The Patient Protection and Affordable Care Act

Policy Description

Tyler Rousseau

Springfield College School of Social Work

The Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act (PPACA) is a federal law enacting broad ranging

reform of the U.S. health care system, the most significant since the introduction of Medicare and

Medicaid in 1965. The PPACA aims to reduce the number of uninsured and address denial of coverage

based on pre-existing conditions. The PPACA preserves the nature of the private health industry while

putting in place mandates, subsidies, and tax credits to achieve its proposed ends. The PPACA attempts

to make health care more efficient, with a focus on preventive services and, according to budget

projections, will decrease Medicare spending and reduce the federal deficit. The PPACA is scheduled to

take full effect in January of 2019. (Department of Health and Human Services, 2012)

The primary goals of the Patient Protection and Affordable Care Act are controlling the rise of

healthcare costs, particularly those of insurance premiums, expanding affordable coverage for the

uninsured, and improving benefits for those already insured. The Department of Health and Human

Services lists the objectives of the Act as follows: Objective A: Make coverage more secure for those

who have insurance, and extend affordable coverage to the uninsured, Objective B: Improve healthcare

quality and patient safety, Objective C: Emphasize primary and preventive care linked with community

prevention services, Objective D: Reduce the growth of healthcare costs while promoting high-value,

effective care, Objective E: Ensure access to quality, culturally competent care for vulnerable

populations, Objective F: Promote the adoption and meaningful use of health information technology.

(Sebelius, 2012) By making health insurance more affordable to those without coverage, the

administration aims to alleviate the strain and additional costs imposed on hospitals and emergency

rooms by the treatment of patients without insurance. As a result of hospitals being reimbursed for

these costs, the bill is not transferred onto those with coverage in the form of higher treatment costs

and insurance premiums. The law also ensures that those who are already enrolled in private health

insurance cannot be denied coverage for their conditions and that all coverage meets minimum basic

requirements. Other ancillary goals include incentivizing innovation and expanding preventive services.

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To achieve the goals of expanded coverage, controlling costs, and expanding benefits the

PPACA makes use of a number of mechanisms. The most contested measure has been the law requiring

all persons who can afford it to carry minimum creditable health coverage, also known as the “individual

mandate”. Those who can afford health insurance but choose not to carry a policy face a minimum tax

penalty of $695, to be phased in gradually before reaching full penalty in 2017, with higher incomes

paying a heavier penalty. (Internal Revenue Service, 2012) Mandating that everyone buy in to the

insurance pool is aimed at preserving the private, for-profit nature of the health care system while

supplying much of the funding necessary to accommodate other provisions of the law. Specifically, the

insurance industry agreed to guaranteed issue* of plans available within state level Health Insurance

Exchanges only because the PPACA included an individual mandate, which increased the insurance pool

to cover the financial risks associated with insuring those with pre-existing conditions. (Jaspen, 2012)

In order to provide additional affordable options to those who do not have access to private or

employer based plans, the PPACA expands Medicaid coverage to those falling at or below 133% federal

poverty level and subsidizes policies for those above the Medicaid line but still considered lower income.

(Holahan & Headen, 2010) The law regulates the maximum out of pocket premium expenses relative to

the federal poverty level that an individual or family will have to pay annually. Subsidies are provided to

cover the costs beyond this percentage, with total expenses not to exceed 9.5% of total income or

$8,379 for a family of four at 400% the Federal Poverty Level.

Key provisions of the Affordable Care Act are aimed at specific target groups who either fall into

coverage gaps, are particularly vulnerable to being uninsured, or may be denied coverage for a variety of

reasons. Gaps in care include the so called Medicare part D “donut hole” in prescription drug coverage

and lower income individuals who did not qualify for Medicaid but could not afford private insurance.

During the recession of 2008, one group that was particularly susceptible to being uninsured were

people aged 18-25. Tighter job markets have meant increasing numbers of recent college graduates are

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either unemployed or underemployed, resulting in many young adults who fall into a common coverage

gap. The Affordable Care Act allows young people to remain on their parent’s insurance plans until they

are twenty-six and has resulted in 2.5 million young adults between the ages of 19-25 receiving health

insurance as a direct result of the law. (Sommers & Schwartz, 2011) People with pre-existing conditions

are statistically the most prone to being denied coverage if they are not insured or have lost their

insurance. Historically, insurance companies have denied standard insurance coverage to those with

pre-existing conditions due to the high costs associated with providing treatment. Those who were

turned down due to pre-existing conditions were often referred to “high risk” insurance pools or left

without coverage options altogether. The PPACA creates Pre Existing Condition Insurance Plans (PCIP)

that are available to individuals who have been denied coverage due to a pre-existing condition and

have been uninsured for at least six months. (Gotts, 2012) PCIP insurance premiums will vary depending

upon state and benefits included in the plan.

