B. Key Changes Introduced under the ACA

The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010, to establish comprehensive health reforms to deal with the growing number of uninsured and provide new consumer protections, extend health care benefits, lower health care costs, and increase choice and control over quality, affordable health care for all Americans.  President Obama signed the Health Care and Education Reconciliation Act of 2010 (HCERA) on March 30, 2010, to amend the PPACA.  The HCERA made a number of health-related financing and revenue adjustments to the PPACA, established the appropriate Congressional budget levels for fiscal years 2011 through 2020, and modified higher education assistance provisions.

As amended, the ACA is projected to reduce costs and provide coverage to more Americans, including coverage for an estimated 25 million of the 48 million Americans that are currently uninsured.  To accomplish this goal, each of the nine titles of the ACA addresses a different component of reform that is intended to lower costs, increase access, and enhance consumer protections.  To increase *99 access and lower costs of health insurance, the law establishes a mandate for most Americans to obtain health insurance and launches private insurance markets through a state-based health exchange or health insurance marketplace, which will allow consumers to comparison-shop for health insurance and enable some people to receive federal subsidies to reduce the cost of purchase coverage.  In addition, the ACA expands the eligibility requirements for Medicaid, reducing the current growth of Medicare's payment rates for most services, and bringing fundamental changes to Part D of Medicare by closing the “Donut Hole” by 2020.

The ACA also enhances consumer protections and holds insurance companies more accountable by keeping premiums down, requiring coverage for preventative care, and preventing fraud and certain abuses, such as discrimination against Americans with pre-existing conditions.

Finally, although the law is estimated to cost $848 billion over a ten-year period, new excise taxes on insurance plans, fees on certain health-related industries, and cuts in government spending (largely in the Medicare program) are projected to fully offset the cost of the law and reduce the national budget deficit by an estimated $124 billion over the first decade, thus actually helping to stabilize the American economy.

Undoubtedly, achieving comprehensive health insurance reform will take many years. The ACA will be implemented over the course of a decade (20102020). It contains provisions that went into effect throughout 2010, including certain consumer protections that became effective on September 23, 2010, six months after enactment. The most substantial reform will go into effect in 2014 when the state-based insurance marketplaces will be operational and the mandate for most Americans to obtain health insurance will take effect. The last provisions are required to take effect before 2020. This section begins with the provisions already implemented in 2010 and then discusses the health reforms that will be implemented in 2014.

*100 1. Consumer Protections Effective September 23, 2010

Certain provisions of the ACA, known as the “Patient's Bill of Rights,” were implemented rapidly to prevent insurance companies from limiting health care. These provisions prevent insurance companies from denying coverage to children with pre-existing conditions, prohibit insurers from rescinding coverage based on an unintentional mistake, ban insurers from setting lifetime limits on how much can be paid to individual policyholders, and restrict annual limits on coverage for all plans starting on or after September 23, 2010.

All new individual and group plans are required to offer coverage to adult dependents up to twenty-six years old on their parents' health insurance policies.  The right does not apply to existing group plans if the dependent is offered insurance through his or her employer.  Discrimination against adults with pre-existing conditions will be prohibited in 2014.  However, insurance companies are now prohibited from limiting or denying coverage to children under age nineteen solely based on a pre-existing condition.

In addition, the ACA prohibits rescission, the practice of health insurance companies retroactively rescinding benefits and declaring policies invalid from the day they began, due to honest mistakes on the enrollee's insurance application, unless the mistake is shown to be fraud or an intentional misrepresentation of material fact.

Furthermore, under the Act, insurance companies are banned from establishing lifetime limits on the dollar value of essential benefits for a participant in any health insurance plan,  are currently restricted in setting the annual dollar limits a health plan can place on essential benefits and are required to phase-out annual *101 limits entirely in 2014.  However, plans can still put an annual dollar limit and a lifetime dollar limit on spending for health care services that are not essential. 

All health insurance plans must now provide free preventive care.  Plans may not charge a deductible, co-pay, or coinsurance for certain preventive services such as recommended screenings (such as mammograms), vaccinations (such as measles and meningitis), and counseling (on topics such as quitting smoking and treating depression). The exclusion of charges applies with equal force to counseling, screening, and vaccines to ensure healthy pregnancies, and regular “well-baby” and “well-child” visits from birth to age twenty-one.

