The document provides an overview of the Affordable Care Act (ACA), highlighting its goals to improve healthcare access, reduce costs, and enhance quality for Americans. It discusses the structural changes the ACA introduced, including the individual mandate, insurance exchanges, and protections for those with pre-existing conditions, while addressing the ongoing debates about its implications and challenges. The ACA aims to cover approximately 25 million previously uninsured Americans, although its long-term effects on premiums and the federal deficit remain debated.

1. An overview of the Affordable Care
Act, aka “Obamacare”
October 2013
1

2. A talk on “Obamacare” --- Why should you be interested?
As a citizen
• Healthcare is a large
and growing part of
our federal “balance
sheet.”
As a patient
• The quality and cost
of your personal
healthcare will be
impacted.
• Many fellow citizens
are cannot get the
care they need.
2
As a healthcare
market researcher
• Reimbursement and treatment
dynamics as well as usage
patterns may be affected, and
anytime our clients experience
change, they may need to do
research to understand it. We
should be prepared to discuss
intelligently.

3. Today’s Approach
Simplify and focus
on the main ideas
Stick to the facts
(and cut through the politics)
• The final law is over 2400 pages in
length detailing hundreds of separate
provisions.
• We will necessarily only focus on the
main ideas and issues.
• Much of the debate is heavily
politicized, and is related to differences
in philosophical ideologies (e.g. role of
government, how high taxes should
be, appropriate balance between
individuals and the state, etc.).
• We assume that you are not a policy
“wonk”, but just want to better
understand what all the buzz is about.
• We will focus on what is in the ACA,
why it is in there, and what the
expected impact might be.
3

4. Contents
●
Background: Our “Dysfunctional” Healthcare System
●
The ACA: An Overview
●
Main Points of Contention
●
Health Insurance Exchanges – A New Way to Buy Insurance
●
Impact on Different Stakeholders
4

5. Our dysfunctional healthcare system (I)
•
We spend far more on healthcare than other countries, even after adjusting for relative wealth.
5

6. Our dysfunctional healthcare system (II)
•
Despite the high level of spending, life expectancy at birth is far below the trend line
6

7. Our dysfunctional healthcare system (III)
•
Furthermore, our spending on healthcare is rising to unsustainable levels
7

8. Our dysfunctional healthcare system (IV)
•
Finally, the number of uninsured Americans is large and growing
8

9. The ACA was passed in an attempt to address all these problems
•
•
Goals are lofty, but are they achievable?
And are some of these goals conflicting?
Increase
the rate of
coverage
• Reduce the number of
uninsured and underinsured
Reduce
Healthcare
Costs
• For individuals
• For the government
9
Increase the
quality of
healthcare

10. Contents
●
Background: Our “Dysfunctional” Healthcare System
●
The ACA: An Overview
●
Main Points of Contention
●
Health Insurance Exchanges – A New Way to Buy Insurance
●
Impact on Different Stakeholders
10

11. The ACA: A High-Level Perspective (I)
•
Fundamentally the ACA has 3 main areas of reform, which are intimately related. These are: Restrictions
on Payer Policies, The Individual Mandate, and Increasing Accessibility to Coverage
Provision
Restrictions
on Payer
Policies
Key Elements
Motivation / Idea
• Guaranteed Issue: Insurers are prohibited from denying
coverage or setting rates based on health status (e.g. preexisting conditions). Rates can only be based on age and
geography. Also, payers cannot cancel policies if you fall ill.
• No annual or lifetime limits on coverage allowed
The
Individual
Mandate
• Everyone must get insurance, or pay a penalty.
• Penalty is greater of 2.5% of income or $695 ($2085 for
families), with some exceptions, and tied to inflation
Ensure that people that need care can get
coverage (and thus get care)
Insurers cannot “cherry pick” healthy
customers only
Without this, Guaranteed Issue would result in
people not buying insurance until they got sick,
which would result in skyrocketing premiums
(and defeat the whole point of insurance)
• Medicaid Expansion: Those that make less than 133
percent (up from 100 percent) of the federal poverty level
will qualify for Medicaid
• Federal Subsidies for individuals based on income level
Increasing
Accessibility
to Coverage
• States will set up insurance exchanges where people
(especially those that cannot get insurance through an
employer) can buy insurance.
• Children can be covered on parents policy up to age 26
• Employer Mandate: Those with more than 50 employees
must provide insurance, or be subject to fine. Those with
more than 200 employees must provide insurance
11
If there is an individual mandate for people to
get insurance, the system must also make
insurance relatively accessible (i.e. not too
costly) and easy to get, particularly for the
lower income, unemployed, etc.

