Health Reform in the U.S. Jody Blanke Distinguished Professor of Computer Information Systems and Law Mercer University

Chapter Overview  Discusses the history of health reform in the U.S. and details the key provisions of the Affordable Care Act (ACA)  Focuses on: Previous attempts at national health reform Why health reform is difficulty to achieve The passage and provisions of the ACA

Health Reform  There have been numerous health reform attempts in the U.S. Prior to 2010, all attempts at national health reform to create universal or near-universal coverage had failed Some successes at the state level

Health Reform— Difficulty of Reform in the U.S.  Individualistic culture  Dislike of big government  Lack of consensus In 2010, 47% of Americans believed it was the federal government’s responsibility to ensure that everyone has health insurance In 2007, that number was 69%  Federal system rules and structure make it difficult to achieve major reform.  States generally home to social welfare issues States restrained by ERISA (Employee Retirement Income Security Act), which preempts state laws that relate to employer-sponsored health plans

Health Reform— Difficulty of Reform in the U.S.  Powerful interest groups against national health reform  It is much easier to oppose a proposal than to develop and pass a bill  Path dependency Once a certain way of doing things becomes the norm, it is hard to change course Shortly before ACA passed, 54% of the people surveyed said they would not be willing to pay more so that others could have access to health insurance

Health Reform—Key Failed Attempts at National Health Reform  In 1912, Progressive Party candidate Teddy Roosevelt supported social insurance platform that included health insurance  In 1915, American Association for Labor Legislation proposal for working class health insurance  President Truman supported national health reform upon taking office, won re-election on national health insurance platform in 1948  President Nixon: initial health reform proposal in 1969 and revised proposal in 1972  President Clinton Health Security Act in 1993

The Affordable Care Act  Why did the ACA pass when so many prior attempts had failed? Commitment and leadership Learned lessons from past failures  Obama made deals with various stakeholders in order to keep the legislation alive  Obama presented general ideas and principles to the Congress, rather than a detailed plan Political pragmatism  Obama compromised on some abortion language in order to save the legislation

The Affordable Care Act  Principles of health reform enunciated by Obama in 2009 Protect families’ financial health Make health insurance more affordable Aim for insurance coverage universality Provide portability of insurance coverage Guarantee choice of health plans and providers Invest in disease prevention and wellness initiatives

The Affordable Care Act  Four Major Reforms The individual mandate Reshaping of existing health plan practices  Ex. Preexisting conditions  Ex. Coverage for dependent children up to age 26 Creation of heath insurance “exchanges” or “marketplaces” Expansion of Medicaid

The Affordable Care Act – Individual Mandate  Most people have to purchase health insurance or pay a penalty starting in 2014 Exemptions for certain populations and based on affordability Must avoid problems associated with adverse selection and free riders  Controversy Too much government interference in private lives? Constitutional?

The Affordable Care Act – State Health Insurance Exchanges  Intended to create a new market in order to create wider insurance pools American Health Benefit Exchanges for individuals Small Business Health Options program for small businesses  States have 3 options: Build their own exchanges Enter into a partnership with the federal government Ignore the process and default into a FFM (federally facilitated marketplace)

The Affordable Care Act – Where States Stand on Exchanges

The Affordable Care Act - Essential Health Benefits

The Affordable Care Act – Premium and Cost Sharing Subsidies  Premium tax credits available to individuals who are eligible to purchase health insurance in state exchanges, have incomes between 100% and 400% of the federal poverty level, are not eligible for any type of public insurance, and do not have access to employer-sponsored health insurance In 2015, 400% of the poverty level was $46,680 for an individual and $95, 400 for a family of four Individuals with income less than 133% of the poverty level are eligible for Medicaid in states that elected to implement the ACA’s Medicaid eligibility expansion  Problem ahead!

