability for the law's proponents. Whether or not President Obama knew that his statements were incorrect at the time he made them has also become the focus of discussion.

 

Congressional Participation

 

Members of Congress and their staff will participate in this system: they are required to obtain health insurance through the exchanges or plans otherwise approved by the bill (such as Medicare) instead of the Federal Employees Health Benefits Program that they currently use.

 

Illegal Aliens

 

Some critics have charged that illegal aliens will able to obtain medical insurance through the ACA, but In fact, the ACA explicitly denies insurance subsidies to "unauthorized (illegal) aliens".

 

Costs and Savings

 

The ACA isn’t free and will cost the taxpayers money.  How much will the ACA cost?  Budget estimates vary.  President Obama said that it would cost $940 billion over the first 10 years, but the Congressional Budget Office set the estimate at $1.76 trillion.  Some of the things what will cost money include the expansion of Medicaid and CHIP, the small business tax credit, the establishment of the exchanges and the provision of tax credits and subsidies for lower-income people who purchase policies on the exchanges. 

 

In addition, there are areas where cost savings are implemented, examples being the reduction of drug subsidies to the wealthy, the reduction in hospital DSH payments, and a reduction in Medicare and Medicare Advantage spending.

 

Another cost cutting measure is requiring health insurers who spend less than 80 percent of the premiums they receive on actual medical care to reimburse some of this money to their customers.  Insurers of large companies have to spend at least 85 percent of premiums they receive or issue refunds.  The health care law also created Accountable Care Organizations, which encourages hospitals, primary care physicians and other medical providers to join forces and coordinate care for their patients.  And the Affordable Care Act's provision that insurance policies cover preventative care for customers may also reduce overall long-term health costs. The idea is if people receive preventative care, they will be less likely to suffer from chronic health conditions at a later time that might cost much more.

 

But there are also new taxes that are imposed that will help to defray some of these costs.  Most of the new taxes are on high-earners (individuals making over $200,000 and families making over $250,000).  The ACA imposes a new 0.9% Medicare Part A surtax applied to wages and self-employment income over $200,000 for individuals and $250,000 for married couples.  A new tax on investment income, which took effect in January 2013, places a 3.8% surtax on interest, dividends, annuities, royalties, rents and gains on the sale of investments on households with more than $250,000 in annual income or $200,000 for individuals. 

 

Other taxes are on industries that profit from healthcare.  Some of these new taxes are a tax on health insurance companies, a tax on brand-name drugs, and a 2.3% tax on medical device manufacturers and importers.   There is an excise tax on charitable hospitals that fail to comply with the requirements of the ACA.    A 10% excise tax was introduced on U.S. indoor tanning salons.

 

There are taxes imposed on employers who do not offer adequate health insurance coverage.  The tax applies to employers with 50 or more full-time equivalent employees.  Also included is the 40 % “Cadillac” health insurance excise tax imposed on the portion of most employer-sponsored health coverage (excluding dental and vision) that exceed $10,200 a year for an individual and $27,500 for families.

 

The ACA brings with it an additional tax on individuals who take a deduction based on having high medical bills. The old threshold of medical expenses exceeding 7.5% of AGI is replaced with a threshold of 10% of AGI as of January 2013. From 2013-2016, Americans 65-and-over are exempt from this tax.

 

The ACA places a cap limit on flexible spending accounts of up to $2,500 (there was initiailly no cap on such plans.) There’s also a new tax, estimated at $5 billion, called the “medicine cabinet tax”, where U.S. adults cannot use health savings accounts, flexible spending accounts or health reimbursement pre-tax dollars to buy non-prescription, over-the-counter medicines.

The Affordable Care Act and Medicare

 

There has been some confusion about how the ACA affects Medicare. Part of the Affordable Care Act is the establishment of the Health Insurance Marketplace, which is a new way for lower-income individuals or for employees of small businesses who don’t have access to employer-based insurance to get high-quality health insurance at affordable rates, free from restrictions based on preexisting medical conditions.  

 

Medicare is not part of this system.  The Health Insurance Marketplace does not offer any sort of Medicare Supplemental Insurance, any Medicare Advantage plans, or any Medicare drug plans.  Medicare participants are ineligible to purchase any sort of individual medical insurance policies from the Health Insurance Marketplace, and there is absolutely no reason why they would ever want to. In fact, it would be against the law for someone who knows that you have Medicare to sell you a Marketplace plan.  However, if you are on Medicare and are still employed and your employer offers coverage through the Health Insurance Marketplace, you may be eligible to keep that type of coverage if you so desire.  In any case, seniors on Medicare do not need to buy any additional health insurance to comply with the ACA—Medicare and all Medicare related insurance plans fully count as “minimum essential coverage”.

 

Medicare coverage meets the ACA’s requirement that all Americans have health insurance coverage.  If you have Medicare Part A or Medicare Advantage, you are considered as having “minimum essential coverage”, and you certainly don’t need to get a Marketplace plan.  But having Medicare Part B alone does not meet this requirement.   No matter how you get Medicare, whether through Original Medicare or through a Medicare Advantage plan, you still have the same benefits you have now.  You do not need to make any changes.