The ACA places a cap on administrative spending in order to help lower the costs to a consumer. Large group insurers are now required to spend at least 85% of premium dollars on direct medical care and efforts to improve the quality of care. If they spend less than 85% of premium dollars collected on healthcare, they must rebate policy-holders the difference.

The ACA also now ensures policy-holders' right to appeal or ask an insurance company to reconsider its decision to deny a payment for service or treatment.  During the appeals process, the insurer must give its decision within seventy-two hours for denials of urgent care, thirty days for denials of non-urgent care that have not yet been received, and sixty days for denials of service already received. If the plan denies payment on appeal, it must explain why and explain how to appeal for an independent review of that decision.

Other changes implemented in 2010 include:

1. Effective through January 1, 2016, physicians and surgeons that practice in areas lacking primary care receive a 10% Medicare bonus.

*102 2. Limitations on contributions to individual flexible savings account that set-aside tax-free money for health costs.

3. An increase in the tax on spending money from health savings accounts on ineligible or non-medical expenses.

4. An increase in the Medicare tax rate by 0.9% (to 2.35%) on earnings over $250,000 for families and over $200,000 for individuals.

2. The Insurance Marketplace and Employer-Related Mandates in 2014 and 2015

The ACA will implement substantial health insurance market reforms in 2014. After January 1, 2014, all Americans are required to have health insurance or pay a tax penalty.  This tax penalty for those who do not obtain health insurance is the most highly debated provision of the ACA. The penalty increases from $95 in 2014 to $325 in 2015, $695 in 2016, and is indexed thereafter.  For individuals under eighteen it will be one-half that amount.  Exceptions to this requirement are made for religious objectors, taxpayers for whom the lowest cost plan exceeds 8% of an individual's income, American Indians, those who receive a hardship waiver, incarcerated individuals, and those not covered for less than three months, among others.

In 2015, certain penalties will also apply to non-complying employers. Large employers with more than fifty employees that do not offer coverage will have to pay a fee of $2,000 for each full-time employee that receives federal premium tax credits to purchase health insurance, excluding the first thirty employees from the assessment.  Employers that do offer coverage will have to pay the lesser of $3,000 for each employee receiving a federal premium credit or $2,000 for each full-time employee.  Employers that do not offer coverage must provide free vouchers to lower-income employees to purchase a plan through the marketplace.  The amount of the voucher will be equal to what the employee would have paid to get coverage under the employer's health plan.  Employers with *103 fifty or fewer employees will be exempt from these requirements.

For small businesses with fewer than fifty employees and individuals who must purchase insurance on their own, each state will have an American Health Benefit Exchange and Small Business Health Options Program (SHOP) where people not covered through their employers can shop for health insurance at competitive rates.  Additionally, a Consumer Operated and Oriented Plan (CO-OP) program will create non-profit health plans wherein all profits from the CO-OP plans will be applied to lower premiums, improve benefits, or improve the quality of health care delivered to members.

Through the marketplaces, also known as exchanges, consumers are able to compare several health insurance plans in their state and purchase the one that best fits their needs.  Marketplaces are state-based, and if a state government has decided not to implement a marketplace itself, the federal government will operate that state's marketplace.  Consumers can access Internet portals for their state marketplaces where they can compare health insurance coverage options and choose coverage that works best for them. The websites also include information for small businesses about available coverage options, reinsurance for early retirees, small business tax credits, and other information.  A governmental agency or non-profit organization will administer the health plans offered through the marketplaces and will inspect policies to ensure they meet government standards.  All plans will be required to provide essential health benefits, including ambulatory patient services, emergency services, hospitalization, maternity and newborn care, preventive and wellness services and chronic disease management, and pediatric services.  The Act allows states to require benefits in addition to essential health benefits if states pay for the extra cost.

