Health Reform and Reconciliation Bills Passed by the House Senate to Consider Reconciliation Bill
The House passed both H.R. 3590, the Patient Protection and Affordable Care Act (the Affordable Care Act), and H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act) on Sunday, March 21, 2010. The President signed the Affordable Care Act on Tuesday, March 23, 2010.
Next, the Senate will consider the Reconciliation Act as passed by the House and which modifies the Affordable Care Act to make it suitable to certain members of the House. A vote of at least 51 Senators is needed to pass the Reconciliation Act. However, the Senate can change the House version by adding amendments. Any amendments will require the House and Senate versions to be referred to conference committee negotiations to harmonize the differences. Once finalized, the House and Senate must both approve the bill with a majority vote and with no further amendments allowed. It can then be sent to the President for signature. Whether or not the Reconciliation Act is passed or amended, the Affordable Care Act is now law.
This article summarizes several major topics addressed by the Affordable Care Act and highlights certain differences between the Affordable Care Act and the Reconciliation Act.
The Affordable Care Act has both immediate and ongoing effects on the private insurance market.
Effective within ninety days of enactment and extending through January 1, 2014, individuals with pre-existing conditions can obtain health care coverage through a national insurance pool for high-risk persons. Access to the pool requires individuals to have been uninsured for at least six months and have a pre-existing medical condition.
Effective six months after enactment, all individual and group health plans:
- must provide dependent coverage for children through age 26;
- are prohibited from setting lifetime limits on the dollar value of coverage;
- are prohibited from rescinding coverage except in cases of fraud; and
- are prohibited from imposing pre-existing condition exclusions on children. This prohibition would be expanded to all individuals in 2014.
Of note, the Reconciliation Act would grandfather certain existing individual and group plans with respect to many new benefit standards. However, these plans will be required to extend dependent coverage to adult children up to age 26, prohibit rescissions of coverage and eliminate waiting periods for coverage of periods greater than 90 days.Beginning in 2014, grandfathered group plans must eliminate lifetime and annual limits on coverage. Grandfathered group plans must eliminate pre-existing condition exclusions for children within six months of enactment, and for adults in 2014.
Beginning in 2010, insurers must report the proportion of premium dollars spent on clinical services and quality. Beginning in 2011, if the amount of premium dollars that a particular insurance company spends on clinical services and quality falls below 85% for insurers in the large group market and 80% for insurers in the individual and small group markets, then that insurance company must provide rebates to consumers.
Beginning in 2014, additional provisions will become effective, including a prohibition on individual and group health plans placing annual limits on the dollar value of coverage.
The Affordable Care Act imposes an excise tax on high cost, so-called “Cadillac,” health plans. The Affordable Care Act and Reconciliation Act differ on the tax. According to the Affordable Care Act, effective in 2014, a 40% excise tax would be imposed on insurers of employer-sponsored health plans with values that exceed $8,500 for individual coverage and $23,000 for family coverage. The Reconciliation Act would delay the tax until 2018 and impose it on a higher threshold of coverage of $10,200 and $27,500 respectively. Regardless, the issuer of the policy is subject to the tax. If it is a self-insured plan the issuer is the administrator or employer.
Health Benefit Exchanges
Neither the Affordable Care Act nor the Reconciliation Act create a new government health insurance plan, the so-called “public option,” to compete with private insurers. However, the Affordable Care Act creates state-based health insurance marketplaces, known as “exchanges.” The exchanges go into effect in 2014 and either a governmental agency or a non-profit organization will administer them. Individuals and small employers with less than 100 employees can purchase insurance through an exchange. The exchanges will be open to employers with more than 100 employees beginning in 2017.
States may elect to create regional exchanges or to permit more than one exchange to operate in a given state if each exchange serves a distinct geographic area. For a limited time, states can obtain federal funding to establish such exchanges.
Increases in health plan premiums charged by those health plans participating in the exchanges will be subject to government review. Plans will be required to justify increases and states will report on premium increase trends. Unjustified increases could result in the removal of a plan from the exchange system.