12. The ACA: A High-Level Perspective (II)
•
Another way to understand the ACA is that it is based on the idea that “We are all in this together.”
Payers must accept everyone into the insurance pool, and everyone must participate in that pool.
Must provide affordable
insurance to all
(Guaranteed Issue)
Payers
Individuals
(i.e. Patients)
Must have insurance
(Individual Mandate)
12
Facilitate this union
(exchanges,
subsidies, employer
mandate, Medicare
expansion, etc.)
Government

13. ACA Impact on Coverage
•
The impact of many parts of the ACA is in dispute. However, practically everyone agrees that it will
reduce the number of uninsured individuals.
Number of uninsured in 2019
– CBO Estimate
55
Reduction of 25
million
million uninsured
• Medicaid Expansion: Requires states to offer
Medicaid to people with incomes up to 138
percent (133 percent plus a 5 percent income
disregard) of the federal poverty level (FPL)*
• Federal Subsidies: Premium subsidies and
limits on OOP spending for those with incomes
up to 400% of the FPL, for those that buy
insurance through exchanges
30
million
• Guaranteed Issue: Remove restrictions and
discrimination (pre-existing conditions, payers
cannot remove individuals if the get sick, etc.)
• Individual Mandate: Get insurance or pay
penalty
• Health Insurance Exchanges: Virtual
marketplaces where people can choose from a
wide set of policies, independent of their
employment
Before ACA
* Most, but not all states will comply with this (more on slide 20)
13
After ACA

14. ACA Impact on Overall Healthcare Costs – In Theory
Uninsured
•
Fewer uninsured should lead to more preventative care and less emergency care, reducing overall costs
to the healthcare system
“An ounce of prevention is worth a pound of cure” – Benjamin Franklin
Does not receive
regular, preventative
care
Suffering
Insured
•
Seeks out and
receives
regular, preventative
care
First interaction with the
healthcare system is an
emergency situation, which is
very costly.
By law, uninsured patients cannot
be refused emergency care, so
costs are passed on to payers
and insured patients anyways*
Few require emergency care
*Currently, uninsured people account for 20% of ER visits, costing hospitals as much as $56 billion / year
(http://articles.latimes.com/2012/jun/18/nation/la-na-emergency-care-20120619)
14

15. Other provisions in the ACA
•
The ACA contains hundreds of other provisions. Here are a few of the more impactful ones.
Provision
Motivation / Idea
Eliminating barriers to preventative services
All new insurance plans must cover preventive care and medical
screenings rated Level A or B by the U.S. Preventive Services Task
Force. Insurers are prohibited from charging co-payments, coinsurance, or deductibles for these services.
Encourage preventative care and screenings --- with hope
that this will reduce overall healthcare costs. “An ounce of
prevention is worth a pound of cure.”
Eliminating the Medicare “Donut Hole”
Manufacturers voluntarily agreed to provide $80 billion in
prescription drug discounts over 10 years for beneficiaries in the
Medicare donut hole. These discounts, coupled with federal
subsidies, will close the coverage gap by 2020.
The U.S. Department of Health and Human Services
estimates that more than a quarter of Part D participants
stop following their prescribed regimen of drugs when they
hit the donut hole. This can lead to poor health outcomes
which may cost the health system more in the long run.
Minimum Medical Loss Ratio for Insurers
Insurers must spend a certain portion of premium dollars on
healthcare (85% for large group plans; and 80% for
individual/small group plans), leaving only 20% and 15%
respectively for administrative costs and profits. If an insurer fails
to meet this requirement, a rebate must be issued to the policy
holder.
This prevents payers from price gouging, and provides a
disincentive for them to challenge / withhold coverage to
maximize their profit (beyond a certain level).
Governance of Biosimilars
Authorizes the FDA to approve generic versions of biologic drugs
and grant biologics manufacturers 12 years of exclusive use (data
exclusivity) before a biosimilar can be filed for approval.
Clears a pathway for biosimilars, allowing for potentially
cheaper versions of biologic drugs to become available.
15

16. Contents
●
Background: Our “Dysfunctional” Healthcare System
●
The ACA: An Overview
●
Main Points of Contention
●
Health Insurance Exchanges – A New Way to Buy Insurance
●
Impact on Different Stakeholders
16

