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Affordable Care Act: the facts and impacts to health care in the U.S.
Policy Analysis of the Patient Protection and Affordable Care Act
The facts, impact to health care, and costs
Michael O’Driscoll
MPH 525: Health Policy and Management
Professor: Dr. Joseph Costa
March 27, 2014
ABSTRACT
The Patient Protection and Affordable Care Act (ACA)is the most fundamental legislative transformation of the US health care system in over forty years. The US Supreme Court’s ruling on the Affordable Care Act in 2012 allowed states to opt out of the health reforms law’s Medicaid expansion, but upheld the constitutionality of the individual mandating requiring individuals to purchase health care insurance. For the states that have chosen to expand their Medicaid program, the law will have a significant impact, increasing participation among populations that are currently eligible but not enrolled, and health care costs to those new enrollees. The US Supreme Courts decision to affirm the constitutionality of the individual mandatehas created a political division in the country. In addition, the mandate has influenced how the affordable care act is being implemented and how health care is being delivered. First, this analysis briefly describes the four fundamental provisions of the ACA. It then takes a look at the issues associated with increased enrollment, including capacity concerns, demand for health care services, administrative costs, outcomes and projected costs that come with universal coverage. Finally, I discuss the individual mandate and the political issues (pressures) surrounding its creation andthe decisions made by the Obama administration, which have already altered the law before many of its provisions are implemented.
The controversial Patient Protection and Affordable Care Act (ACA) better known as Obama Care, became law with President Obama’s signature on March 23, 2010. It represents the most significant transformation of the US health care system since Medicaid and Medicare were created in 1965. Manchikanti et al., argue that it will fundamentally change nearly every aspect of health care, from insurance to the final delivery of care (Manchikanti et al, 2010).
Health care reform was not the biggest campaign issue in the 2008 elections, which saw then Illinois Senator Barack Obama elected the 44th President of the United States. A financial crisis exploded in the US in 2007-2008, which saw the collapse of the home mortgage industry and eventually, the federal government bailed outcompanies such as Citigroup, Bank of America, and JP Morgan Chase. It was during 2008 that President Bush signed into law the Emergency Economic Stabilization Act, which allowed the federal government to take over distressed assets, primarily bad mortgage loans from private financial institutions (Teitelbaum & Wilensky, 2013). The United States and many other countries around the world quickly entered into a recession where hundreds of thousands of peopleresiding in the U.S. found themselves living in homes they could no longer afford. Companies began massive layoffs, the housing industry came to a standstill, and financial institutions severely restricted lending money. Thus, the biggest issue in the United States during the 2008 Presidential campaign was the loss of jobs and collapse of the banking system; health care reform was a distant second. According to Teitelbaum and Wilensky, economic concerns trumped health care, which ranked second, by an almost 2-1 margin. This election also saw the Democrats rank health care reform much higher than the Republicans who wanted less power given to the federal government and more given back the states.
Even as the economy continued to falter after President Obama was elected, the Democrats pursued universal health care, and with Senator Arlen Specter of Pennsylvania switching parties, it gave the Democrats the 6oth vote needed to override a filibuster by Republicans and pass a bill mandating Americans to purchase health care insurance (Teitelbaum & Wilinksy, 2013). It should be mentioned the Affordable Health Care Act was noteworthy for not having bipartisan support that Medicaid and Medicare had; controversy swirled around this legislation from the very beginning.
Affordable Care Act:
What is the Affordable Care Act? There are four fundamental provisions of the ACA, 1) guaranteed provision, 2) individual shared responsibility provision, 3) insurance purchase support provision, and 4) expansion of Medicaid coverage (McDonough & Adashi, 2014).
Extension of the guaranteed provision for all individual health insurance policies will make it illegal for companies to refuse coverage of an individual for a preexisting condition. The ACA also requires insures to issue policies to anyone qualified who applies, to renew policies without regard to the health status of the insured. Prior to the passage of the ACA, in most states, insurers were not required to guarantee policies to individuals unless certain individuals fell under the federal Health Insurance Portability and Accountability Act (HIPPA). These individuals had to have had at least 18 months of prior coverage and could not have more than 63-day gap in health care coverage and have exhausted any COBRA or state coverage which they were eligible for. Signed into law in 1996 by President Bill Clinton, the HIPPA provisions provided many people with continuing coverage; it did not limit how much the insurance companies could charge for eligible individuals. The ACA requires significant changes to the guaranteed health care laws the currently exist. Starting January 1, 2014, all individual and group health plans must guarantee policies to all applicants. Beginning on September 23, 2010, insurance companies were prohibited from excluding children under the age of 19 from insurance policies based on preexisting conditions. For example, a child with leukemia could not be denied health care access because they had the disease before obtaining insurance. Morally and ethically, this is the right decision, but the question then becomes, who picks up the cost and how much should the parents of the child pay toward the care?
