THE AFFORDABLE CARE

ACTRuth Colker

Distinguished University ProfessorThe Ohio State University

Moritz College of Law

President’s signature

President Obama signed ACA into law with the strokes of 22 pens on March 23, 2010.

Supreme Court Decision (June 28, 2012)

Upheld most of Affordable Care Act in a 5-4 decision Anti-Injunction Act did not bar suit before Act

went into effect Not valid under Commerce Clause But valid exercise of Congress’ taxing powers

Medicaid rules violated Spending Clause Remedy: Give states option whether to opt in

Many Uncertainties

Will states create exchanges or force federal government to create an exchange for their state? Odd federalism dynamics!

Will states agree to expand Medicaid? Will financial incentives on employers cause

more of them to offer employer-based health insurance?

Will financial incentives for individuals cause more of them to purchase health insurance?

Will premiums rise or fall by virtue of new minimum requirements for health insurance?

What does ACA already do?:

Insurers: Cannot deny coverage of children under the age of 19

based on pre-existing conditions. Cannot rescind coverage based on a review of the

original application after someone gets sick. Cannot impose lifetime dollar limits on essential

benefits, like hospital stays. Must cover certain services without charging a

deductible, co-pay or coinsurance. Preventive care and wellness visits, immunizations and

some types of counseling and testing Long list of preventive services for women including

contraception

More

Each state (or HHS) must create a pre-existing condition insurance plan for those who have been uninsured for at least six months because of a pre-existing condition.

Young adults are allowed to stay on their parents’ plan until they turn 26 years old (unless young adult is offered insurance at work). Those who choose to stay on parents’ plan could

potentially be those who need insurance, creating a selection risk issue

States are able to receive federal matching funds for covering some additional low-income individuals and families under Medicaid for whom federal funds were not previously available.

Little Problem

Parents are getting used to covering their child up to age 26 on a family plan. Usually, there is no additional premium for extra children.

If child obtains job which OFFERS health insurance then parent’s policy will typically no longer cover child under age 26 rule. But child will typically have to pay for insurance

under new employer’s plan. Child does need to purchase that insurance

through new employer even though that is not the most economical decision.

Rebates

85 % of all premium dollars collected by insurance companies for larger employer plans must be spent on health care services or health care quality improvement.

80 % of the premium must be spent on benefits and quality improvement for plans sold to individuals and small employers.

If costs are too high, then must provide rebates to consumers. There has been some confusion about whether money

must be returned to consumer or employer can use funds for wellness programs for all employees, because of language about “quality improvement.”

Seniors

Provides a one-time, rebate check of $250 to seniors who reach the gap in Medicare prescription drug coverage known as the “donut hole.”

Seniors who reach the coverage gap will receive a 50 % discount when buying Medicare Part D covering brand-name prescription drugs.

Seniors receive free preventive services under Medicare. (That’s similar to rule for all insurance plans.)

2013 Rules

Employers must distribute a Summary of Benefits & Coverage to employees

Employers must report the value of health benefits on employees’ W-2 forms by January 2013

$2,500 limit on employee contributions to health Flexible Spending Accounts

Requirement for employers to notify employees of the availability of health insurance exchanges

What ACA Will do in 2014?

Prohibit discrimination due to pre-existing conditions or gender

Eliminates annual limits on insurance coverage Tax credits for those whose income is between

133 % and 400 % of the poverty line who are not eligible for other affordable coverage.

Can buy health insurance through an Exchange.

Will have to pay a tax penalty if health insurance is available and affordable but has not been purchased by individual.

Definition of Affordable

Not affordable if individual’s required contribution for the month exceeds 8 percent of such individual’s household income. For this purpose, the taxpayer’s household income shall be increased by any exclusion from gross income for any portion of the required contribution made through a salary reduction agreement. 26 USC § 5000A

Definition of “required contributions”

Portion of employee’s annual premium if eligible to purchase minimum essential coverage through an employer-sponsored plan, or

For those without employer-offered health insurance, the annual premium for the lowest cost bronze plan available through an exchange reduced by the amount of available credit

Definition of Household income

The modified adjusted gross income of the taxpayer, plus the aggregate modified adjusted gross incomes of all other individuals who were taken into account in determining the taxpayer’s family size and were required to file a return of tax for the taxable year.

Family size is equal to the number of individuals for whom the taxpayer is allowed a deduction for the taxable year.

Odd Problem

Income is defined as HOUSEHOLD income, but Premium (to see if affordable) is defined as

premium for coverage through employer for an INDIVIDUAL

Required coverage to purchase, though, is for the FAMILY

So, employer could offer inexpensive individual coverage, which is deemed affordable in light of family income. Employee must then purchase family plan in order to avoid tax penalty.

