list the main elements of the new healthcare system to be created by the
Affordable Care Act of 2010 (ACA);
summarize ACA’s requirements for individuals, employers, and health plans; and
In March 2010 Congress enacted the Patient Protection and Affordable Care Act
(PPACA), often referred to as the Affordable Care Act (ACA) and commonly called
simply healthcare reform. This legislation will have a major impact on health plans. In
earlier modules we mentioned some of the Act’s provisions relevant to aspects of health
plans under discussion, and in this module we offer a very broad overview of the Act.
An Important Note
The new system and rules are evolving. Many details and important matters still
remain to be decided as the law is interpreted, clarified, and implemented over the
next few years. This module is based on what is known in late 2010. Students are
encouraged to visit our website (www.ahip.org.) for developments.
Most people will be required to have health coverage or pay a tax penalty.
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The Affordable Care Act
To ensure that health coverage adequately meets people’s needs, several new
requirements will apply to health plans.
In addition, there are a number of provisions that will affect taxation, Medicare, long-term
care, and HSAs, FSAs, and HRAs, as well as new regulations and programs designed to
improve the quality of care and hold down costs. Most of the major components of this
new system will become operational in 2014, but some provisions go into effect earlier or
later.
Employer-Sponsored Coverage
The new rules for employers do not require them to sponsor health coverage for
employees but are designed to give them incentives to do so. We will not provide the
details of these rules here, but in effect, as of 2014 employers with 50 or more
employees will generally have to either sponsor coverage for their employees or pay
fees to help defray the government’s cost of subsidizing coverage for them. Also, even if
an employer sponsors a health plan, if an employee finds getting coverage through an
exchange more advantageous than enrolling in the employer’s plan, the employer must
pay a fee to help defray the government’s cost.
Employers with fewer than 50 employees pay no fees. Employers who have no more
than 25 employees and meet some other requirements are eligible for tax credits to help
them sponsor coverage.
Exchanges
To ensure that those required to have health coverage can obtain it, the government will
sponsor American Health Benefit Exchanges through which individuals can buy
policies from insurers and Small Business Health Options Program (SHOP)
exchanges for employers. These exchanges will provide information to consumers about
available health plans and facilitate enrollment. They will become operational and open
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The Affordable Care Act
Exchanges will be established and run by the states, but the federal government will
provide assistance and funding in setting them up, and if a state does not create an
exchange the federal government will establish one for it. States can join together to
form regional exchanges, and more than one exchange can operate in a state, as long
as the geographical areas served by different exchanges do not overlap. The exchanges
will be administered by a government agency or nonprofit organization.
There will be an essential benefits package that is the minimum a health plan offered
through the exchanges or (as of 2014) in the individual and small group market can
provide. Plans meeting this minimum standard are referred to as qualified plans. A
qualified plan must cover a comprehensive set of healthcare services and may charge
no more than a maximum annual amount in cost-sharing. A qualified plan must also
have a minimum actuarial value of 60 percent—that is, it must pay at least 60 percent
of the cost of the healthcare services it covers, so that the portion of costs that plan
members must pay in cost-sharing payments (deductibles, copayments, and
coinsurance) is limited.
Health plans already existing as of March 23, 2010, are exempt from this requirement
and are called grandfathered plans. However, if certain changes (still to be specified)
are made to an existing plan, it may lose its grandfathered status.
In addition to instituting a basic qualified plan, to facilitate the comparison of plans, ACA
establishes categories of plans based on benefits and cost-sharing. All qualified plans
meet the requirements outlined above, and they must match one of the following
categories: bronze plan (actuarial value of 60 percent), silver plan (70 percent), gold plan
(80 percent), platinum plan (90 percent), or catastrophic plan. Catastrophic coverage is
available only to individuals 30 and younger and people exempt from the individual
mandate to have health coverage.
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The Affordable Care Act
Medical loss ratio and rebates (2011). If the amount a plan spends on
healthcare (its medical loss ratio) is less than 85 percent of the amount it
receives in premiums, the plan must pay the difference to members in rebates.
(The level for the individual and small group market is 80 percent, to reflect
higher administrative costs.)
Guaranteed issue (2014). In the exchanges and the individual and small group
market, policies must be offered on a guaranteed issue basis (without
consideration of an individual’s current health, medical history, or family medical
history).
Premium rating (2014). Different premium rates can be based only on age,
geographical area, family size, and tobacco use. Age-based rating is limited to a
ratio of 3 to 1, and the increase for tobacco use can be no more than 50 percent.
Guaranteed renewable (2014). In the exchanges and the individual and small
group market, policies must be guaranteed renewable.
Rescission (2010). Insurers may not rescind coverage (annul a policy) except in
cases of fraud.
It should be clarified that these requirements apply to broad-based health coverage, not
insurance products such as stand-alone vision or dental benefits, disability income
insurance, or long-term care insurance.
Taxation
We have discussed the income tax penalties on individuals who do not have health
coverage and the fees levied on employers. There are many other tax changes, the
most important of which are these:
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The Affordable Care Act
Taxes on drug and medical device manufacturers. As of 2011 a fee will levied
on manufacturers and importers of brand-name prescription drugs, and as of
2013 an excise tax of 2.3 percent will apply to the sale price of medical devices
(but not glasses, contact lenses, hearing aids, and other items generally
purchased by consumers for their own use).
making it easier and less costly for insurers to sell coverage in multiple states by
streamlining the regulatory process through national plans and a compact among
states,
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