17. Some History
•
•
The ACA had a difficult, partisan “birth.”
It was rammed through Congress, with not one Republican voting for it in the House.
2008
Obama identifies
fixing healthcare as
one of top 4
priorities in he wins
presidency.
2009
Congressional back and forth, House
and Senate with different bills.
Policy makers and
leading Democrats
convince Obama
Obama wins
that an individual
general
mandate is
election.
necessary to avoid
Obama proposes
the free rider
plan to cover 45
Republican
problem.
million uninsured
leadership directs its
using a subsidy, but
legislators to oppose
not a mandate.
the individual
Bipartisan
mandate, saying it is
committees
unconstitutional*.
formed to address
issues.
2010
Bill passes
House by 219
to 212 vote,
with all 178
Republicans
voting against
it.
The same
day, several
states file a
lawsuit
challenging the
constitutionality
of the ACA!
*Interestingly, previous Republican healthcare reform proposals included an individual mandate (most notably a 1993 Republican alternative
to the Clinton bill called the HEART act, as well as Romney’s state-level plan for Massachusetts in 2006).
17

18. The Individual Mandate Debate
•
There are arguments and counterarguments around the Individual Mandate, but at root the debate is
about the appropriate size and reach of the Federal government.
Arguments For
Arguments Against
The whole point of insurance is to
share and spread risks. If everyone
does not participate (or worse, if only
the riskiest people participate) –
insurance doesn’t work. Cannot have
guaranteed issue without the
individual mandate.
It is unconstitutional for government to
require people to purchase something.
Government cannot force commerce.
But governments already do this –
e.g. state laws requiring purchase of
auto insurance
Auto insurance is different because you can
choose to have a car or not.
…
This is the similar to a tax, and the
government is allowed to levy taxes
…
18

19. The 2012 Supreme Court Ruling
•
In 2012, the US Supreme Court upheld the Individual Mandate, but limited the Federal Governments
capability to force states to participate in Medicaid expansion
●
On March 23, 2010, the same day that the ACA was signed into law, several states
filed a lawsuit challenging the constitutionality of
o
o
●
The Individual Mandate
Medicaid expansion
In June 2012, the US Supreme court ruled as follows:
Individual Mandate
Medicaid Expansion
This is constitutional, as it is the
same as Congress’ power to tax.
Passed by a 5-4 decision.
Medicare expansion is fine, but the
Federal government cannot force states
to participate in Medicare expansion
under threat of withholding existing
funding
Had it not been ruled this
way, Obamacare would be dead, for
all intents and purposes.
19

20. State-by-State Participation in Medicare Expansion
•
Only about half of the states will participate in Medicare expansion, somewhat blunting the impact of
the ACA.
20

21. Contents
●
Background: Our “Dysfunctional” Healthcare System
●
The ACA: An Overview
●
Main Points of Contention
●
Health Insurance Exchanges – A New Way to Buy Insurance
●
Impact on Different Stakeholders
21

22. Health Insurance Exchanges – What are they?
•
An HIX is a regulated, virtual marketplace, administered by either federal or state government, where
private insurers may sell plans to individuals and small business starting January 2014.
Health Insurance
Exchange
• Individuals
(unemployed, selfemployed, or working for
companies that do not
offer insurance, etc.)
• Only approved plans that
meet certain standards (e.g.
no discrimination by preexisting condition, will be
allowed to be sold on the
exchanges
• Small businesses looking
for insurance
• States may charge insurers a
fee (up to 3.5% of premiums)
for the right to sell on the
exchange
• Those who require federal
subsidies for insurance
• Delinking insurance from
employment ensures that
people can have insurance
in between jobs.
22

23. Health Insurance Exchanges – Greater Access, but Additional Complexity
23

24. Health Insurance Exchanges – State by State Approach
•
17 states are building their own HIXs, 7 others are assuming some responsibilities, and 26 states are
defaulting to a Federally administered exchange
Some states will
operate their
exchanges as a
clearinghouse
(i.e. all qualified
plans will be
available there).
Other states, like
California, will
only offer
selected
plans, based on
negotiated rates
with insurers
Reasons for states to set up their own exchanges: Federal subsidies, more local control
Reasons for states not to set up their own exchanges: Cost and administration, politics
24

25. Contents
●
Background: Our “Dysfunctional” Healthcare System
●
The ACA: An Overview
●
Main Points of Contention
●
Health Insurance Exchanges – A New Way to Buy Insurance
●
Impacts on Different Stakeholders
25

