The Patient Protection and Affordable Care Act (ACA) is a lot like War and Peace meets the federal tax code meets the big bang theory: It is long. It affects every business and person in America. And, it is complicated, rife with assumptions and uncertainties, and controversial. In other words, it is a lawyer’s dream. Or nightmare.
The ACA lays out three main goals:
The success of each goal is dependent on the success of the others. The number of uninsured will not be reduced unless coverage is more affordable; coverage cannot be more affordable unless more healthy people enroll in insurance, and health care costs are reduced; health care costs cannot be reduced unless there are fewer uninsured, more preventive services, and treatment of disease in earlier stages.
Some provisions went into effect almost immediately when the bill was passed in 2010. Others have been phased in over the past three years. Jan. 1 is a big milestone for those without insurance, but the employer mandate that was also set to launch on that date was delayed a year. There are still more ACA provisions to be implemented between now and 2020. There are several big question marks surrounding some upcoming provisions but no doubt about the legislation’s overall constitutionality after a landmark decision by the Supreme Court of the United States.
While insurers and employers scramble to make changes to their plans, health care providers anxiously await the impact of what is hoped will be more patients in the system and the results of multiple pilot projects aimed at reducing costs.
“You cannot take a law like the ACA that tinkers with 17 percent of the economy in hundreds of different ways and get it right the first time,” said Catherine E. Livingston, a partner with Jones Day in Washington, D.C. “They are going to have to do legislative changes. It is simply not possible for the whole system to go forward without future legislative attention. There are too many problems generated by the law we have.”
The law affects every person in America that has health care insurance, or does not, and every business that offers insurance, or does not. There are also significant changes to the way health insurance companies do business.
Insurance Company Provisions
Some of the law’s most well-known and popular provisions are ones that put new mandates on the coverage offered by health insurance companies. Children must now be able to stay on their parents’ coverage until age 26, individuals cannot be excluded for pre-existing conditions, preventive services must be offered at no cost, and there are no more annual or lifetime coverage limits.
The changes to the insurance industry itself, however, are massive. The law dictates to whom and when companies must issue policies, how rates are set, and profit limitations. For example, under new community rating provisions, insurers can only vary rates based on the geographic location, age, and tobacco use status of the applicant and whether the policy is for individual or family coverage. The law goes further to state variances based on age cannot have more than a 3:1 ratio for adults and 1.5:1 for tobacco use. Plans also cannot have a minimum medical loss ratio of 85 percent (80 percent in some cases), or they are required to reimburse plan premiums. In other words, plans must show they are spending at least 85 percent of premium dollars on clinical care and quality programs, not administrative costs and profits.
“These types of changes are virtually unprecedented in the insurance industry,” said Alan F. Berliner ’76, partner in the insurance practice group at Thompson Hine. “Insurance is primarily regulated by the states, not the federal government. Because of antitrust laws, it is hard for insurance companies to talk to each other about their response to the changes. We’ll just have to wait and see.”
Additional rules and regulations also are being imposed on the insurance industry as implementation moves forward. Originally, President Barack Obama said, “If you like your insurance policy, you’ll be able to keep it.” However, as companies have changed their offerings to comply with the new law, they’ve dropped some older policies that no longer met the new minimum requirements for coverage or did not fit into their strategy for meeting the community rating or medical loss requirements. In November 2013, the president ordered that insurance companies resurrect canceled policies for one year.
“The action the president took in November is a big problem for the insurance companies,” Berliner said. “Insurance companies offer a mix of business based on actuarial predictions. From an actuarial standpoint, the companies took the cancellation of these policies into account when they set rates for new plans and the exchanges. To say in November that policies have to be added back in starting in January is a huge problem for the industry. There are going to be a lot of people working overtime to figure out how to make this happen.”
To balance out the new coverage requirements for those with pre-existing conditions, the law includes an individual mandate that requires everyone to buy insurance or pay a fine. The concern was that without the individual mandate, those with pre-existing conditions would line up to buy insurance when the exchanges opened, but the healthy uninsured would not. The individual mandate was one of two primary focuses in the case before the Supreme Court of the United States, and it was upheld. It is seen as the linchpin that holds the system together and was hotly contested and fought over.