 

Nothing in the ACA changes which doctors Medicare patients can see.  People on Traditional Medicare can see any practitioner who accepts Medicare patients, but some Medicare Advantage plans restrict you to only the doctors in their networks.  The ACA has nothing to do with this.

 

Medicare Part B and Medigap premiums do increase annually, but these increases have nothing to do with the ACA.   The official formula for determining Medicare Part B premiums was established by Congress many years ago and is unaffected by the ACA.  People who earn more than $85,000 per person or $170,000 per couple will continue to have to pay more for their Part B coverage, but this has been true since 2007 and has nothing to do with the ACA.  Medigap insurance policies are issued by private insurance companies, and the yearly increases in the premiums that they charge are based upon medical inflation factors as well as on basic economic forces and are not set by anything in the ACA.

 

You might have gotten an individual Marketplace plan to cover you before your Medicare coverage began, and you could keep that plan if you so desire.  But it might be a better idea for you to cancel your Marketplace plan once you go onto Medicare.  This is because once you become Medicare eligible, you no longer qualify for any Marketplace tax credits to help pay your premiums and you are no longer eligible for the reductions in cost-sharing and the income tax credits that may be available through the Marketplace.


Contrary to some rumors, the ACA is not ending or replacing Medicare.  In addition, seniors on Medicare do not need to buy any more health insurance in order to comply with the ACA.  Nothing in the ACA changes which doctors Medicare patients can see.  Although hospitals, physicians, and other healthcare providers can choose to withdraw from the Medicare program, there is nothing in the ACA that requires seniors on Medicare to leave their current doctors and choose new providers.

 

During the debate over the ACA, there were rumors floating around that the law would require all Medicare beneficiaries to attend classes once every five years where they would be instructed on how to end their lives.  These classes were referred to as “death panels”, which would “pull the plug on grandma”.    What the bill actually said is that Medicare would be required to reimburse doctors if a Medicare beneficiary asks them for consultation on advanced care or on end-of-life planning, such as how to make a living will, or how to assign people to make health care decisions for them (durable power of attorney).  The “every 5 years” part of the rumor came from the bill’s requirement that Medicare pay for these services only once every five years.  Again, the consultation is provided and paid for by Medicare only if the beneficiary requests it.

 

Because of the controversy, the plan to pay health care providers who talk to Medicare patients about end-of-life care was removed from the final version of the ACA.   Nevertheless, some private insurers do indeed cover such talks, and the American Medical Association has requested that Medicare start covering such talks.

 

But the ACA does make some changes in the costs and spending in Medicare.  Medicare spending and coverage has been increased in some areas, but some cuts have been made in other areas.

 

The ACA imposes a new 0.9% Medicare Part A surtax applied to wages and self-employment income over $200,000 for individuals and $250,000 for married couples. 

 

The ACA closes the infamous “donut hole” in Medicare Part D prescription drug coverage.  This is the coverage limit where seniors must pay a lot more out of pocket for their prescriptions.  Currently, each Part D plan covers up to $2960 for prescription drugs each year, and once you reach that limit, you are said to enter the “donut hole”, where you benefits go down, and your copays for medicines rises to 45 percent for brand-name drugs and to 65 percent for generics.  You pay this additional cost on your medicines until you have spent $4550.  Over the next few years, the coverage while in the donut hole gets stronger and stronger, and the percentage you have to pay while in the donut hole will go down, until the donut hole finally disappears in 2020.

 

However, some higher income Medicare beneficiaries (those who earn more than $85,000 per person or $170,000) per couple will now have to pay slightly more for their Part D coverage.  However, the vast majority of seniors on Medicare will actually see their drug costs go down as the ACA closes the “donut hole”.

 

The ACA expands existing Medicare coverage for seniors, including preventive care (like mammograms or colonoscopies) and wellness visits without charging you for the Part B co-insurance or deductible. Seniors will no longer need to put off preventive care and check-ups due to costs. This reform has been active since 2011 and gives seniors better access to cancer screenings, wellness visits, personalized prevention plans, vaccines, flu shots and more.  It is hoped that the cost of this provision will result in cost savings at a later time, with the prevention of more serious illnesses down the road.

 

The ACA aims to incentivize hospitals to promote high-quality care and to avoid unnecessary readmissions.  Medicare payments will be reduced for hospitals which have high rates of potentially preventable readmissions.  The Congressional Budget Office estimates that this payment adjustment could save over 7 billion dollars over ten years.  If hospitals meet certain quality targets, they can get paid more by Medicare.


The ACA increases the government’s ability to detect and punish those who are engaged in Medicare and Medicaid fraud.  The Congressional Budget Office estimates that every dollar spent in fighting fraud results in nearly two dollars in savings.  The CBO projects that the implementation of these anti-fraud measures could cut Medicare and Medicaid spending by nearly 3 billion dollars, and increase revenues by almost a billion dollars.