26. ACA Implications – Consumers (I)
•
More people will get covered, and coverage will be better
Cons
Pros
Financial support for many to get insurance
(Medicare expansion, subsidies)
Individual Mandate will mean some
healthy individuals who may not need
health insurance will be required to
purchase it (or pay a fine)
Guaranteed Issue prevents payers from “cherry picking”
healthy patients only
(no exclusions due to pre-existing conditions, no terminating
policies when patients get sick, etc.)
Insurance plans can no longer have lifetime limits or
maximums
Some high income consumers (>$200K
for individuals, >$250K for joint filers) will
have to pay more Medicare taxes
Elimination of Medicare “Donut Hole”
will help out many elderly patients who are otherwise
stopping treatment when they reach the “hole”
Insurance plans can no longer have copays/coinsurance
requirements for a long list of preventative measures
Health insurance exchanges will, in
principle, provide people with more choice of
plans, and help them find the most appropriate plan for
their situation
26

27. ACA Implications – Consumers (II)
•
There are strong reasons to believe that insurance premiums will increase, however, at least initially*
Reasons premiums will increase
Reasons premiums will decrease
Individual Mandate will bring some healthy people
into the pool who would otherwise not get insurance
Guaranteed Issue means that insurers
will have to take on anyone, including
those with pre-existing conditions and
other unhealthy individuals
Health Insurance Exchanges will increase
competition, increase transparency, in theory should
bring prices down
No lifetime limits or annual
maximums, no copayment of various
preventative measures --- payers will
pass on costs through increased
premiums.
An ounce of prevention is worth a pound of cure
As the number of uninsured and underinsured is
reduced (via Medicare expansion, federal
subsidies, etc., preventative treatments will
increase, and emergency treatments will decrease
?
Where this will “net” out is unclear. It may take some time for the “ounce of
prevention” dynamic to play out, so it may be that premiums will rise initially,
only to fall down the line.
* The Minimum Medical Loss Ratio for Insurers will prevent premiums rising to a level where Insurers make
unreasonably huge profits, though.
27
?

28. ACA Implications – Payers
•
Payers will feel the squeeze and will need to adapt as the market gets more competitive and increasingly
driven by individual customers (as opposed to employers)
Potential challenges
Potential benefits
Insurers have to accept high-risk individuals, those
with pre-existing conditions, etc.
More people covered will lead to more top line
revenues
Health insurance exchanges will heighten
competition for customers as the marketplace
becomes more transparent and customers have
more options.
Individual Mandate will lead to many healthy
individuals buying insurance that would otherwise
not do so
Compared to employers, individual customers will
more easily “churn” --- i.e. hunt for better rates and
customer service. The market will be more akin to
the wireless market
Minimum Medical Loss Ratio will cap payer
profits to a percentage of what they collect in
premiums. If they exceed these limits, they must
provide refund checks to policy holders.
28

29. ACA Implications – Payer / Premium Calculus
•
•
The ACA will increase the pool of insured individuals by about 25 million
Payer profits as well as whether premiums increase or decrease will depend on the shape of the risk/population curve
below.
Number of newly insured individuals
The ACA will increase the pool of insured
individuals by about 25 million
Some will be healthy
individuals that would not
have previously gotten
insurance before, but
now do so because of the
Individual Mandate.
Low
Some will be those
who now get
insurance because of
increased
accessibility through
HIXs, via federal
subsidies, and
through Medicaid
expansion.
Level of health risk /
Amount insurers will have to pay out
29
Some will be high-risk
individuals, those with preexisting conditions, etc., that
payers would have refused
coverage before, but now
have to accept because of
Guaranteed Issue.
High

30. ACA Implications – The Federal Budget
•
•
There is a lot of dispute about the net impact of the ACA on the Federal Deficit, but the CBO predicts the ACA will reduce
the deficit by about $100B over the next ten years.
However, a lot of this is due to cuts in Medicare spending, which are unlikely to stand.
$2T
Penalty payments from individuals
(who are not getting insurance)
Estimated Impact on Federal
Deficit over the next 10 years
(value are approximate)
Penalty payments from employers
(who don’t provide insurance)
Excise tax on “Cadillac” insurance plans
Other tax revenue increases,
e.g. to pharma companies
Federal
Subsidies
provided through
HIXs
Increasing hospital
insurance (HI) payroll
taxes for high income
individuals, and extending
it to investment income
$1T
Reducing Medicare
payments, particularly to
Medicare Advantage
programs
Medicare
Expansion
Will this really happen? Past reductions in Medicare payments have been
postponed time and again. Additionally, one in five physicians are restricting the
number of Medicare patients in their practice and one in three primary care doctors
– the providers on the front lines of keeping the cost of seniors’ care low – are
restricting Medicare patients, according to a 2010 AMA survey of more than 9,000
doctors who care for Medicare patients
30
Net savings of about
$100B over 10 years