Finally, the Affordable Care Act directs the federal Office of Personnel Management to enter into contracts with insurers to offer at a minimum two multi-state plans in each exchange in each state. At least one such plan must be offered by a non-profit insurer. Each of these multi-state plans must meet federal standards and must be licensed in each state.
Illegal immigrants will not be eligible to purchase insurance from an exchange.
Essential Benefits Package
Beginning in 2014, all qualified health benefits plans offered through the exchanges and in the individual and small group markets, with certain exceptions, must offer an “essential benefits package.” An essential benefits package consists of a minimum package of health benefits, which offer comprehensive services and cover at least 60% of the value of such benefits. The plan must limit annual cost sharing to the 2010 health savings account limits.
The Affordable Care Act does not expressly require employers to offer health care coverage. However, effective in 2014, certain employers with more than fifty employees will become subject to a penalty if they do not offer heath care coverage and if any of their workers obtain subsidized coverage through the planned health care exchanges. The Reconciliation Bill would raise the penalty from $750 to $2,000 per full time employee and exempt the first thirty employees when calculating such penalties.
Under the Affordable Care Act, employers with more than fifty employees that offer coverage but have at least one full-time employee receiving a subsidy will pay the lesser of $3,000 for each employee receiving a subsidy or $750 for each full-time employee.
Also effective in 2014, employers that offer coverage must provide a voucher equal to what the employer would have paid under the employer’s plan to employees with incomes up to 400% of the federal poverty level who choose to enroll in the planned health care exchanges. Those employers providing the vouchers will not be subject to penalties for employees that obtain coverage in the exchanges.
In addition, certain subsidies to purchase health insurance will be made available to qualifying employers. For example, Employers with fewer than 25 employees and with certain average worker annual wages that purchase health insurance for their employees will qualify for a tax credit. Between 2010 and 2013, the employer will receive a tax credit of up to 35% of the employer’s contribution toward the employee’s premium, but only if the employer contributes at least 50% of the total premium cost. Starting in 2014, the tax credit increases to 50% of the employer’s contribution. As the employer’s size and average worker annual wages increases, the tax credit would be phased out.
The Affordable Care Act also provides assistance with retirees’ medical claims. Effective ninety days after enactment and until January 1, 2014, a temporary reinsurance program for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare will reimburse employers or insurers for 80% of retiree claims between $15,000 and $90,000.
Beginning in 2014, with some exceptions, all United States citizens and legal residents must have a minimum level of health insurance coverage or pay a penalty. Individuals without qualifying coverage must pay a tax penalty with certain maximums. Under the Affordable Care Act, the penalty will be phased-in according to the following schedule: $95 or 0.5% of taxable income in 2014, $325 or 1.0% of taxable income in 2015 and $695 or 2.0% of taxable income in 2016, with a maximum of $2,250 for a family. The Reconciliation Act would modify the phase-in and per family maximum as follows: the greater of $95 or 1.0% of taxable income in 2014, $325 or 2.0% of taxable income in 2015 and $695 or 2.5% of taxable income in 2016, with a maximum of $2,085 for a family. After 2016, the penalty will increase annually based on the cost-of-living adjustment.
Certain categories of individuals will qualify for an exception from the penalty: American Indians, individuals with religious objections, individuals who can show financial hardship, individuals without coverage for less than three months, households with income below 100% of the federal poverty level and households that would pay greater than 8% of income on premiums for the cheapest available plan. The Reconciliation Bill would remove the federal poverty level exception in favor of an exception for households with income below the tax filing threshold.
In addition, the Affordable Care Act would provide tax credits (subsidies) to purchase health insurance through the exchange on a sliding scale to individuals and families with incomes up to 400% of the federal poverty level. Households in the lowest income group would spend approximately 2% to 4% of their income on premiums. The health plans would cover 94% of the cost of benefits. Households in the highest eligible group would pay 9.8% of their income on premiums, with health plans paying 70% of the cost of the benefits. Subsidies would increase at the same rate as the increase in premium contributions from the prior year.