 

The controversial part of all this is that the ACA does indeed impose some cuts in Medicare spending over the next 10 years.  These involve cuts in annual increases in Medicare reimbursement for Medicare Advantage, a gradual decrease in the amount of money paid for hospital reimbursements, cuts in payments for home health services, a reduction in the extra funds paid to hospitals that see more uninsured patients, as well as cuts in hospices and in skilled nursing services.  The decreases in the rate of growth of reimbursements for hospitals will hopefully close a large fraction of the anticipated shortfall in the Medicare Part A trust fund, and will help to extend the lifetime of the trust fund to at least 2026.  The cuts in reimbursement rates will hopefully force hospitals to improve their efficiency.  Although the ACA cuts back on payment rates for hospitals and insurers, it does not change the set of benefits available to Medicare patients.  It is true that hospitals will have to bear the cost of most of these reductions, but at the same time they are likely to see an increase in the numbers of paying patients with the ACA’s insurance expansion, since the increased availability of medical insurance will mean that hospitals will have to handle fewer numbers of non-paying patients, which will help to lower overall costs.

 

Over the 10-year period between 2013 and 2022, it is estimated by the Congressional Budget Office that the ACA will cut Medicare spending by $716 billion.  The goal is to slow the increase in Medicare costs over the next few years, in order to ensure that Medicare remains viable in the future.  The concept behind the Medicare cuts is to eliminate the parts of Medicare and Medicare Advantage that do not work, and use that money to fix the parts that need reform.  The ACA also includes new resources to protect taxpayers from fraud and abuse in Medicare.  

 

The cuts in Medicare funding have been the source of much criticism, with critics charging that Medicare has been gutted in order to pay for the ACA.  It is indeed hard to believe that such large cuts won’t adversely affect Medicare in the future.  There are fears that fewer doctors and hospitals will be available for Medicare patients, resulting in a reduced level of care.  These cuts may lead to seniors on Medicare having to pay higher premiums and greater out-of-pocket costs.  The lower reimbursement rates may force more providers to stop accepting Medicare patients.  

 

A large fraction of the ACA Medicare cuts are in the Medicare Advantage program.  When Medicare Advantage was first introduced, a lot of insurers jumped into the program, only to quickly find out that they could not continue to serve the aged population and still make a profit.  This caused a lot of them to drop out of the program.  In order to entice them to stay in the program, Medicare started paying these private insurers a bonus every year in the form of overpayments.  These overpayments have been sufficient to keep most of the Medicare Advantage insurers in the program and to keep their investors and stockholders happy.   But by 2009 these overpayments were costing Medicare billions of dollars every year.    The Medicare Payment Advisory Commission estimated that in 2009 alone, Medicare paid private insurers participating in Medicare Advantage plans 14 percent per beneficiary more than it would have cost the government to cover them under Traditional Medicare. 

 

The ACA has made attempts to rein in some of the high costs of these Medicare Advantage plans.  The ACA does not actually cut any benefits from Medicare Advantage, but it does reduce payments to Medicare Advantage carriers, bringing them more in line with the payments made under Traditional Medicare.  Under the provisions of the ACA, these overpayments made to Medicare Advantage plan carriers will gradually be phased out over the next few years and replaced with a payment system that rewards plans that meet certain quality standards for care and customer service.  The ACA says that starting in 2014 Medicare Advantage plans will be required to spend at least 85 percent of the money that they take in from premiums and from Medicare payments from CMS on actual medical care, and they will no longer be able to charge higher copayments than does traditional Medicare for certain services.  This means that they cannot spend more than 15 percent of their Medicare payments on administrative costs, profits, or non-healthcare items.   It was estimated that these changes produced $68 billion of savings through 2016.

 

These changes may mean that Medicare Advantage plans will be forced to raise their premiums or to cut out extra benefits such as healthclub memberships or routine vision care.  They may also have to increase their copays and coinsurance.  Some Medicare Advantage insurance carriers may even be forced to drop out of Medicare altogether.  A lot of Medicare Advantage plans have tightened up their physician networks, and have cut out lots of physicians.  However, in order to encourage better quality, the ACA offers bonuses to Medicare Advantage insurance companies if they improve their plans. 

 

The Independent Payment Advisory Board

 

The Independent Payment Advisory Board is a 15-member agency that was established by the ACA.  This board has the explicit task of achieving specified savings in Medicare without affecting coverage or quality.  Under previous and current law, changes to Medicare payment rates and program rules are recommended by the Medicare Payment Advisory Commission (MedPAC).  MedPAC had no regulatory power on its own, and its recommended Medicare cuts were repeatedly ignored by Congress.  It was felt that many in Congress were too heavily beholden to doctors, hospitals, drug companies, and medical suppliers for their campaign financing, which made it difficult to make objective and rational decisions about Medicare funding cuts.  In addition, it was recognized that most representatives and senators were not well enough informed about medicine to make wise decisions about Medicare funding.  It was thought that a possible solution to this problem would be to get Congress out of the loop--the new system grants the IPAB the authority to make changes on its own to the Medicare program, with the Congress only being given the power to overrule the agency's decisions through a supermajority vote.

