On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the "PPACA"). Although the Senate must still complete work on the reconciliation bill that makes a series of specific changes to this legislation, many of the major components of the PPACA will remain unchanged.

The following highlights key aspects of the PPACA, with particular focus on areas where the reconciliation bill, if passed, will change the current law.  


  • SMALL BUSINESS TAX CREDITS — Offers tax credits of up to 35 percent of premiums that will be immediately available to firms that choose to offer coverage. Effective in 2010.
  • CO-PAY LIMITATIONS UNDER MEDICARE — Eliminates co-payments for preventive services and exempts preventive services from deductibles under the Medicare program. Effective beginning January 1, 2011.
  • PROHIBITS RESCISSIONS — Limits the ability of insurance companies to drop existing coverage. Effective 6 months after enactment.
  • NO DISCRIMINATION AGAINST CHILDREN WITH PRE-EXISTING CONDITIONS — Prohibits new health plans in all markets plus grandfathered group health plans from denying coverage to children with pre-existing conditions. Effective 6 months after enactment.
  • BANS LIFETIME LIMITS ON COVERAGE — Prohibits health insurance companies from placing lifetime caps on coverage. Effective 6 months after enactment.
  • LIMITATIONS ON ANNUAL COVERAGE LIMITS — Imposes significant restrictions on the use of annual limits in all new plans and grandfathered group health plans, defined by the Department of Health and Human Services. Regulations required 6 months after enactment.
  • MLR REQUIREMENTS — Requires plans in the individual and small group market to maintain a medical loss ratio ("MLR") of 80 percent, with an 85 percent MLR for plans in the large group market to spend 85 percent. Effective on January 1, 2011.
  • EXTENDS COVERAGE FOR YOUNG PEOPLE UP TO 26TH BIRTHDAY — Requires new health plans and certain grandfathered plans to allow young people up to their 26th birthday to remain on their parents’ insurance policy, at the parents’ choice. Effective 6 months after enactment.
  • COVERAGE MANDATES — Both individuals and corporate entities with 50 or more full-time employees will be subject to coverage mandates: individuals will be required to purchase health insurance, and businesses will be subject to a requirement that they offer qualified plans to employees. These provisions take effect in 2014. For businesses that do not provide coverage, a fee of $2,000 per employee will be assessed. Businesses will be exempt from this fee for the first 30 employees.
  • MEDICARE ADJUSTMENTS — In 2010, the bill provides a $250 rebate for all Medicare Part D enrollees that enter the doughnut hole. Beginning in 2011, pharmaceutical manufacturers will begin offering a 50% discount on brand-name drugs. By 2020, manufacturers will provide a 75% discount on brand-name and generic drugs. These changes ensure that the doughnut hole is completely closed in 2020.

Next, the reconciliation bill makes certain changes with regard to Medicare Advantage (MA) payments. The legislation freezes MA payments in 2011 and reduces MA benchmarks in 2012 to current levels. Benchmarks will vary from 95% of FFS in high-cost areas to 115% of FFS in low-cost areas. The text also offers a 5% increased payment for high-quality MA plans.

Along with these changes, CMS continues to have the authority to adjust risk scores in MA and MA plans (as noted above) would have to meet 85% MLR.

  • QUALITY METRICS AND INCENTIVES — The final legislation includes several provisions designed to increase quality and encourage collaborative medicine. Notable in this regard is the establishment of an Accountable Care Organization (ACO) pilot project, combined with comparative effectiveness programs. In addition, payment bundling and hospital value-based purchasing (VBP) provisions were retained in the final bill. The bundled payment program would include acute inpatient care, physician services, outpatient services, and post-acute care.
  • PAYMENT ADVISORY BOARD — The final legislation also will retain the creation of a new review committee, the Independent Payment Advisory Board (IPAB), that has the authority to recommend changes to Medicare payments or the Medicare program to reduce costs. Unlike the existing Medicare Payment Advisory Commission (MedPAC), recommendations from IPAB would be implemented unless Congress expressly overruled those recommended changes via legislation.
  • FRAUD AND ABUSE PROVISIONS — The enacted law and reconciliation bill contain a range of provisions designed to limit fraud and financial abuses within the Medicare program. The Centers for Medicare & Medicaid Services (CMS) would be permitted to perform prepayment reviews as a matter of course, rather than limiting them to instances where there is a suspicion of improper billing. CMS also would be permitted to use tax return information to refuse to enroll providers or suppliers that are delinquent on federal taxes, and would authorize an aggregate increase in funding for the Health Care Fraud and Abuse Control (HCFAC) account of $250 million between fiscal years 2011 and 2016.

The enacted health care reform bill also incorporated several provisions designed to increase compliance with Medicare-related regulations, including mandated implementation of a compliance program that would be established by the Department of Health and Human Services.

  • REVENUE PROVISIONS — The Reconciliation Act delays the effective date with regard to an excise tax that will be placed on specified high-cost health insurance plans to 2018. The bill also raises the threshold of this excise tax to $10,200 for individual coverage and $27,500 for family coverage.

The proposal applies a 3.8% Medicare tax on investment income from interest, dividends, royalties, rents, gross income from a trade or business, and net gain from disposition of property for individuals earning over $200,000 and families earning over $250,000, which would take effect beginning in 2013. Additionally, a new $2,500 cap on flexible spending accounts (FSA) is delayed until 2013. Specific industry fees also will have a delayed implementation, including the Pharmaceutical Industry Fee (delayed until 2011), the Medical Device Fee (a 2.3% excise tax on effective in 2013) and the Health Insurance Provider Fee (delayed until 2014).