Beginning in 2013, the Affordable Care Act increases Medicare payroll taxes from 1.45% to 2.35% on taxpayers earning $200,000 or more ($250,000 for joint filers). The Reconciliation Act would impose an additional 3.8% tax on “unearned income,” such as capital gains, dividends and interest earnings.
The Affordable Care Act will reduce the projected growth of Medicare by $500 billion over 10 years, including $116 billion from private Medicare Advantage plans. The Reconciliation Act would increase the amount reduced from private Medicare Advantage plans to $132 billion by freezing Medicare Advantage payments in 2010 and reducing Medicare Advantage payment benchmarks beginning in 2012. The Reconciliation Act further seeks to reduce Medicare Advantage costs by ensuring such plans spend at least 85% of their revenue on medical costs and quality improvements to care.
Payments to providers under Medicare will be more closely tied to quality outcomes. For example, beginning in 2013, a portion of a hospital’s Medicare payment will be linked to the hospital’s performance on quality measures related to common and high-cost conditions. Similar programs will be introduced for other health care providers as well. Similarly, beginning in 2015, hospitals in the top 25th percentile of rates of hospital-acquired conditions for certain high-cost procedures will be subject to a payment penalty.
Quality measure reporting programs will also be expanded beyond acute care hospitals to include long-term care hospitals, rehabilitation hospitals, hospice programs, and prospective payment system-exempt cancer hospitals. Payments to physicians and payments for rural health care will increase. For example, the Medicare physician fee schedule will increase by 0.5 percent over 2009 rates. In addition, Medicare payments for rural health care will increase to providers in any state where at least 50% of the counties are “frontier counties.” A frontier county must have a population density of less than six people per square mile.
Certain payment demonstration programs for payment and care will also be developed. An example of such a program is an alternative care organization (ACO), which functions by integrating hospitals, physicians and other health care providers in order to provide care for a defined patient population. An ACO is partially paid based on, and generally held accountable for, the cost and quality of care furnished by the ACO provider members to the defined patient population. In turn, the ACO provider members are accountable for the total cost of care provided to such patient population. The ACO and its provider members are paid based on a pre-set formula for the care provided and they may be eligible to receive incentive payments for achieving certain cost and quality goals.
The Affordable Care Act also makes changes to Medicare Part D, the prescription drug program, including taking steps to close the “donut hole” —or coverage gap—for prescription drug coverage. Beginning July 1, 2010, drug makers will provide a 50% discount on brand-name drugs to low- and middle-income Medicare Part D beneficiaries who have to pay for the drugs themselves once the coverage gap begins. The Reconciliation Act would give a one-time $250 rebate to those beneficiaries facing the coverage gap in 2010 and begin the 50% rebate from drug manufacturers in 2011. It would offer 75% discount on brand name and generic drugs to those affected by 2020.
The Reconciliation Act makes further changes to Medicare reimbursement, refining language in the Affordable Care Act, including among other things, beginning Medicare disproportionate share hospital reimbursement cuts in 2014, earlier than the date set forth in the Affordable Care Act (but trimming the total ten-year reduction amount by $3 billion), and reducing the annual market basket update for, among others, inpatient hospital, home health, and skilled nursing facility providers.
The Affordable Care Act will expand access to Medicaid and the scope of services covered thereunder.
With respect to access, Medicaid will cover all individuals with incomes of less than 133% of the federal poverty level, expanding eligibility to approximately 16 million people. The new law also allows states, beginning in 2014, to expand Medicaid eligibility to nonelderly, non-pregnant individuals who are not otherwise eligible for Medicare, if they have incomes of less than 133% of the federal poverty level. To assist states with the cost of covering such newly eligible individuals, from 2014 through 2016, the federal government will pay 100% of the new cost. The Reconciliation Act would pay all costs until 2016, 95% in 2017, 93% in 2019 and 90% thereafter.