 

The IPAB is composed of 15 members that are appointed by the President, subject to Senate confirmation.   There is an attempt to make the IPAB non-partisan, and the President is required to consult with the Majority Leader of the Senate concerning the appointment of three members, with the Speaker of the House concerning the appointment of three members, with the Minority Leader of the Senate concerning the appointment of three members, and with the Minority Leader of the House concerning the appointment of three members.  The Secretary of Health and Human Services, the Administrator of CMS, and the Administrator of the Health Resources and Services Administration serve as nonvoting members.   There are means to ensure there is full disclosure by IPAB members of any financial or other potential conflicts of interest.

 

IPAB is tasked with developing specific proposals to bring the net growth in Medicare spending back to target levels.  If the Chief Actuary of the Center for Medicare and Medicaid Services determines that future net Medicare spending is forecast to exceed target levels, beginning in 2015 the IPAB had to develop a proposal to reduce Medicare spending by a specified amount.  For determination years 2018 and beyond, the target for total Medicare spending is per-capita GDP growth plus one percentage point.  The Department of Health and Human Services (HHS) must then implement these proposals, unless Congress overrides the Board’s decision and adopts equally effective alternatives under a fast-track procedure that the law sets up. The board is also required to submit to Congress annual reports on health care costs, access, quality, and utilization. IPAB must submit to Congress recommendations on how to slow the growth in total private health care expenditures.  The board’s mandate also includes recommendations to rein in private healthcare spending, but these recommendations are not binding.

 

With regard to IPAB's recommendations, the law says "The proposal shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums under section 1818, 1818A, or 1839, increase Medicare beneficiary cost sharing (including deductibles, coinsurance, and co-payments), or otherwise restrict benefits or modify eligibility criteria."   

 

The IPAB has become quite controversial.  Critics of the IPAB have charged that the board's cost-cutting mandate will inevitably bring about a reduction in medical care for seniors.  Some have warned that IPAB will actually end up rationing care through limitations on payments to doctors and hospitals.   The IPAB has frequently been denounced by its critics as a “death panel”, although the law specifically forbids the IPAB from engaging in any sort of medical rationing.  A lot of physicians and hospitals oppose the IPAB because of the potential threat of cuts in their reimbursements.   A lot of doctors fear that the bill gives IPAB "unprecedented, dangerous authority to cut Medicare pay rates and strangle access to care."  There is a fear that reimbursement cuts recommended by IPAB could drive some providers out of Medicare altogether, with seniors encountering difficulties in finding providers who will accept Medicare.  Some lawmakers fear that the panel could usurp the power of Congress, and that the IPAB might actually be unconstitutional.

 

There have been attempts by Congress to repeal the IPAB.  In any case, Congress has cut back sharply on the funding for IPAB, and so far no members of the IPAB have actually been appointed.  Furthermore, the growth in Medicare spending per enrollee has been fairly low in recent years, and there has been no pressing need for IPAB.

 

 

Problems with the Affordable Care Act

 

The introduction of the Affordable Care has not been without problems.  Some of these are listed below.  Some regard these problems as being so severe that they have called for major revisions in the law or even for its total repeal.  But even the law’s supporters admit that there are some serious problems that need to be addressed, but they argue that these problems can be corrected by some carefully-chosen revisions without adversely affecting the salient features of the law.

 

Some of the features of the law have actually been quite popular—examples being the elimination of the denial of coverage for prior conditions, the ability of parents to continue to cover their children until they reach age 26, the requirement that insurance carriers can no longer charge more for women than for men, a ban on insurer caps that limit payouts to expensive patients, the introduction of delivery reforms that have produced lower overall medical cost growth, as well is the dramatic lowering of the numbers of uninsured Americans.  In addition, Medicare has been improved by the ACA by the introduction of measures that eliminate the donut hole, measures that keep rates down, measures that cut wasteful spending and fraud, and those measures that expand free preventive services.

 

But other features of the law have been rather controversial—examples being the high overall cost of the program (the Congressional Budget Office estimates that the ACA will cost over a trillion dollars over the next decade), a new set of taxes (mostly on high earners and on the healthcare industry), and the large number of mandates imposed by the ACA on both individuals and corporations which are said to limit liberty and freedoms.  Another source of concern is that some cuts have been made to Medicare.  Another irritant is the rapid increase in the cost of the premiums charged on the exchanges.  Shopping for insurance on the exchanges can be rather confusing, and consumers can often be misled into buying too much or too little insurance.

 

The basic problem faced by legislators is how to eliminate and correct the problems with the ACA without adversely affecting the aspects of the law that many people like.

 

Rising Medical Costs

 

It is true that the Affordable Care act has produced a slowdown in the rate of increase of medical costs.  But it is still true that per-capita healthcare spending will in the future almost certainly continue to grow faster than the growth of real, per capita income.   This means that healthcare spending will in the future take more and more of a family’s budget, and that it will take an ever larger fraction of a worker’s gross pay.    This may mean that the ACA as currently written might actually be unsustainable over the long term. 

 

The law restricts the growth in total Medicare spending, the growth in Medicaid hospital spending, and (after 2018) the growth in federal tax subsidies in the health insurance exchanges.   This will probably mean that as healthcare costs continue to rise, families will get less and less help from the government.

 

Perverse Incentives for Employers

 

The ACA has resulted in some perverse incentives for employers. 