About 85 percent of the nonelderly population is expected to have insurance through employers or expanded public options. The individual mandate will apply to about 6 million adults. There are new extensive reporting requirements placed on employers that will help the government determine who falls under the individual mandate, which will be enforced through the tax system. Penalties will start in 2014 and are the greater of a minimum amount or percentage of income. Unlike most taxes, however, enforcement by the IRS is limited to a deduction from a pending income tax return.
“This is unusual. The IRS has broad authority to collect penalties. In fact, there are some areas that are so important that we give the IRS extra power to collect,” said Donald B. Tobin, the Frank E. and Virginia H. Bazler Designated Professor in Business Law at The Ohio State University Moritz College of Law. “The problem here is that it is actually fairly easy to make sure that you do not have a refund and it makes enforcement of the penalty difficult and potentially inequitable.”
To help individuals afford insurance, there are subsidies available for those who make up to 400 percent of the poverty line. Individuals can, but do not have to, buy insurance on the exchange. One element of the process is to ensure the individual receives all subsidies available. Some states have elected to set up their own health insurance exchanges while others rely on the federal exchange at healthcare.gov. Still others are operating a hybrid version of the two options. States that run their own exchanges have more control over which insurance policies are offered, including whether abortion services are permitted.
Prior to the passage of the ACA, Medicaid was a federal-state cooperative program that varied greatly from state to state. The federal government pays states for a specified percentage of program expenditures, called the Federal Medical Assistance Percentage (FMAP), which varies by state based primarily on per capita income. The average state FMAP is 57 percent, but it ranges from 50 percent in more wealthy states to 75 percent in states with a lower per capita income.
In general, coverage has been limited to pregnant women with an income below 133 percent of the poverty level; children under 6 in families with income 133 percent of the poverty level or children ages 6to 18 in families with income below 100 percent of the poverty level; and elderly or disabled adults who qualify for Supplemental Security Income benefits. Many children with disabilities, including more than half of all children diagnosed with autism, are eligible and on Medicaid through a special waiver program. In some instances, parents of children covered can become eligible, but, in most states, it was nearly impossible for a childless adult to be eligible, regardless of income. Essentially, the program was used for to provide health care for low-income pregnant women, children of low-income families, and so-called “dual eligibles” – those on Medicare who were deemed too poor to pay for Medicare’s premiums, deductibles, and co-payments. Often, the latter are in nursing homes. Medicaid pays over 60 percent of the nursing home care in America.
The original ACA law required states to expand Medicaid to all individuals under age 65 with incomes below 133 percent of the poverty level. Under the plan, the federal government would pick up the tab for the estimated 20 million new enrollees until 2017 and then pay 90 percent of the funds thereafter. This provision was the second main point argued in the ACA case before the Supreme Court. The court voted 7-2 that the provision was unconstitutional, but said the problem could be remedied as long as the expansion requirement only affected new funding and not the previous funding.
“Under the spending clause, the federal government can set conditions on money, they do that all the time,” said Christopher J. Walker, professor at Moritz. “But, the court held in the ACA decision that the federal government cannot do so retroactively to a program that is already set up. The federal government cannot go back and dramatically change the terms and require states to do a lot more without violating fundamental federalism principles.”
Twenty-five states are expanding coverage, 21 are not, and four are still deciding. For those states not expanding Medicaid, citizens who make less than 133 percent of the poverty line but are not eligible under the traditional eligibility rules will fall under the individual mandate. They will have significant subsidies available to them, but some may be excluded from the mandate because any policy available to them still may be deemed too expensive. Individuals are excluded from the mandate if the least expensive policy available in the exchange costs more than 8 percent of their income. Those making less than 133 percent of the poverty line will have higher premiums, deductibles, and co-payments – all essentially nonexistent under Medicaid – than if they would have been included in Medicaid.
The ACA touches every business in the country. Large businesses, those with 50 or more employees, must offer health coverage to employees, or be subject to a penalty. In addition, that coverage must meet minimum requirements (although different minimum requirements than plans have to meet to be in an exchange) and must be affordable to employees. If these two requirements also are not met, there will be penalties.
The so-called employer mandate was set to launch at the same time as the individual mandate. However, it was delayed until Jan. 1, 2015.