The health insurance policies currently offered through the exchanges are separated into four different types of policies under which the plan pays for the specified percentage of costs. The Bronze level is designed to cover 60% of the full actuarial value of the benefits provided under the plan, the Silver level covers 70%, the Gold level covers 80%, and the Platinum level covers 90%.  All plans will have an out-of-pocket limit equal to the Health Savings Account (HSA), *104 which was $5,950 for individuals and $11,900 for families in 2011.  Additionally, a lower-benefit ““catastrophic plan” will be offered to individuals under age 30 and to others who are exempt from the insurance mandate.  Several new consumer protections will be offered across the individual and small group health insurance markets available through the exchange.

Low-income individuals and families with incomes up to 400% of the Federal Poverty Level (FPL) will be qualified to receive cost-sharing subsidies and premium tax credits to offset the cost of premiums through the exchange. The premium tax credit is calculated on a sliding scale starting with a credit for 2% of income for those at 100% of the FPL, and phasing out to a credit for 9.5% of income for those at 400% of poverty.  The premium tax credit can be applied to each month.  The tax credits are also refundable, so more moderate-income families that have little or no income tax liability can still benefit from the credit by getting a refund after they file their taxes.  It can also be paid to an individual's insurance company in advance to help cover the cost of premiums.  Individuals eligible for premium tax credits may also qualify for cost-sharing subsidies.  The subsidy pays for percentages of the full value of the plan on a sliding scale from 94% for those with an income at 150% of the FPL, and phasing out to a subsidy for 70% for those with an income at 400% of the FPL.  Out-of-pocket limits will also be reduced for enrollees with incomes up to 400% of the FPL.  Further, those with incomes under 133% of the FPL will also be able to enroll in a newly expanded Medicaid program.

3. Improving Quality, Lowering Costs, and Expanding Access to Quality Care through 2020

In addition to the consumer protections implemented on September 23, 2010 and in 2014, several other important provisions will take effect throughout the *105 decade. First, the ACA makes insurance immediately more affordable by providing tax credits to small businesses to provide insurance coverage to workers.  The full credit will be available to eligible businesses with ten or fewer employees and average annual disbursed wages of up to $25,000, while eligible businesses with up to twenty-five or fewer employees and average annual wages of up to $50,000 will be eligible for a smaller tax credit. The first phase of the provision provides up to four million eligible small businesses with tax credits that are worth up to 35% of the employer's contribution to the employees' health insurance if the employer contributes at least 50% of the premium cost. Small non-profit organizations may also receive up to a 25% credit. In 2014 and beyond, eligible employers who purchase coverage through the exchange will be able to receive a tax credit for two years of up to 50% of their contribution. Further, tax-exempt small businesses meeting the above requirements are eligible for tax credits of up to 35 percent of their contribution.

In addition, to help prevent cost hikes, the ACA provides $250 million in new grants to states to support efforts to review premium increases and requires insurance companies to justify their premium increases. Insurance companies with unjustified premium exchanges may not be able to participate in the new health insurance marketplace in 2014.

The ACA, furthermore, provides better access to quality care by offering expanded training opportunities, student loan forgiveness, and bonus payments to increase the number of primary care providers. The Act appropriated $11 billion to increase funding for community health centers, allowing them to serve some forty-four million patients by 2020.

The ACA seeks to simplify health insurance administration reduce administrative costs by progressively making changes to standardize billing by encouraging the electronic exchange of health information. For those seeking insurance coverage, HHS has created an internal portal where consumers can compare health insurance options in any state and tailor their coverage to their needs.  The law accelerates HHS adoption of uniform standards and operating rules for the electronic transactions between providers and health plans that are governed under the Health Insurance Portability and Accountability Act (HIPPA). Insurance companies must now adopt a single set of operating rules for eligibility *106 verification,  electronic funds transfers and health care payment and remittance,  and health claims information, enrollment and disenrollment in a plan, health plan premium payments, and referral certification and authorization.

Finally, the ACA enhances efforts to prevent and detect fraud in Medicare, Medicaid, and CHIP, as well as in private insurance. The Act provides an additional $350 million to hire new officials to fight fraud in the health care system and requires data from Medicaid, Veterans Administration, Department of Defense, Social Security Insurance, and Indian Health Service to be housed in a central location to better prevent fraud.  The Act increases screening procedures, oversight periods, and compliance programs to reduce waste, fraud, and abuse.  Payments to Medicare or Medicaid providers may be withheld if a credible allegation of fraud has been made, and HHS has been given authority to impose stricter civil and monetary penalties on those who commit fraud. 