 

Because of the ACA’s requirement that businesses which employ more than 50 people must provide group health insurance to their full-time workers, there is an incentive for small businesses to stay small.  If they get too big and start hiring too many people, they will have to spend a lot more money on medical benefits.

 

It has always been true that companies were not required to provide medical insurance to their part-time employees, but each company could decide for themselves what it meant to be a part-timer.  The ACA takes the step of defining exactly what is meant to be a part-time employee, which provided a perverse incentive for employers to cut the hours of their part-timers so that they remained below the threshold, thus denying them any employer-provided medical insurance.   This provides an incentive for corporations to move more of their employees into part-time status, where they don’t have to pay for benefits.  This will force these part-timers onto the exchanges to get their medical insurance.

 

Cost Pressures

 

Insurance companies are private, for-profit companies and must show a profit if they are to remain in business for very long.   But in the exchanges and also in the private market, insurers are required to charge the same premium, regardless of an individual’s health status and they are required to accept anyone who applies.  In order to balance the bottom line, this means that they must over-charge the healthy and under-charge the sick. It also means they have strong incentives to attract the healthy (on whom they make a profit) and avoid the sick (on whom they incur losses).

 

There is a fear that if more people have medical insurance, they will consume more health care as a result of their insurance.  This may expand the demand for care, without doing much about the supply.  Many regions of the country have a shortage of medical doctors, and in some rural areas the nearest hospital can be many miles away.  As more and more people are seeking out fewer and fewer doctors and hospitals, this may produce a decline in the quality of medical care, with patients with lower-quality insurance, the poor on Medicaid, the elderly and disabled on Medicare, and low-income families with newly-subsidized private insurance getting lower-quality care,.

 

Individual Mandates

 

The ACA requires that everyone have medical insurance—both the young and healthy as well as the older and sicker.  The reason for the imposition of this mandate is that there was a fear that since insurance companies are now required to insure everyone who applies and are not allowed to charge extra for preexisting conditions, unless there were a reasonable number of younger, healthier people buying insurance, premium costs would be driven so high that an insurance “death spiral” could result.  Premiums could be driven so high that insurance would not be affordable for anyone.

 

It is probably true that younger and healthier people who do not have access to an employer-based health plan resent having to purchase medical insurance that they think they don’t really need, even if they have access to the exchanges.  Consequently, they probably seek out the minimum premium price that they can find. 

 

However, many of these low-premium plans have features such as high deductibles, large copays and coinsurance, and a limitation placed on the hospitals, and doctors that are in the insurer’s network.  These policy holders often find that their insurance won’t pay for anything when they visit the doctor.  Even if they find a doctor who is in their network, they find to their horror that their deductibles and copays are so high that their insurance is essentially worthless unless they have a really catastrophic illness.

 

The high costs of buying insurance on the private market or on the exchanges have prompted millions of Americans who don’t have access to employer-provided insurance to forgo coverage altogether—despite the tax penalty associated with doing so. Preliminary data shows that roughly 5.6 million people paid a tax penalty instead of buying health insurance in 2015.   The fines for being uninsured are relatively low, and are generally smaller than the cost of acquiring medical insurance (even through the exchanges).  The IRS can’t do much to collect these fines other than to withhold a refund, and millions of people are exempt from the mandate anyway.  Consequently, there is an incentive for younger, healthier people who don’t have access to employer-provided group health insurance to try and game the system, and to opt out of the system entirely.  The shortage of younger, healthier people who use few or no medical services but who are paying premiums into the system drives up premium costs for those who do choose to purchase insurance policies, leading perhaps eventually to an insurance death spiral.  As more sicker people and fewer healthier people purchase medical insurance, premiums could be driven so high that the whole insurance system could collapse.

 

If a younger and healthier person who purchases cheap insurance with high deductibles and a limited network of providers later develops a serious illness,  they can easily move to a plan that has better coverage, since insurers are not allowed to discriminate against people with previous medical conditions.  And by law, these plans will be prohibited from charging more than the premium paid by a healthy enrollee.  This will drive costs up still further, making it more difficult for insurers to remain in the marketplace.

 

The individual insurance mandate has been the source of a lot of criticism of the ACA.  A lot of people resent the ACA’s mandate that everyone obtain medical insurance.  They don’t like to be required by the government to buy something that they think they don’t really need, and they highly resent what they picture as a restriction on their individual liberties.  In any case, if they do get sick they can always buy medical insurance at a later time, since there no longer any restriction on preexisting conditions and they will be able to pay the same premium as a healthy person.  As a result, the people buying insurance in the exchanges seem to be the older and sicker, with younger and healthier people opting out. 

 

Insurance Plan Cancellations

 

Thirty million people do not have access to employer-provided insurance and they  buy private health insurance.   President Obama promised that if you liked your insurance plan, you could keep it.  But insurance companies canceled many of their plans because their policies didn't cover the ACA's 10 essential benefits.  This made a lot of people angry, some accusing President Obama of deliberately misleading them.  For those who lost their private insurance, costs of replacing it with a more acceptable plan were rather high.  The ACA requires that insurance companies provide services that many people don't need, such as maternity care, and people resent having to pay for services that they can never use.  

