Patient Protection, Affordable Care Act
– Thomas E. Murphy
9/15/10 Thomas E. Murphy 1
Before ObamaCare -
Economic Stimulus Legislation
• Reduce the cost of COBRA to 35% of full
premium for persons laid off. Government
reimburses employer sponsors. Layoff must
have occurred on or before May 30, 2011, and
premium subsidy extends for 15 months.
• Partial government funding of Electronic
Medical Record mandate.
• Free medical tuition for future MDs who
practice in underserved communities.
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• Signed March 23, 2010
• Has several effective
dates. Major provisions
effective Jan. 1, 2014.
• Plan design by
• Everyone in the U.S. will
be affected by it.
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What is “ObamaCare?”
• An individual mandate to • State insurance exchanges
acquire health care for eligible individuals and
• An employer mandate to employers to buy
offer health care. “affordable” health
• Effective January 1, 2014 insurance.
• Ban insurance restrictions • Enlarged eligibility for
on life time and annual Medicaid (133% of FPL for
limits, and rescissions single adult under age 65))
• Controlled premium • Reduced costs for Medicare
increases, guaranteed ($500 billion)
coverage, no exclusions of • Financed by new taxes,
pre-existing conditions. fines, and expected
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ObamaCare – a long and winding
• Allows for
“grandfathering” of plans
that need not change
• Requires coverage of
dependent children up to
age 26 by employer
• Subsidies for employers
and individuals who
cannot afford mandate.
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Mandated Benefits Now Include
FMLA COBRA USERRA
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Military and Social Long Term
Veterans Security Care
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Impact of new taxes and
controls on cost of benefits?
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Visualize . . . What will be the design?
Based upon the preceding
general points: What are the issues here?
• How would it work?
• What exceptions would
have to be made?
• How about definitions?
• Think deeply – come down
the ladder of abstraction
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Basic Economic/Social Theories
• Uninsured cause cost shifting – uncompensated care --
mandating coverage will reduce costs.
• Restrictions on coverage due to pre-existing conditions,
poor health, and annual or lifetime dollar limits on
2. coverage must be “reformed.”
• State-based, non-profit insurance exchanges will provide
“affordable” insurance to individuals and employers
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Basic Economic/Social Theories
• ObamaCare, including new eligibility standards for
Medicaid, will insure 24 - 30 million currently uninsured
• It will be financed by new taxes on certain industries, the
wealthy, reductions in the cost of Medicare, and new fines
5. on non-complying individuals and employers.
• ObamaCare will improve health care in the U.S. by
increasing access to all. Fear of losing health care will no
6. longer be a concern among our residents.
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Some issues – Individual Mandate
• Consequences of non- • How do I meet the new
compliance? eligibility standards for
• What if you cannot afford Medicaid?
it? • Where do I go to buy
• What plan of benefits insurance?
must you acquire? • With “insurance reform”
• What if your employer will the PPACA encourage
offers a plan but you adverse selection?
cannot afford the • How will Exchange plan
required cost sharing? be more “affordable?”
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Issues - Employer Mandate
• What consequences for • What plan of benefits
non-compliance? must I offer?
• What if I’m a small • Who decides this?
employer and cannot • Can my plan be
afford insurance? “grandfathered?” What’s
• What is a “small the significance of this
• What if I cover them, but • How will my sponsored
the government says it’s health insurance be less
too costly for my costly?
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The Basic “Work Flow”
Must offer or If Actuarial Value* Premium tax credit
obtain Essential is too low or cost or free choice
Health Benefits too high voucher
and individuals can Non-compliance
*Actuarial value = % of claim buy at State results in fines
costs paid by insurance. Exchanges
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Questions? Any questions?
“Bronze, platinum, and gold”
What is allowable cost sharing by
Olympics or plans offered by
What’s a “free choice Who must “auto
What’s a “Cadillac What are the new taxes?
Plan?” Who must pay?
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Time Tables, Medicaid, & MLRs
What are the respective effective dates?