Known as the “individual mandate”, the shared responsibility provision required that by January 1, 2014, US citizens must have purchased a qualified health insurance plan or face a tax penalty. The Internal Revenue Service is the agency charged with enforcement of this provision. Companies with 50 or more employees are required to start offering qualifying health insurance coverage to full-time workers. Current law defines full-time as someone who works more than 30 hours per week. The ACA does not require mandatory coverage for part-time employees, only those who work more than 30 hours per week. Many retailers such as Trader Joe’s and Home Depot will no longer offer health care for part-time employees and other companies like SeaWorld are reducing employee hours to 28 to avoid the mandate. Political pressure from businesses and constituents has had a profound effect on the implementation of this mandate; both the individual and employer mandates have been delayed for at least one year (Adams, 2014).
The ACA also establishes a system of tax credits and cost-sharing subsidies for the purchase of health insurance that are primarily based on income and family size. As shown in figure 1, individuals whose annual household income falls between 133% and 400% of the federal poverty line ($15,282 and $45,960 for a single adult) and lack access to health insurance will be eligible to receive subsidies (McDonough & Adashi, 2014).
Figure 1
Finally, the last provision expands states Medicaid eligibility to anyone with an annual income of less than 138% of the poverty level. In 2013 that would be about $15,400 for a single person and $31,800 for a family of four (Price & Eibner, 2014). The federal government is responsible for paying to cover 100% of the newly eligible participants until 2016. After 2016, the cost will gradually increase to the states. Each state that expands their Medicaid program will pay 5% of the cost in 2017, 7% in 2018, 8% in 2018, and 10% each year after.
Impact of ACA: Enrollment/Costs
In order to finance the Affordable Care Act, the law relies on reductions in Medicare payment rates to finance a significant portion of the subsidies for coverage expansion. The extent to which employer-based, marketplace, and government-sponsored programs, including Medicaid, collectively enroll as many eligible enrollees in health plans will likely be the most significant dimension of health care reform to follow over the next 12-18 month. Jason Kleinman with the Academic Medicine Journal, projects that an additional 24 million people will be enrolled in the health insurance marketplaces by 2023 and 13 million more enrolled in Medicaid and the Children’s Health Insurance Program (Kleinman, 2014). If enrollment targets are not met by the states, i.e., covering as many of the 47 million (see figure 3) nonelderly Americans as possible(Kaieser Foundation, 2014), then it is reasonable to assume that the future will mirror the present-health care as percent of GDP will rise to unsustainable, US health outcomes will continue to lag all peer nations, and, as a result, US global competiveness will be compromised. In addition, revenues will also be generated by an employer penalty. Employers with 50 or more full-time workers will face a penalty if any of their full-time workers qualify for a premium tax credit. In other words, a penalty is assessed if the company does not offer a basic health care plan or pay the individual enough salary to become ineligible for subsidized health care through the affordable care act. If a company does not offer health care coverage at all, the penalty is $2,000 for each full-time worker only after the 30th employee. If the company offers insurance but it is too costly for the employees, the penalty will be $3,000 for each full-time worker who is eligible to receive a tax credit for health care, or $2,000 for each full-time worker beyond the first 30 employees; which ever is the lesser of costs.