The Affordable Care Act – Premium and Cost Sharing Subsidies  There are 4 ACA-approved plan levels by actuarial value: Bronze (60% of actuarial level) Silver (70% of actuarial level) Gold (80% of actuarial level) Platinum (90% of actuarial level)  The amount of the premium tax credit is tiered based upon income, so that individuals will not have to pay more than a certain percentage of income (based upon the cost of the second-lowest-cost silver plan) Income Level by Federal Poverty Level Premium as a Percentage of Income 100%-133%2% of income 133%-150%3%-4% 150%-200%4%-6.3% 200%-250%6.3%-8.05% 250%-300%8.05%-9.5% 300%-400%9.5%

The Affordable Care Act – Premium and Cost Sharing Subsidies  Example Bob’s income is 250% of the poverty level (about $29,000). The cost of the second-lowest- cost silver plan in Bob’s area is $5,700.Under the premium tax credit schedule, Bob will pay no more than 8.05% of his income, or $2,334. Bob’s tax credit is $3,366 (which is $5,700 minus $2,334)  Cost sharing subsidies are available to help low-income people reduce the amount of out- of-pocket spending on health insurance

The Affordable Care Act – Employer Mandate  Employers with 50 or more employees must provide affordable health insurance or pay a penalty Insurance is considered affordable if it has an actuarial value of at least 60% or is not more than 9.5% of an employee’s income  For employers who do not offer health insurance and have at least 1 full-time employee who takes the premium tax credit, the penalty is $2,000 per employee after the first 30 employees Ex. An employer with 50 employees would pay a penalty of $40,000 ($2,000 X 20, i.e., 50-30)

The Affordable Care Act – Employer Mandate  For employers who provide unaffordable health insurance, the penalty for each employee who takes a tax credit, not counting the first 30 employees, is $3,000 per employee who takes a tax credit, but may not exceed more than $2,000 times the number of employees over 30 Ex. An employer with unaffordable coverage and 50 employees would pay a maximum penalty of $40,000 ($2,000 X 20, i.e., 50-30) Ex. If only 10 employees take a tax credit, the penalty would be $30,000 ($3,000 X 10). If all 50 employees take a tax credit, the penalty would max out at $40,000 (not $150,000, i.e.,$3,000 X 50)

The Affordable Care Act – Private Insurance Market Changes  No pre-existing condition exclusion  Dependent coverage to age 26  Preventive services without cost sharing  Prohibitions against lifetime and annual coverage limits  No rescission without fraud  New appeals process  Premium rate reviews

The Affordable Care Act – Private Insurance Market Changes  Guaranteed issue and renewability  Rate variation limits  Essential health benefits  Wellness plans  Some plans may be grandfathered in and not subject to all of these changes  Self-funded plans are also not subject to all of these changes

The Affordable Care Act – Financing Health Reform  Changes to Medicare provider reimbursement  Changes to Medicare Advantage reimbursement  Medicare Part A increases for high earners  Changes in Medicare Part D subsidies  Changes in Medicare employer subsidy  Income tax code changes  Health industry fees  Tax on high cost health insurance plans

National Federation of Independent Businesses v. Sibelius (2012)  Supreme Court decision Declared the individual mandate beyond the scope of Congress’s authority to regulate interstate commerce BUT held it to be an appropriate exercise of Congress’s power to tax BUT invalidated the part of the ACA that required the states to participate in the Medicaid expansion by taking away their existing Medicaid funding

Problem  The Supreme Court’s decision to transform the ACA’s Medicaid expansion from mandate to option has severe ramifications: 19 states have not expanded Medicaid coverage from 100% to 138% FPL (as of March 14, 2016) The ACA was designed assuming Medicaid expansion in every state and thus coverage for everyone under 138% FPL There are some 4 million people who remain uninsured because they earn too much to qualify for Medicaid, but not enough to afford private insurance in the exchanges because they do not qualify for the subsidies (which are available only to those earning at least 100% FPL)

Medicaid Expansion By State