4. Reforms to Medicare, Medicaid, and Children's Health Insurance Program (CHIP)

Medicare has been expanded under the ACA to improve quality, reduce costs and expand access to care. Beginning in 2011, states have had the option to expand state Medicaid coverage with federal funding.  However, in 2014, Medicaid eligibility will extend nationally to all children, pregnant women, and individuals without dependent children under 65 who have incomes up to 133% of the Federal Poverty Level (FPL).  These newly eligible adults will receive, at least, essential health benefits.  States will receive 100% federal funding for the first three years to support this expanded coverage, tapering down to 90% federal funding in 2020 and beyond.  Since Medicaid programs and providers will cover more patients after 2014, the Act increases state Medicaid payments and requires states to pay primary care physicians no less than 100% of Medicare payment rates in 2013 and 2014.  The increase will be fully funded by the *107 federal government. Starting in 2011, primary care physicians also have begun receiving a 10% bonus payment every year for the following five years.

States also have new options for offering home- and community-based services, including extending full Medicaid benefits to individuals receiving home- and community-based services under a state plan. The new Community First Choice Option allows states to offer long-term home support and community-based care rather than institutional care to disabled individuals through Medicaid.

The ACA also includes several improvements to Medicare. For example, the Community Care Transitions Program will help high-risk patients avoid unnecessary hospital readmissions by coordinating care and connecting patients to services in their communities.  As in the private industry, cost-sharing has been eliminated for preventative services in Medicare and Medicaid. 

The ACA issues immediate remedies for the Medicare Part D coverage gap and provides for its permanent closure by 2020. Most Medicare drug plans have a coverage gap that defines the amount the Centers for Medicare and Medicaid Services (CMS) will reimburse to health plans for paying for prescription drugs. The Medicare Part D coverage gap, informally known as the “donut hole,” applies to a beneficiary's out-of-pocket drug costs between $2,930 and $4,700.  After a Medicare beneficiary surpasses the prescription drug coverage limit ($2,930), the beneficiary is required to pay 100% prescription drug costs out-of-pocket until that amount reaches the “catastrophic” coverage threshold ($4,700 in 2012).  After reaching the catastrophic threshold, CMS will pay for 95% of the drug costs and the beneficiary will pay 5%. To “fill” the donut hole, beneficiaries who fall within the coverage gap receive a one-time, tax free $250 rebate from HHS to help pay for prescriptions.  HHS began mailing rebate checks in June 2010 and an estimated four million seniors will receive a rebate.  Additionally, starting in 2011, the ACA began closing the donut hole by providing a 50% discount on the cost of brand-name drugs to seniors who reach the coverage gap. The Act further requires CMS to begin increasing the threshold amount that would place a beneficiary in the coverage gap, reduce the out-of-pocket amount that qualifies a beneficiary for catastrophic coverage, and provide additional measures each year until CMS accomplishes full coverage in *108 2020.  It is estimated that the average senior who reaches the donut hole will save over $700 in 2011 and $3,000 by 2020.

The ACA also sought to improve the quality of Medicare by establishing a hospital Value-Based Purchasing program (VBP) in traditional Medicare on October 1, 2011.  This program pays hospitals to improve the quality of care. Hospital performance is reported publicly, and quality measures include information relating to both common and high-cost conditions, including heart attacks, heart failure, pneumonia, surgical care, and health-care-associated infections, and patients' perception of care.

Finally, the ACA expands the Children's Health Insurance Program (CHIP). States are required to maintain current income eligibility levels for children in both Medicaid and CHIP until 2019 and extend funding for CHIP through 2015.  Beginning in 2015, states may receive a 23% increase in matching CHIP funds, up to a cap of 100%.  Eligible children who are otherwise unable to enroll in CHIP due to enrollment caps will be eligible for tax credits in the state-based exchanges.