31. ACA Implications – Providers
•
•
Providers will come under increasing pressure: More patients to treat, new paradigms to deal with.
As costs go down, providers will have a smaller pie to share and only the most efficient will survive.
Potential benefits
Increased demand for healthcare
by patients with insurance, and
likely reduction in uncompensated
care
Physicians are incentivized by
the 10% Medicare bonus
payment to treat in healthcare
shortage areas
Potential challenges
More covered individuals means more treatment, and more earlier
treatment. More treatment of chronic conditions, less of acute
conditions, more preventative treatment, less emergency treatment.
The increased demand for healthcare will worsen existing shortage
of providers, particularly PCPs, general surgeons, nurses, and
physicians assistants
Adding millions of people to the Medicaid system will aggravate
existing dilemmas with the system
• e.g., lower Medicaid payments for providers has resulted in
access problems for low-income individuals and worsened
hospital ER overcrowding
Reducing Medicare payments will hurt provider pocketbooks
High quality and cost efficient
providers can do better in a
fee-for-value system, e.g.
share in cost savings
New Medicare payment paradigms (cost savings sharing with
Accountable Care Organizations), will push providers to be more
cost efficient and focus more on quality outcomes vs. fee for service
models.
31

32. ACA Implications – Industry
•
The Pharmaceutical Industry supported the ACA, agreeing to contribute to its implementation via excise
taxes and rebates. In return, it gets potentially more than 30 million new drug customers.
Potential benefits
Potential challenges
Potentially more than 30 million newly insured who
will purchase prescription drugs, and who will not be
subject to annual or lifetime caps on coverage
Excise taxes assessed to manufacturers of
branded prescription drugs and medical devices.
Drug manufacturers required to provide 50%
discount on brand name drugs for Medicare
patients in the “donut hole.”
Increased sales of drugs from individuals who had
previously stopped taking them due to the
Medicare “donut hole”
Abbreviated approval pathway for biosimilars
12-year brand exclusivity for biologic drugs from
date of FDA approval
As more healthcare spending moves from
emergency to preventative, there may be a
shift in spending from certain types of drugs to
others
Move to “fee-for-value” from “fee-for-service” could
favor using drugs, especially preventative
treatments that would avoid more costly acute care
down the road
* Estimated contribution over the next ten years is in the range of $90B.
32
*

33. APPENDIX
33

34. Reform Implications – Jobs
Potential job creation
Potential job elimination
If firm has more than 50 full time employees, must offer insurance
or pay a fine ($2-3K per worker)
Expanding Medicaid removes a
disincentive to work.
People may choose to work less. Subsidies to get insurance, and
ability to purchase it as an individual, will reduce incentive to get a
job (which for some people is the main motivation for having the
job)
By making it easier to get
insurance as an
individual, makes it less of an
issue to search for new job or
start a new business on ones
own.
If insurance becomes
cheaper, firms will have more
money to hire workers
34

35. Health Insurance Exchanges – Benefits and Challenges
•
•
HIXs will increase competition, access and transparency.
Insurers will begin to sell increasingly to individuals, and less to employers.
Potential Benefits
Access: Make it easier for people to get insurance, especially
those who are unemployed or work for companies that do
not offer insurance (i.e. often those that are poorer and need
care the most). Delinking insurance from employment
ensures that people can have insurance in between jobs.
Transparency and Competition: Easy to compare plans side
by side, and make the market more competitive (and thereby
reduce costs) by offering more plans than a single employer
typically does. Reducing costs in turn will increase access.
Potential Challenges
Confusing: Too many options might be confusing to people.
Having to sort through all the different choices and
rules/regulations is likely to be frustrating.
Initial “kinks”: May be some initial confusion, particularly
since the exchanges must adhere to both federal and different
state regulations. Lack of coordination could be problematic.
Disintermediation: Brokers and agents could be threatened.
How will they (or how wont they) be integrated into the
system?
Revenue: States have the option of charging a fee (3.5% of
the premium) to insurers for the right to participate in the
exchange
35