 

Another 3 to 5 million people lost their company-sponsored health care plans. Many businesses found it more cost-effective to pay the penalty and let their employees be forced to purchase insurance plans on the exchanges. Other small businesses find they can get better plans through the state-run exchanges

Premiums Going Up

Another problem with the ACA is that the cost of premiums purchased through the exchanges have recently spiked sharply upward.  Premiums for healthcare plans sold through HealthCare.gov are projected to increase by an average of 22 percent in 2017—nearly triple the 7.5 percent increase from 2015 to 2016. Premiums will increase by 25 percent on average for midlevel plans next year, according to the Department of Health and Human Services.  These increases were predicted at the start of the law.

 

However, most Americans who purchase insurance on the exchanges will be largely insulated from these price increases by federal subsidies. About 85 percent of the 10.5 million people who bought insurance through the online health exchanges this year received subsidies; that proportion is likely to increase in 2017 as premiums rise.  Government subsidies to help pay for insurance will also increase.  

 

But not all people who purchase insurance on the exchanges are eligible for subsidies.  Those who earn greater that 400 percent of the FPL are not eligible for subsidies.  In addition, persons with incomes falling below 100 percent of the FPL are not eligible for subsidies in the exchanges either, but they may be eligible for Medicaid assistance in some states.  Those making less than 138 percent of the FPL may qualify for Medicaid, assuming that they live in a state that has implemented Medicaid expansion under the ACA.  Lots of people could be hit hard by these premium price increases—for example, a family of four which earns more than four times the FPL is not eligible for any subsidies, and the premium costs can often exceed a thousand dollars a month, with deductibles exceeding $10,000.

 

Some counties have seen really catastrophic premium increases, some exceeding 100 percent, with the problems being especially acute in rural areas.  These premium increases have led some to conclude that the ACA is in a state of imminent collapse.  But these large increases have come about primarily in those districts in which there are few insurance carriers participating in the exchanges, sometime just one.  

 

Premiums have gone up most in states like Alabama, Arizona, Oklahoma and Tennessee that have three or fewer insurers selling Affordable Care Act plans.  When fewer and fewer numbers of insurance carriers are participating in the exchanges, competition is lessened, which drives costs upward.  Premiums are rising much more modestly in states where there is more robust competition among insurers. For example, the average cost of the second-lowest “Silver” level plan, the benchmark used by federal officials to analyze the market, will increase by 7 percent in California, 5 percent in New Jersey and 2 percent in Ohio.

 

In spite of all this, the Congressional Budget Office (CBO) has projected that the ACA market will remain fairly stable over the long term.  Although there have been some large premium increases have taken place in some areas, insurance actuaries report that statements that the ACA is in a state of imminent collapse are grossly exaggerated.  Even with the big premium increases, health experts say that plans on the exchanges generally cost less and provide access to more medical care than the plans that they replaced. All told, the law has helped 20 million people gain coverage, including those who became eligible for Medicaid and young adults allowed to stay on their parents’ policies, pushing the portion of the population without insurance to less than 10 percent for the first time in history. (About 150 million people are insured through employer plans.)

 

Insurance Companies Exiting the Exchanges

 

The insurance carriers participating in the exchanges are private corporations, which must show a profit in order to remain in business.  Unfortunately, many insurance carriers have found it difficult to earn a profit when they participate in the insurance exchanges, because of being forced to cover larger numbers of older, sicker people with fewer and fewer younger and healthier people participating, and many have dropped out of the exchanges. 

 

There have some high-profile exits of insurance companies from the exchanges, examples being Aetna, UnitedHealth Group, and Humana.  The providers that remain have sharply raised premium prices in order to remain in business. 

However, Aetna’s decision to drop ACA coverage in 17 counties may have been more to do with a Federal court’s ruling that blocked the company’s merger with Humana on antitrust grounds than due to any business losses.  Aetna had earlier tried to leverage its participation in the exchanges for favorable treatment from regulators, and warned the government that it may need to get out of writing ACA exchange policies if the US blocked its merger deal with Humana.

 

The market on the exchanges has proven to be not as competitive as ACA advocates had hoped, and because of the large number of older, sicker people and the relatively small number of younger, healthy people obtaining policies, costs have grown rather high.  Many insurance companies which expected that there would be a large market for exchange policies initially set their premium prices too low in order to attract customers, and when the market did not meet their expectations they were forced to introduce drastic price increases--not enough healthy, younger people signed up; and those who did enroll used more medical care than the insurers had anticipated.  For some potential exchange customers, the available subsidies are not sufficiently generous, and the penalties for not having coverage are too low.

 

Medicaid Expansion

 

One of the major components of the ACA law is Medicaid expansion, whereby states can choose to accept federal dollars to expand the government insurance program.   The nonpartisan Congressional Budget Office estimates that 13 million additional people will be enrolled in Medicaid this year as a result of the ACA.  More than half of the 20 million people who obtained coverage through the ACA did so through Medicaid.  Many people who gained coverage through Medicaid expansion were not previously eligible.  But 19 states decided not to participate in Medicaid expansion, and the Supreme Court has ruled that they are not required to do so.   