How will the additional Medicaid
enrollees be financed?
Insurance reform also includes premium
reviews by government and controls
over “medical loss ratios?” What’s this?
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GAO says medical States are suing to
costs will increase reverse Medicaid
not decrease. change
Will employers Will individuals and Will new industry
unwittingly lose some employers not taxes increase
their grandfathered comply and simply health care costs to
status? pay the fines? consumers?
Does the PPACA Will the law
effectively deal with Will Medicare encourage or mark
the problem of participants suffer? the end of employer
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Are we on the right trajectory?
All health estimates
delivery and affect
systems will deficit.
24-30 million Everyone
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Solution bigger than the problem?
• When the problem was • This could have
the uninsured immediately reduced
• And the underlying health care costs and
cause is our very high made health care more
• Should we have simply • Immediately dealt with
enlarged Medicaid, the problem of the
created a quality-based legitimately uninsured.
health care market, and • With much less
executed a surge on complexity and cost
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Was the PPACA the right buy?
Paying for a Lamborghini?
Could aCinqua Cento solution worked better?
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On enactment September 23, 2010
• No deductions for excessive • No lifetime limits and
restricted annual limits
• Adult children coverage,
executive compensation, • First dollar coverage for
temporary retiree preventive care
reinsurance plan are • No pre-existing exclusion for
effective on or 90 days after under 19 years, and non-
discrimination premium rules
enactment. • Internal and external appeal
• New financial reporting and
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January 1, 2011 January 1, and March 23, 2012
• No HSA, FSA, • Uniform explanation of
reimbursement for OTC coverage required
drugs. • 60 day advance notice of
• W-2 reporting for financial plan modifications
value of benefits • Reporting and disclosure on
• Payroll deductions for corporate service provider
voluntary Long Term Care
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January 1, 2013/ March 1, 2013 And then . . .
• New Medicare payroll tax
on high earnings
• Cap on FSA contributions
• No deduction for retiree
• Comparative effectiveness
capitated fee for employers
• March 1 – Required
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Timetable - January 1, 2014
• Exchanges operational • No annual limits
• Employer and individual • 90 day time limit for
mandates, opt-outs, enrollment waiting
free choice vouchers, periods.
cost sharing and • New wellness incentives
premium credits, fines • Essential benefit must
and penalties are include clinical trials for
• No pre-existing diseases.
condition exclusions for
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Hogwarts - Ready for the flyover?
• What are some of the
• How will it all work?
• How do certain provisions
• What is the “fine print” of
the Affordable Care Act?
• See: All the Government
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What is Essential Coverage?
A Plan Must Provide: And also:
1. out-patient services • 7. rehabilitative and
2. emergency services services and devices,
3. hospitalization, • 8. laboratory services,
4. maternity and pediatrics • 9. preventive and wellness
5. mental health and services, and chronic
substance use disorder, disease management
6. prescription drugs • 10. pediatric services,
including oral and vision
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Fines for non-complying employers
• Employer who does not
offer health insurance
and who has > 50
employees and one FTE
receives a premium tax
credit to buy in an
must pay fine of $2,000
for each such employee
(excluding the first 30)
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Premium Credits . . . .
• For those whose annual • Premiums above these
income is between 133%
and 400% of the FPL, the amounts will be
amount of the expected subsidized – a premium
premium contribution made credit.
by the individual shall range
from 2% of annual income
to 9.5% respectively of
annual income and will be
based upon the second
level “silver plan” premium
available in the Exchanges.
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Premium credits – a little help
• The credits are
• They can be advanced
to the participant.
• So, the idea is if you
cannot afford to pay the
whole premium, you
will receive a premium
credit to buy from an
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A Fine or a Free Choice Voucher
Employer sponsor of health
insurance Free Choice Voucher
• If employer with > 50 • IF employer offers essential
employees offers coverage coverage but employee’s
and one FT employee premium exceeds 8% but is
receives premium credit to less than 9.8% of income,
buy in an Exchange, the fine and his income is under
is $3,000 for each such 400% of FPL, employer must
employee or $2000 for each provide a “free choice
and every employee voucher,” and opportunity
(excluding the first 30) to “opt out” and buy
insurance in an Exchange.