Premium Credits

Tax credits for insurance premium: Contribute no more than 2 % AGI towards health

insurance if less than 133 % of federal poverty line

Contribute between 2 and 9.5 % of AGI if 133 to 300 % of federal poverty line

Contribute no more than 9.5 % if 300 to 400 % of federal poverty line

No premium tax credits if over 400 % of federal poverty (but can take deduction if health costs above 10 % of AGI) or eligible for public coverage (Medicaid, CHIP, Medicare or military coverage)

Subsidies

Cost sharing subsidies ranging from $604 (225 % of federal poverty line) to $4834 (125 % of federal poverty line) for things like deductibles, coinsurance Cost sharing subsidy phases out at 225 % of

federal poverty line whereas premium credit phases out at 400 %

Medicaid

If states elect to participate: Americans who earn less than 133% of the

poverty level ($14,000 for an individual and $29,000 for a family of four) will be eligible to enroll in Medicaid.

States will receive 100% federal funding for the first three years, phasing to 90 % in subsequent years.

Health Care Exchanges

Who are they available for? Primarily serve individuals buying insurance on their own Small businesses with up to 100 employees can also buy

insurance through Small Business Health Options Program (SHOP)

What are rules governing insurance under exchanges? Minimum basic coverage Limits on out of pocket expenses

Scope of Insurance Mandate

Employers with more than 50 employees (with exceptions we’ll discuss)

All individuals, unless: Religious objection; undocumented immigrant;

incarcerated; member of an Indian tribe Family income is below threshold requiring you to file

a tax return You have to pay more than 8 % of your income for

health insurance, after taking into account any employer contributions or tax credits

You were insured through Medicare, Medicaid, CHIP, military insurance, employer plan, or purchased insurance

A Gap

In defining whether insurance is affordable to an INDIVIDUAL (so avoid penalties), threshold is 8 % of family AGI.

In defining whether an EMPLOYER has offered to affordable insurance (so it avoid penalties, as we will see), threshold is 9.5 % of family AGI.

Individual Penalty for being without health insurance

2014: $95 per adult and $47.50 per child (up to $285 for a family) or 1.0% of family income, whichever is greater

2015: $325 per adult and $162.50 per child (up to $975 for a family) or 2.0 % of family income, whichever is greater

2016 and beyond: $695 per adult and $347.50 per child (up to $2085 for a family) or 2.5 % of family income, whichever is greater CBO estimates average annual premium for individual

would be $4,500 – 5,000 and for a family would be $12,000 - $12,500 (equivalent to 2.5 % for 4-person family with income of $50,000).

How ACA Affects Businesses

Small employers (fewer than 50 workers): Imposes no new requirements Provides new health insurance alternatives

through state-based Small Business Health Options Program (SHOP) exchanges If they offer insurance, may achieve some

savings State has option of combining small

employer and individual exchange

Small Business Tax Credit

Tax credits became available in 2010 to offset a portion of the purchase of health insurance by low-wage employers with 25 or fewer workers. Tax credits up to 35 percent of the employer’s

premium contribution available to an eligible employer until 2014

Credits of up to 50 percent of the employer’s contribution will be available for two consecutive years as of January 1, 2014, for coverage purchased through the exchanges

Coverage by Small Businesses

IF do provide coverage (voluntarily), they must limit waiting periods to no more than 90 days and eliminate lifetime and annual benefit limits.

IF offer dependent coverage then must make that coverage available for workers’ adult children up to age 26 (with no requirement that employer contribute to that coverage).

AND may not have pre-existing condition exclusions for children covered by health insurance

New Plans sold in the small group market

Required to meet essential benefit requirements

Must be rated consistent with rating limits in the law

Must limit deductibles to $2,000 for single coverage and $4,000 for family coverage

Annual cost sharing limited to the current law for Health Savings Account limits ($5,959 for single coverage and $11,900 for family coverage in 2010)

Grandfathered Plans

Need not meet essential eligibility requirements BUT will have to meet those requirements if

terminate current plan and purchase another one HOWEVER, can allow family members of enrolled

individuals to enroll without jeopardizing grandfathered status

AND can allow new employees of employer to join Grandfathering will, in the short term, help firms

that currently have an advantage in risk-rated insurance market But if they purchase a new plan then new rules will likely

increase expense of plan because part of larger risk pool

Free Choice Vouchers

Rule available to employers in all size groups: An amount equivalent to what the employer would

have contributed to the firm’s plan on behalf of such a worker

Voucher allows worker to apply that amount toward the purchase of coverage through a nongroup insurance exchange

Worker using these vouchers are not eligible for premium subsidies in the exchange

No penalties will apply to employers providing them.