 

However, the Foundation for Government Accountability (FGA) found that adult Medicaid enrollment in 24 of the 29 states that accepted Medicaid expansion exceeded projections by an average of 110 percent. As a result, states’ share of Medicaid expansion costs will rise from five percent to 10 percent by 2020, leaving taxpayers in those states on the hook for bloated budgets.  While some of the non-expanding states are refusing to spend federal money in light of the country’s deficit, others are concerned that they just can’t afford to expand Medicaid in their states. Even though the federal government insists that they will be paying 100 percent of the costs associated with newly qualified Medicaid enrollees until 2017 and gradually declining that amount to 90 percent by 2020, some state officials admitted that they couldn’t afford such a surge in enrollment.  This was because many people who qualified before the expansion but did not apply for Medicaid will now be enticed to enroll, causing costs to rise that are not technically due to Medicaid expansion, and will not be covered by the federal government.

 

Medicaid enrollees use the emergency room more than the uninsured, which will drive up the number of people who go to the emergency room.  At the same time, the ACA reduces federal subsidies to these facilities for uncompensated care.  In those states that chose not to participate in Medicaid expansion, a lot of poor and working-class families who don't qualify for Medicaid will find themselves having to pay out of their own pockets for private insurance or do without, resulting in a lot more uncompensated medical care when they are forced to go to the emergency room when they get seriously ill.

 

New Taxes

 

The Affordable Care Act is not free, and the federal government has imposed some new taxes to help pay for it.

 

In 2013, the ACA raised the income tax rate for individuals with incomes above $200,000. It also raised taxes for couples filing joint returns on incomes exceeding $250,000. The rate increased from 1.45 percent to 2.35 percent on income above the threshold. These people also pay an additional 3.8 percent Medicare tax. That applies to the lesser of income from dividends, capital gains, rent and royalties or income above the threshold.

 

Starting in 2013, medical device manufacturers and importers paid a 2.3 percent excise tax. Note: This tax was suspended for 2016-2018. Indoor tanning services pay a 10 percent excise tax.

 

Under the ACA, medical expenses are harder to deduct for those taxpayers who itemize on their returns.  Starting in 2013, families could only deduct medical expenses that exceed 10 percent of income. Before, they could deduct expenses that exceeded 7.5 percent of income.

 

Pharmaceutical companies pay an extra $84.8 billion in fees between 2013 and 2023.   That helps to pay for closing the "doughnut hole" in Medicare Part D. Drug costs could rise if the companies pass this extra cost onto their consumers.

 

In 2020, insurance companies will be assessed a 40 percent excise tax on "Cadillac" health plans. These are plans with annual premiums exceeding $10,200 for individuals or $27,500 for families. Many of these plans are for people in high-risk pools, such as older workers or those with dangerous jobs. Most of the tax will be passed onto the companies and employees, raising premiums and deductibles.


A lot of people and many corporations resent having to pay all these extra taxes to support a program which they think doesn’t work very well.

 

Medicare Cuts

 

The ACA introduced some cuts in Medicare spending.  Cuts to Medicare under the ACA were estimated to be at $716 billion over the ten year period between 2013 and 2022.   Some charge that these cuts have resulted in a gutting of Medicare in order to pay for the ACA.

 

These cuts were made not strictly to help fund the ACA, but were also made in order to increase Medicare solvency, to improve its services, and to reduce the premium costs.   Most of the cost savings come at the expense of insurers and hospitals, not beneficiaries.  Hospitals have to absorb most of the reductions, about $260 billion over 10 years.

 

The Medicare cuts contained in the ACA law were aimed at improving care by limiting fraud, waste, and abuse, by the imposition of measures to improve treatment effectiveness, by limiting the number of hospital readmissions, as well as limiting hospital overpayments.  Hospitals would also find their reimbursements reduced when they failed to meet the benchmarks for patient care.    The ACA law slows down the rate of annual increases in Medicare reimbursement for hospital costs, home health services, hospices and skilled nursing services.

 

Some of the largest Medicare cuts introduced by the ACA involve Medicare Advantage.  The ACA attempts to rein in excess spending on Medicare Advantage plans, which is currently causing a burden on the taxpayer that is disproportionate to the numbers of people it helps.   Medicare Advantage payouts are now supposed to be more in line with other areas of Medicare.  Medicare Advantage will receive about $156 billion less over the next ten years.  However, the ACA also rewards those Medicare Advantage providers who increase the quality of their coverage.   

 

The money saved from those cuts has been being reinvested back into Medicare and the ACA to improve care for seniors.  Improvements include closing the Medicare Part D “donut hole”.  The ACA expands existing coverage for seniors, including preventive care and wellness visits without charging the Part B co-insurance or deductible, which means that seniors will no longer need to put off preventive care and check-ups due to cost.  According to the CMS Medicare beneficiaries are expected to save, on average, about $4,200 over the next 10 years due to lower drug costs, free preventive services, and reductions in the growth of health spending. 