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Free Choice Voucher
• In such case, no fine, Vouchers
and the amount of the
voucher roughly equals No
the employer’s cost.
• So the employee
“opting out” gets a
subsidy from his
employer to buy
insurance in the
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Cost Sharing Credits – in addition to
• If employer’s plan • The Actuarial Value
provides less than 60% involves the percentage
Actuarial Value, or the of claims paid by the
employee’s share of the insurer and is affected
premium exceeds 9.5% by deductibles, co-pays,
of income, the co-insurance, and
employee is eligible to annual out-of-pocket
receive a cost sharing maximums.
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Cost Sharing Credits
• The cost-sharing credits • When income level is
reduce the cost-sharing this % of FPL, then AV
amounts and annual must be:
cost-sharing limits and • 100-150% FPL: AV - 94%
have the effect of • 150-200% FPL: AV - 87%
increasing the Actuarial
Value (AV) of the basic • 200-250% FPL: AV - 73%
benefit plan to the • 250-400% FPL: AV -70%
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Cost sharing credits – Quantitative
Increase the Actuarial Value What’s the % of claims paid?
• To increase the actuarial
value of the plan up to 94%
for those whose income is
between 100 to 150% of the
FPL, and it decreases to 70%
for those with incomes
between 250% and 400% of
FPL. (Effective January 1,
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Remember . . .
These subsidies are for buying “American Health Benefit
through the Exchanges: Exchanges”
• Premium Credits
• Cost-sharing subsidies
• Free Choice Vouchers
• Access to Exchanges
restricted to U.S. citizens
and legal immigrants
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No Fine for Small Employer - Auto-
Enrollment for large employers
• An employer with fewer
than 50 employees is
not subject to a fine
whether it offers health
insurance or not.
• Employer with > 200
employees who offers
insurance must auto-
enroll all employees in
current health plan.
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Fines for non-complying individuals
• The flat fee fines
increase from $95 per
year in 2014, $325 in
2015, $695 in 2016, or
alternatively from 1% of
taxable income in 2014
to 2.5% in 2016 with a
cap of $2085 per year. .
• There will be later COLA
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What about small businesses?
• Employers who offer health care with 25 or
fewer employees whose average annual
wages are less than $50,000 can receive a tax
credit of up to 35% of the employer’s cost of
the plan, provided this cost represents at least
50% of the total or 50% of the benchmark
premium. (Effective: 2010-14).
9/15/10 Thomas E. Murphy 39
What about small businesses?
• A 100% tax credit will be available for those
employers with 10 or fewer employees whose
annual average wages are less than $25,000.
• After 2014, certain small businesses as
defined by the law will be eligible to receive
tax credits from 50% to 100% of the premium
paid to an Insurance Exchange on behalf of
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(In existence on March 23, 2010)
• Grandfathered Plans must • Cannot rescind policies
provide for the for health reasons.
dependent coverage up • Cannot have enrollment
to age 26, unless the waiting periods in excess
person has coverage from of 90 days.
other source. • Group plans must
• Must eliminate all pre- eliminate life time and
existing conditions for certain annual
under age 19 now. maximums.
• All pre-existing conditions • Must contain existing cost
restrictions must go for sharing features to
group plans by January 1, certain COLA increases.
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Maintain status Loss of Status? Then . . .
• Insured Plans that are • No cost sharing for
grandfathered must comply preventive care
with Medical Loss Ratio • Guaranteed access to
provisions. OB/GYN and Pediatricians
• Plans that significantly cut • Guaranteed availability and
benefits or increase cost renewability of coverage
sharing will lose their • Coverage for defined
grandfathered status. essential plan
• Must provide for appeals
• And more . . .