With respect to the services covered by Medicaid, they have been expanded to include, among others, preventive services, long-term care services, certain maternal and child health services, free-standing birth centers, and the option of covering personal care attendant services to disabled Medicaid beneficiaries who would otherwise need institutional care.
Further, the Reconciliation Act would increase Medicaid payment rates to primary care doctors to match Medicare rates and makes further changes to Medicaid reimbursement, including among others, reducing Medicaid disproportionate share hospital reimbursement cuts.
Similar to Medicare, the Affordable Care Act creates certain payment demonstration programs for payment and care for Medicaid beneficiaries. One demonstration program involves payment bundling, which would move medical charges away from paying providers separately for each service provided under a traditional fee-for-service system in favor of providing a single payment per patient for acute and post-acute care.
Fraud and Abuse
To address fraud and abuse of federal health care programs, the Affordable Care Act will allow provider screening and enhanced oversight periods for new providers and suppliers. It also imposes enrollment moratoria in elevated risk areas by requiring providers and suppliers to establish compliance programs. The Reconciliation Act creates a 90-day period of enhanced oversight for initial claims for reimbursement of durable medical equipment. Both laws include enhanced penalties for submitting false claims and provide funding for enhanced anti-fraud activities.
Food and Drug Administration
The Affordable Care Act authorizes the Food and Drug Administration to approve generic versions of certain biologic drugs, granting manufacturers 12 years of exclusive use before the marketing of generics.
The Affordable Care Act will award and fund five-year demonstration programs to states to address alternatives to tort litigations in the medical malpractice area.
Health Care Sector Fees on Drug and Device Manufacturers and Insurers
Beginning in 2010, the Affordable Care Act imposes fees, allocated by market share, of:
- $2.3 billion per year on drug makers.
- $2 billion in 2011 on medical device manufacturers, increasing that amount to $10 billion in 2017.
- $2 billion in 2011 on insurance companies, increasing that amount to $10 billion in 2017, but exempting nonprofit insurers that spend a sufficient portion of their premiums on medical care rather than administrative costs.
By comparison, the Reconciliation Act would delay all fees for up to three years, imposing them as follows:
- Drug makers would pay $2.5 billion in 2011, $3 billion from 2012 to 2016, $3.5 billion in 2017, $4.2 billion in 2018 and $2.8 billion in 2019 and thereafter.
- Medical device manufacturers would pay a 2.9% excise tax on devices sold. Insurance companies would pay $8 billion in 2014, increasing to $14.3 billion in 2018, with the amount rising annually by the rate of premium growth thereafter.
Long-Term Care Insurance
Beginning in 2011, the Affordable Care Act creates a voluntary federal program to provide long-term care insurance, paid for by payroll deductions and no federal subsidy. Lifetime benefits become available when a person becomes disabled after having paid premiums for at least five years and working for at least three of those years. The amount of benefit may not be less than $50.00 per day. The Secretary of Health and Human Services could increase premiums for the plan in the future to ensure its financial solvency.
Physician Ownership of Hospitals
The Affordable Care Act imposes certain prohibitions on physician ownership of hospitals. A physician could maintain an ownership interest in a hospital to which they self-refer only if: (i) the hospital was physician-owned on or before a certain date; and (ii) a provider agreement between Medicare and the physician-owned hospital was in effect on or before that date. Thereafter, however, a physician owner may not own a greater percentage of the hospital than was owned on the date the law was enacted. Moreover, such hospitals may not expand the number of operating rooms, procedure rooms or beds without meeting the requirements of certain exceptions, such as grandfathered hospitals that, among other things, document increases in certain Medicaid patient admissions.
Skilled Nursing Facilities
The Affordable Care Act will require skilled nursing facilities to disclose information regarding ownership, expenditures and certain other accountability requirements. This information will be disclosed to a website for Medicare and Medicaid beneficiaries to compare the facilities.