“The government was too late in putting out regulations related to the necessary information reporting that employers need to do,” said Marlene P. Frank ’82, of counsel at Jones Day. “If they didn’t have the information reporting requirements up and running, they knew they did not have the tools they would need to enforce the mandate. As soon as they recognized that they were going to delay the information reporting, they were forced to delay the employer mandate.”
Large employers must make a lot of determinations regarding who is being offered coverage, and the rules often are different than the previous policies they followed for benefit determinations. In order to meet the mandate, the employer must offer coverage to at least 95 percent of full-time employees.
“One of the toughest issues across the board is the definition of an employee being full-time at 30 hours per week for purposes of the employer pay-or-play penalty,” Livingston said. “That definition is not currently in use by virtually any of our clients for any purpose – how they give out benefits, how they determine eligibility, how they track time. To have to make that adjustment has all kinds of burdens and consequences associated with it.”
For example, Livingston explained, consider a large retailer with more than 300,000 employees, many of whom work on schedules that vary from week to week. It must determine in any given month which of those employees are eligible for coverage and if coverage was offered. Many university clients are struggling to determine what to do with adjunct faculty, a group they have never tracked hours for in the past, Livingston said.
Those definitions also are having an impact on collective bargaining agreements, which often clearly define who is full-time and who is eligible for benefits. Employers are having to revisit definitions in their collectively bargained agreements or negotiate to have two definitions – one for health care benefits and one for other benefits, Livingston said.
Employers also must make evaluations as to whether coverage options are affordable – less than 9.5 percent of household income – for employees who make less than 400 percent of the poverty line. For many employers, the penalties do not kick in unless an employee buys coverage in an exchange. There are anti-retaliation and whistleblower provisions in the law designed to prevent backlash against employees who report violations of the law or buy insurance on an exchange.
There are many questions that need to be answered over the next year before the employer mandate kicks in.
“One of the big remaining question is how much more flexibility or accommodation will the government provide for employees who are in job categories like adjunct faculty or on schedules with variable hours or seasonal employment, where a lot of work would have to go into figuring out if the employees are full-time or part-time,” Livingston said. “The government got a lot of comments about those issues.”
HEALTH CARE SYSTEM REFORM
While many of the most talked about provisions in the ACA involve insurance coverage, the bill also contains more than 500 pages dedicated to reforming the health care system itself. The reforms are aimed at reducing overall health care costs, a key component in the ACA trifecta for success. The law takes a two-pronged approach to meeting this goal: 1) an initial set of payment and program cuts and 2) the funding of a variety of innovation projects aimed at restructuring health care delivery into a more cost-effective and quality-driven system.
The ACA cuts $716 billion from the Medicare program. Thirty percent of those cuts are to the Medicare Part C program, also known as Medicare Advantage. The program allows Medicare beneficiaries to join private HMOs, with the government paying the bill. The projected cost savings of the program have never come to fruition; it actually costs the Medicare program about 17 percent more to have beneficiaries in the Part C program than traditional Medicare. While funding to this program has been on the chopping block for years, many groups, especially physicians, were hoping the money would be used to fix other problems within the Medicare system.
Another 35 percent of the cuts come from reductions in hospital reimbursements. Hospitals will see across-the-board cuts to almost all services and to the Disproportional Share Hospital (DSH) funds they received on a calculated basis for charity care or high Medicaid volume. Throughout the lobbying process, the American Hospital Association agreed to both kinds of cuts under the theory that more insured and paying patients would make up for revenue shortfalls.
The remaining 35 percent of the cuts are made up of a plethora of smaller changes in reimbursement to other providers. For example home health agencies will see their payments reduced by 8 percent. There are no changes to the services beneficiaries will receive.
“The ACA reduces payments to many providers because it includes a productivity adjustment,” said Kara Newbury ’05, assistant director, government affairs for health policy at the Ambulatory Surgery Center Association. “But we already have a productivity adjustment built into our yearly update, and that wasn’t taken into consideration. It is disappointing. We, and all Medicare providers, have also already received a 2 percent cut because of the sequester.”
The Independent Payment Advisory Board (IPAB) was created by the ACA with the mission of reducing costs and improving Medicare’s overall solvency. The board is charged with making a specific percentage of spending cuts each year, and there is a fast-track legislative process included to implement recommendations. The board was supposed to start operations in 2013, but it has been fiercely opposed by providers.