Figure 3
Health Plan Adjustments, Government Supports:
In response to environmental changes due to increases or decreases in enrollment, private and government-sponsored plans and agencies, I believe, will make adjustments. The magnitude and form of these adjustments will likely be in proportion to changes occurring across the health insurance landscape. In short term, the use of reinsurance, risk corridors, and risk adjustment procedures coupled with tweaks in governmental reimbursement methods should smooth environmental shifts by distributing risk across all stakeholders. Reinsurance is a technique for sharing or spreading of a risk too large to another insurance company by purchasing reinsurance. For example, insurance company A reinsures with insurance company B the risk for protecting homes against hurricanes. If there is no hurricane, both companies make money. However, if a hurricane hits and destroys many homes, they share in the cost of recovery. Another way to describe reinsurance is that it is insurance fro insurers. Reinsurance is fundamentally a promise to pay possible future claims against a premium today. Prices for reinsurance are calculated based on risk monitoring and modeling and highly sophisticated statistical theorems that most people would find it difficult to understand. In order for the federal government to assist private health insurance companies stabilize premiums for individual coverage; the ACA establishes a transitional Reinsurance Program taxto help the market from 2014 through 2016. For example, insurance companies must contribute $63 on every health insurance plan for the next three years. The money collected is used to help insurers in the individual market with high-cost cases that reach beyond a catastrophic cap and would reimburse insurers for 80 percent of costs for claims between $60,000 and $250.000 (Kaiser Foundation, 2014). Estimates by some have suggested that without this reinsurance tax, premiums in the market would increase by 10-15%. Politically, this tax was created in the ACA to keep insurance rates affordable for the millions of Americans transitioning into the individual market. Unfortunately, large employer and union-sponsored health plans are not eligible to access these funds. The reinsurance tax is only available to insurers in the individual market and not group plans. This is partly why the unions, who originally supported the passage of the ACA based on the promise that there members could keep their plans and their costs would not increase, have recently changed their minds and are now against the implementation of the health reform bill as it was passed.
Risk corridors are somewhat complicated to understand, but this little known pieces of the Affordable Care Act could bring in over 8 billion dollars to the federal government over the next three years. Intended to stabilize insurance markets, risk corridors are intended to compensate insurance companies that end up with more costs than they anticipated for new enrollees. Under the ACA the insurance companies must sell policies equally to everyone, regardless of their medical history, so some companies could end up a larger amount of higher risk customers needing medical care, therefore increasing their costs. The government must reimburse companies for half of those added costs if the insurers can prove their projected claims set in 2014 is 3% or greater. If claims jump 8% or higher, the federal government covers 80% of the additional costs. Taxes collected for the reinsurance program mentioned earlier in this paper are used for this program.
According to an article written by David Blumenthal, Risk adjustment is a process that deters insurance plans from trying to attract health enrollees. Private insurance companies are also for profit entities and the healthier their client base is, the less money will paid out for claims; thereby, increasing their profit margin. Risk adjustment adjusts for differences in the morbidity of a health plan’s members. Morbidity is calculated by using something called risk adjustment software. This software calculates a risk score for a particular individual and then adjusts for differences in the health plans’ enrollees by redistributing funds from companies with healthier customers to plans with sicker customers. All the redistributed money comes from private insurance companies paying a tax or set rate. Maintaining a stable environment will be key in the medium- to long-term success of the ACA.
Capacity:
If demand rises in response to increased enrollment, it is very likely that system capacity will need to increase as well particularly at the primary care level. With the ACA strongly advocating the inclusion of essential and preventive care into the current health care delivery model, institutions and providers will need to align with this population-based model of care in order to effectively and efficiently meet demand for services. Community-based providers and institutions including community health centers and public health departments are likely to become the primary drivers of capacity development. Hospitals and hospital systems will adjust to change. However, the size of their operations may become a hindrance in their ability to adapt swiftly.
Demand:
Assuming that a significant majority of eligible individuals and families enroll in a plan one may reasonably assume further that plan holders will access services that are available to them. However, one may also take the position that even if someone has access to care he or she may not access it. Or, those that access the system are the same as those that were using services before, or a minority of system users consumes the largest amount of resources available. Thus, following not only enrollment but health care use over time post-implementation will become very important as a means with which stakeholders can measure overall health care system efficiency and effectiveness.
Measuring Outcomes:
People enroll. People use services. Environmental adjustments are made. However, how does this translate into improving health outcomes? Measuring the impact health care reform has on improving health will become the key indicator in defining the extent to which health care reform is successful or not. Many measures are available to gauge health improvement. Much of the implementation and outcome assessment of the ACA will depend on the capacity of the system to handle the increased surge of patients who were previously uninsured. As healthcare reform changes access and availability of care in the U.S., the ACA does include a strong quality improvement component, which will reward organizations that are successful at reducing admissions for preventable diseases and providing more prevention programs in the community. In this case, the ACA links performance measures with a value-based system. However, this type of outcome measure is new to the healthcare industry and therefore, performance needs to somehow be quantifiable, so the development of quality improvement measures for all areas of healthcare still needs to be developed and implemented. Decisions on which measure(s) to use will need to be carefully thought out. Measurement needs to begin as soon as possible and proceed uninterrupted in order to be able to track changes in health and costs over time.