When an employer with 50 plus employees must pay a penalty for not offering any

coverage

At least one employee received a premium tax credit or cost sharing subsidy in an Exchange, then

Must pay penalty for not offering coverage: Penalty is $2,000 annually times the number

of full-time employees minus 30.

When an employer with health insurance plan and 50 plus

employees must pay a penalty for not offering affordable coverage

Two situations: Insurance does not pay for at least 60 % of covered

health care expenses for a typical population OR Employees have to pay more than 9.5 % of FAMILY

income for the employer coverage AND some employees choose to buy coverage

in an Exchange and receive a premium tax credit

Calculation of Penalty

Penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30.

Odd Problems

Whether plan is affordable is determined by family income although employer may only be aware of the individual’s income.

Also, income is defined as AGI and an employer may not know an employee’s AGI (even if person is single).

Medium-Size Employers (50 to 100)

Can purchase insurance through Exchanges

Can also benefit from “grandfather” rules so long as they retain their health insurance policies

Large Employers (more than 100 workers)

Same penalties as for medium size firms if an employee chooses a subsidized, exchange option

Same penalties if do not provide insurance (but 98 % do)

Until 2017, can purchase insurance through exchanges Beginning in 2017, that rule is up to the states

Rules for Insurance Offered by Large Employers

These prohibitions do apply: Preexisting conditions exclusions Recissions Lifetime and annual benefit limits

Therefore, large employers will likely need stop-loss insurance if they self-insure

These rules do NOT apply: Rating rules Essential benefits minimums Limits on deductibles

Self-Insured Plans

Considered “self-insured” if ANY portion of benefits result from self-insurance.

These obligations DO NOT apply: Comprehensive coverage for health benefits

package Essential health benefits requirements Prohibition of discrimination based on salary Annual limitations on deductibles for

employer-sponsored plan Guaranteed issue and renewability of

coverage

Employers with more than 200 full-time workers

Employer must automatically enroll all full-time workers and all previously enrolled workers into a plan each year Workers will have the opportunity to opt out if

they choose This rule applies to regular insurance as

well as self-insurance plans

Prescription Drug Change in Rules for Retirees

The Medicare Modernization Act of 2004 provides subsidy payments to corporations equal to 28 percent of their costs for retiree prescription drug benefits

Payments for retiree health benefits are tax deductible for the firm But ACA no longer allows firms to deduct the 28

percent subsidy they were receiving from federal government as part of their health care expenses

Firms have taken a “write down” to reflect this change ($1.0 billion by AT&T alone) because the 28 percent deduction was previously taken as an “asset.”

2018

Forty percent excise tax on “high-cost” plans This tax will apply to the total cost of health

coverage of an active or retired employee exceeding certain annual cost thresholds

Many employers will hit the excise tax threshold unless they take steps to cut costs or lower their cost increases

The tax of these “Cadillac plans” was delayed until 2018. So who knows what will really happen by 2018.

Problems

People who earn between 100 and 133 percent of poverty guidelines will not be entitled to subsidies to buy insurance under assumption they would move to Medicaid.

If employer offers “affordable” individual plan, and have family, then must buy family plan (or be subject to penalties). But family plan might be terrifically

expensive. Only assistance is deduction if

expenses above 10 % of AGI

How ACA affects Children’s Health Insurance Program

Children currently covered by CHIP between 100 % and 133 % of poverty would be transitioned to Medicaid

CHIP is funded through 2015, with increased federal match

CHIP eligible children (6 to 19 years old) who cannot enroll in the program due to federal allotment caps must be screened to determine if they are eligible for Medicaid and, if not, would be eligible for some new tax credits

Longterm Care

Establishes the Community First Choice Option in Medicaid to allow states to provide community-based attendant supports and services to individuals with incomes up to 150 % FPL with disabilities who require an institutional level of care through a state plan amendment.

Provides states with new options for offering home and community-based services through a Medicaid State Plan Amendment rather than through a wavier for individuals with incomes up to 300 % of the maximum SSI payment

Creates the State Balancing Incentive Program to provide enhanced federal matching payments to eligible states to increase the proportion of non-institutionally-based long-term care services.

Extends the Medicaid Money Follows the Person Rebalancing Demonstration program through 2016

Conclusion

Uncertainty: Will states go through with threat not to

participate in Medicaid expansion? If so, will individuals in those states become

eligible for premium credit and cost sharing subsidies?

Will all states set up Exchanges (eventually if not immediately)?

Resources

Kaiser Family Foundation: http://healthreform.kff.org/the-basics/employe

r-penalty-flowchart.aspx

Federal government website: http://www.healthcare.gov/law/index.html

Pre-existing condition health care plan For Ohio: https://www.ohiohighriskpool.com Run by Medical Mutual of Ohio