“The board is operational, but it has no members,” Newbury said. “The concern about IPAB for any provider except a hospital is that hospitals are exempt from any IPAB cuts until 2018. The IPAB would have to target other providers – ASCs, physicians, nursing homes – in order to meet their savings goals.”
The ACA creates the new Centers for Medicare & Medicaid Services (CMS) Innovation Center as well as dozens of pilot projects aimed at restructuring the health care delivery system into a higher-quality and more efficient system.
One key focus is the greater use of bundled payments, which are already in use in the system in limited ways. For example, if a patient has the appendix removed, the surgeon will receive one fixed payment for the time spent 24-hours pre-surgery, the surgery, and 90 days of follow-up care. The hospital will also receive one fixed payment for the surgery itself and the hospital stay. Whether the patient stays in the hospital three days and is seen by the surgeon twice in the hospital and three times after release or whether the patient stays one day and is only seen once in and once outside the hospital, the payment is the same. Under the expanded bundled payments model, all care for the appendix episode would be wrapped into one payment, including all imaging, lab work, anesthesia, rehabilitation, etc.
“The goal of bundled payments is to incentivize provider coordination and reduce waste in the health care system,” said Efthimios Parasidis, a health law professor at Moritz.
Closely tied to bundled payments is the creation of accountable care organizations (ACOs). These are groups of doctors, hospitals, and other health care providers who join together to provide coordinated care to a specific population of patients. Bundled payments are made to the ACO. Current pilot projects are providing ACOs with bonus payments if they can show cost-savings for episodes of illness.
“An ACO is evaluated on the costs for treating an entire population of people. It has every incentive to keep that population healthy to reduce overall health care costs,” said Micah Berman, a health law professor at Moritz.
CMS has multiple pilot projects focused on ACOs operating around the country. The private sector also is running pilot projects of its own.
“Some people fear that ACOs and bundled payments will have a negative impact on health care outcomes for the same reason capitation did,” Parasidis said. “The key is to make sure administrators and regulators risk-adjust patient populations properly. While risk adjustment is difficult, it is essential to an outcomes-based system of health care. You don’t want ACOs to cherry-pick healthier patients so they can show good outcomes.”
Many of these innovation programs have health care lawyers, who have spent decades interpreting antitrust, kickback, “Stark,” and other laws designed to ensure separation between providers, scrambling for guidance.
“Our antitrust health lawyers could not be busier. They are working flat out,” Livingston said. “There are so many questions around ACOs, especially on the private side. The government has issued some protections on the Medicare side, but private payers and hospitals also are setting up ACOs, and there is little to go on.”
There also are health information technology projects under way with the goal of reducing costs through efficiencies and less duplication, but also with the hope of providing the data needed to compare medical treatments. The Patient Centered Outcomes Research Group was created by the ACA.
“Part of the key here is that the health care industry has been slow to adopt IT,” Parasidis said. “The ACA, combined with bills passed a few years earlier, really lays the ground work for using big data in health care. I think the power of the ACA is going to be harnessing the power of information stored in electronic medical records to help evaluate the effectiveness of treatments. That is what is going to be a big driver in reducing health care costs.”
While much of the focus is on systems, others question how much health care costs can be reduced without significant efforts to improve the overall health of the country. Currently, smoking, obesity, inactivity, and alcohol are the cause of almost 40 percent of the deaths in the U.S., and billions of dollars are spent on related medical treatments.
“The ACA doesn’t think about prevention except in a very individualistic and clinical way,” Berman said. “The public health perspective is largely absent. There is a Prevention and Public Health Fund, which was intended to fund community-based public health prevention. This had a lot of potential, but already we are seeing a lot of that money taken and used for other purposes. Because of all of the budget cuts the Centers for Disease Control has endured through the sequester, the benefits produced by the fund are being offset by losses elsewhere.”
Like many of the changes on the insurance side, there is a significant degree of uncertainty surrounding which measures will reduce costs and improve quality.
“It will take years, if not a decade or more, to know whether these were the right changes to make,” Parasidis said.
Tags: Alan Berliner, Catherine Livingston, Christopher Walker, Donald Tobin, Efthimios Parasidis, Kara Newbury, Marlene Frank, Micah Berman