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The New Taxes – Financing of PPACA
• Employer sponsors must • No deduction for excess
pay a per-capita tax to executive compensation
finance comparative at insurance companies.
effectiveness. • New taxes on
• 40% excise tax on Cadillac pharmaceutical, health
plans that provide insurance companies,
benefits valued at medical device makers,
$10,200/$27,500 and tanning salons.
(effective 01/01/2018) • New Medicare payroll tax
• New tax of 3.8% on (from 1.45 to 3.5%) on
unearned income for high high earners $200,000.
income persons. (eff. 01/01/2013)
• Fines for non-compliance • New taxes on deductibles
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Taxes – fine print
• The law will increase the threshold • There will be a tax on individuals
for deductible medical expenses without qualifying health care
from 7.5% of adjusted gross income coverage of the greater of $695 up to
to 10%; the increase not applicable a maximum of three times that
to individuals over 65 for tax years amount or 2.5% of household
2013-2016. (Effective: January 1, income. This will be phased in
2013) beginning 2014 with an individual
• Flexible spending account (FSAs) annual fine of $95; the fine increases
contributions cannot exceed $2500 over time to the above-described
annually and must apply to $695 levels.
prescribed medicines and • An excise tax of 40% on the amount
treatments, not over-the-counter of a health care plan that exceeds
items. $10,200 (single) or $27,500 (family)
• The excise tax on non-medical in aggregate value will be levied on
distributions from HSAs will increase either the company that insures or
from 10% to 20%. (Effective January the employer who sponsors such a
1, 2013) plan. This is often called the
“Cadillac Plan tax.” N/A to high risk
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Taxes - the fine print
• The ability of employers to take a tax • There will be a 2.3% excise tax on
deduction for the $1300 Medicare the sale of any taxable medical
Part D subsidies received from the devices. Effective: December 31,
government in exchange for 2012.
continuing to offer retiree health • There will be a special excise tax of
care will be eliminated effective 10% on tanning studio services.
January 1, 2013. • Annual compensation for executives
• Special taxes on the pharmaceutical of health insurance providers in
industry sector will be levied in excess of $500,000 per year will have
aggregate amounts of $2.8 billion in limited deductibility. (Effective:
2012, to $4 billion in 2017, and $2.8 January 1, 2009)
billion in 2019.
• Similarly the insurance sector will
pay aggregate additional taxes of $8
billion in 2014 to 14.3 billion in 2018.
Future special taxes will be based on
• There are special exceptions for non-
profit insurance companies.
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• Non-discrimination in • Reporting requirements
premiums except to HHS regarding plan
premium tiers for family design and details
coverage, ratings, (“transparency
actuarial value, age, and requirement”)
tobacco use. • No premium or cost
• Medicare “donut hole” sharing subsidies for
deductible will be abortions except where
phased out. necessary to save life of
mother or is result of
rape or incest.
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Claims and Appeals
New Obligation to provide internal Will this lead to increased
and external appeals of . . . litigation and costs?
• Any adverse decision over
coverage of a certain
diagnostic procedure, or
• Any rescission of coverage
• Process allows external
appeal, is expedited, costs
paid by employer, and
binding final decision.
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Free Preventive Services
• No more cost sharing for • Immunizations approved by
evidence based care as CDC also must be “first
defined by the U.S. dollar.”
Preventive Services Task • Does cost sharing mean the
Force deductible is not applicable,
• The Task Force must give there are no co-pays, and
the screening or preventive no co-insurance?
care a grade of “A” or “B” in • What if the service is
order to qualify for no cost delivered
sharing. contemporaneously with
• For women and children see non-preventive care?
Health Resources and (Separate billing required?)
Services Administration. • What’s the policy objective
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What are the Exchanges?
• States must run • Later, in 2017 larger
effective 2014. employers can
• Provide low cost, participate in the
“affordable” insurance Exchanges.