 

It was hoped that these cost-cutting measures would help to extend the life of the Medicare trust fund by lowering spending. Patient safety efforts and new payment incentives for hospitals are estimated to have helped avoid 150,000 readmissions to hospitals over 2012 and 2013, providing better outcomes for patients and saving money for Medicare. The Departments of HHS and Justice have organized a concerted crackdown on health care fraud, saving a record $19 billion over the past five years and putting in place innovative tools to prevent fraudulent claims from being paid.

 

Some of these cuts may result in lower payments made to doctors and hospitals by Medicare as reimbursements for medical services that are provided.    There is a danger that these lower reimbursements could result in some hospitals being forced to drop out of Medicare altogether and that more and more doctors could refuse to see Medicare patients.  Furthermore, cuts in the Medicare Advantage program and the reduction of subsidies to insurance companies may force MA providers to raise their premiums, to increase the copays, to cut services, or to drop out of the program altogether.  The Congressional Budget Office (CBO) has concluded that the programs to cut Medicare spending have not have been very effective. 

 

But the ACA does introduce some additional Medicare taxes.  Under the ACA, higher-income Medicare beneficiaries – those who earn more than $85,000 per person or $170,000 per couple – will have to pay slightly more for their Medicare Part D prescription drug coverage.  In addition, the ACA implements a Medicare Part A tax increase of .9% for businesses making over $250,000 in profit and employees earning over $200,000 to help pay for the improvements to Medicare. So while seniors will save money by closing the donut hole and overall reforms, some people will have pay some more to help support Medicare reform.

 

 

 

 

 

 

 

References

 

·        The Affordable Care Act, https://www.healthcare.gov/where-can-i-read-the-affordable-care-act/

·        Employer Based Coverage or Obamacare Plan?  Which is Better?  Forbes, 6/23/2013. 

·        Employer Health Insurance Versus Individual Plans.  Understanding the Differences, Medical Mutual, https://www.medmutual.com/

·        Individual Health Insurance: What you can expect in 2014 under the Affordable Care Act, Louise Norris, Sep 11, 2013, http://www.healthinsurance.org/

·        Patient Protection and Affordable Care Act, Wikipedia

·        College Limits Part-Time Staff’s Hours To Avoid Obamacare Costs, Nelson Harvey, Aspen Daly News, Mar 17, 2014,

http://www.aspendailynews.com/section/home/161613

·         Obamacare Employer Mandate: A List of Cuts to Work Hours, Jobs,

Jed Graham, Sep 5, 2014, http://news.investors.com

·        Health Insurance in the United States, Wikipedia

·        Obamacare Facts,  obamacarefact.com

·        The Supreme Court Might Gut Obamacare.  Your State Could Save It, Nick Baumann, Nov 11, 2014,  http://www.motherjones.com/politics/2014/11/

·        Obamacare is Doomed! Everybody Panic!, Barry Friedman and Dahlia Litwick, http://www.slate.com/articles/news_and_politics/jurisprudence/2014/11/

·        Which is Better: Mini-Med Plans or Obamacare?, John C. Goodman, Oct 3, 2013, 

http://blog.independent.org/2013/10/03/

·        Good Riddance to Useless Mini-Med Health Insurance Plans, Nancy Metcalf, Nov 6, 2013,

http://www.consumerreports.org/cro/news/2013/11/

·        Clock Ticking for Illinois to Form State-Run Obamacare Exchange, Peter Frost,

 http://www.chicagotribune.com/business/

·        ObamaCare Death Panels: The Facts, Robert Longley, http://usgovinfo.about.com/od/healthcare

·        Costs of ObamaCare, Kimberly Amadeo, useconomy.about.com/od/healthcarereform/a/

·        Excise Tax on High-Cost Coverage (Cadillac Tax), United HealthCare,

http://www.uhc.com/united_for_reform_resource_center/health_reform_provisions/

·        Cadillac Insurance Plan, Wikipedia, http://en.wikipedia.org/wiki/Cadillac_insurance_plan

·        Is Your Medicare Safe? Marsha Mercer, AARP Bulletin, Jan/Feb 2014

·        Health Care Reform: Health Insurance and Affordable Care Act, WebMD,

http://www.webmd.com/health-insurance/insurance-basics/

·        How Health Reform Affects Medicare, www.webmd.com/health-insurance/insurance-basics/

·        Romney’s right: Obamacare cuts Medicare by $716 billion.  Here’s How, Sarah Kliff, Aug 14, 2012, Washington Post

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/14/

·        More Insurers Covering End-of-Life Talks, AARP Bulletin, Vol 55 No 9, November 2014

·        Independent Payment Advisory Board, Wikipedia, http://en.wikipedia.org/wiki/Independent_Payment_Advisory_Board

·        Reform Update: Its Funding Gutted, IPAB Fades Into Background, Jessica Zigmond, Jan 24, 2014, http://www.modernhealthcare.com/article/20140124/NEWS/301249973

·        Obamacare Facts, http://obamacarefacts.com/obamacare-control-costs/

·        New Taxes Under the Affordable Care Act, Investopedia,

http://www.investopedia.com/articles/personal-finance/020714/new-taxes-under-affordable-care-act.asp

·        The Aetna-Humana Merger, http://money.cnn.com/2017/01/24/investing/aetna-obamacare-humana-merger/