• Available to individuals • Several levels of plans
whose employer plan is can be available.
too costly or do not
• Available to small
9/15/10 Thomas E. Murphy 49
The Insurance Exchanges –Plans
Types of Plans Affordable Plans
• (1) Bronze - essential health • (2) Silver will provide 70%
benefits and cover 60% of benefit cost coverage with
the benefit costs with out- the same out-of-pocket
of-pocket maximums of maximums
$5950 (single) and $11,900 • (3) Gold will cover 80%, and
(families). • (4) Platinum, 90%, and,
• (5) catastrophic plans will
be available to those up to
30 years of age and only in
the individual market.
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• The Act requires
reasonable time and
place for working
mothers to breast feed.
• Definition:DOL, Wage
and Hour Division, Fact
• What do you think the
issues are here? Hours
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Long Term Care Program
• Working adults must be • Will initially increase
given opportunity to deficit
enroll in this long term
care program. Self-pay,
• Employer can auto
enroll (with opt out)
and must offer payroll
• What’s the policy here?
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Flexible Spending Accounts – High
• FSAs limited to $2500 Smile,
per year. Amounts
above will be subject to
• No pre-tax purchase of
over the counter drugs
in FSAs, HSAs, or HRAs.
• Cost sharing
deductibles are limited
to $5950 (individuals),
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Medical Loss Ratios
• This means the
insurance company’s Health Care Reform Magazine 17.09.10
percentage of expenses
paid for health claims.
The lower the OG&A
and marketing expense
the higher the medical
• PPACA requires an 80%
- 85% MLR for
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• States have sued saying
individuals to buy
health care, and
• Medicaid expansion is
an unfunded mandate.
• ERISA and PPACA
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Lifetime, Annual Limits, Rescission,
and Patient Protections
• After 2014, no lifetime or • No cancellation of
annual limits. coverage for health
• “Reasonable” limits can reasons. Only for non-
be imposed until 2014. payment of premium and
• No pre-existing condition fraud. Effective
exclusions for pre 19 September 23, 2010.
year-olds, effective • Wellness incentive cap is
September 23, 2010. increased to 30%.
• None allowed after 2014. • Guaranteed issue – no
turn downs due to health
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Interim Pre-Existing Condition
Temporary Health Insurance Except for Green Beer Day
• Creates a temporary high
risk insurance pool.
• Effective 90 days after
• Eligible will be those who
have a pre-existing
condition and were
uninsured for 6 months.
• Eligible to enroll
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Temporary Retiree Reinsurance Plan
• Provides health • Payments from the
insurance coverage to reinsurance program
retirees over age 55 will be used to lower
who are not eligible for the costs for enrollees
Medicare. in the employer plan.
• Program will reimburse (Effective 90 days
employers or insurers following enactment
for 80% of retiree through January 1,
claims between 2014)
$15,000 and $90,000.
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Some Questions without Answers
• Will the the Exchanges • Will employers opt for
provide affordable and no coverage, or
attractive health • will employer coverage
insurance for small (180 million) remain the
employers and key means for most to
individuals? obtain health
• How? insurance?
• What will happen to
high deductible plans?
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• Will the cost of health • Will there be a
care continue to rise? difference in employer
• Will annual limit response to the law
prohibition extend to depending on whether
special, “non-essential” they are insured or self-
health benefits (e.g. insured?
“home health care”)? • How will employers
• Who will determine provide W-2
preventive care in the information on the
future--politicians or value of the health
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Questions . . .
• Will the PPACA lead to • Will PPACA destroy
health care rationing? private health insurance
• What constitutes and altogether?
who will determine • On what basis will the
“acceptable coverage?” insurance companies in
Is there room for choice the Exchanges
• Are the minimum • Will the government set
Actuarial Values provider fees?
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Are you ready to advise?
Come with me
• See some DOL/EBSA to Gryffindor
• What would you advise
an employer with 50
currently offers health
care to do?
• What about an
employer with 200
currently offers care?
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Ready to Advise?
• What new Shoot 100 free
throws per day!
services might be
developed as a result of
• What if your client has a
grandfathered plan, but
needs to increase cost
sharing or change
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Big Picture – the Genesis of Reform
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