Businesses will be given tax incentives to offer employees coverage that meets the minimum

requirements, with those employing fifty or more being required to supply their workers with health

insurance. (Chaikid, Fernandez, Newsom, & Peterson, 2010) Companies employing fifty or more people

that choose not to provide their employees with health insurance will be taxed an assessment to help

cover government subsidies for the uninsured. (Department of Health and Human Services, 2010) The

PPACA attempts to build upon existing coverage options within the current health system to avoid a

drastic overhaul of the industry as a whole, which includes tapping into employer based health

insurance that covers 61% of non-elderly Americans. Also, due to the fact that over 80% of uninsured

people have access to the workforce, the PPACA utilizes this resource as a means to expand insurance to

those individuals. Businesses and non-profit organizations that employ fewer than 25 people full time

will have access to subsidies and tax credits to offset the cost of offering health insurance to their

workers, provided that the agencies purchase insurance on a State Health Exchange. These tax credits

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will initially be equal to 35% of the employer’s contribution towards employee’s health premiums,

increasing to 50% in 2014. (Internal Revenue Service, 2012)

Beginning in 2014, states will be given federal grants to facilitate the creation of Health Insurance

Exchanges. Each state will be responsible for the creation and regulation of their own exchange but the

marketplace will be regulated under the conditions outlined in the PPACA. Each plan provided on an

exchange must have guaranteed issue, no lifetime or annual limits, and will be limited in the amount of

price variation it may have between other plans with comparable benefits. (2012 Progress Report:

States Are Implementing Health Reform, 2012) Insurance companies cited limited market size as one

reason for the failure of earlier insurance exchanges, a problem that is remedied through the influx of

new customers provided by the individual mandate. President Obama was insistent on the inclusion of

state level exchanges within the legislation so that controlled competition could drive down the costs of

premiums and benefits. Currently twenty eight states, including the District of Columbia, are on their

way towards establishing Health Insurance Exchanges.

Despite drastic reductions in the number of uninsured, approximately 27 million people are

projected to remain uninsured by 2016 under the PPACA. (Pecquet, 2012) This group of people who will

remain uninsured will include undocumented immigrants, those who can afford insurance but choose to

pay the tax penalty rather than carry a policy, people in states that reject the Medicaid expansion who

do not qualify for other plans, and those who are exempt from the individual mandate. As part of its

ruling on the individual mandate, the Supreme Court ruled that states would be allowed to choose

whether or not to accept federal funding to enact Medicaid expansion. (Liptak, 2012) Eight states have

already expressed their intention to refuse federal funding for Medicaid expansion, a decision which

would lead to 6 million people who would otherwise be eligible to receive Medicaid remaining

uninsured. (Oller, 2012) Another large proportion of those who will remain uninsured are

undocumented workers, who will be unaffected by the individual mandate but can still receive medical

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treatment in emergency rooms under the Emergency Medical Treatment and Active Labor Act.

(EMTALA, 2012)

A number of government agencies will be instrumental during the implementation of the Affordable

Care Act with the overall process being managed by the Department of Health and Human Services

(DHHS). Health insurance companies must now report their yearly spending to the DHHS and offer

rebates for spending that does not meet the requirement that eighty percent or more of premium

dollars go directly to health care services. The DHHS, along with the U.S. Office of Personnel

Management and the U.S. Department of Agriculture’s National Finance Center, runs the Pre-Existing

Conditions Insurance Plan (PCIP) in twenty three States through federal contracting with a national

insurance company. Twenty-seven states either manage their own PCIP or rely on designated non-profit

agencies to operate the program. The DHHS in conjunction with the Department of Labor and the

Treasury have put in place regulations for companies to provide dependant coverage to young adults up

to age 26. The Internal Revenue Service will be charged with installing the tax penalty for those who

choose not to carry minimum creditable coverage.

Funding for the Affordable Care Act comes mostly from an increased Medicare tax and a 40% excise

tax on “Cadillac” insurance plans. The Medicare tax affects only those making more than $200,000 a

year and will supply around $210 billion dollars towards the funding of the Affordable Care Act. The

40% excise tax applies to individuals whose yearly insurance premiums are $10,200 and $27,500 for

families. The excise tax is expected to contribute 60 billion towards funding health reform. The

remainder of the funding will be rounded out in the form of annual fees on health insurance providers

and prescription drug manufacturers, and a reduction in Medicare Advantage and Medicare home

health care spending. (Grier, 2010) The Congressional Budget Office estimates that the total net cost of

all provisions of the Affordable Care Act from 2010-2019 will be $624 billion. The CBO also estimates

that the Affordable Care Act will decrease the federal deficit by $109 billion during the same period in

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addition to $716 Billion in Medicare savings, which will predominantly come as a result of eliminating

waste and fraud within the system. (Elmendorf, 2011)

Many opponents of the PPACA accuse the administration of diverting $716 billion in funding

from Medicare to its own programs. The issue of Medicare spending even garnered mention during the

first 2012 Presidential debate, with Republican challenger Mitt Romney reiterating claims from his

campaign speeches that “Obamacare” would cut Medicare by $716 Billion. (Edwins, 2012) Critics argue

that cuts in Medicare Advantage spending will hurt those covered by the plans, resulting in decreased

benefits and higher premiums. According to the Henry J Kaiser Family Foundation the PPACA will result

in a $716 Billion reduction in Medicare spending between 2013 and 2022 but that overall federal

Medicare spending is projected to continue growing, but at a slower rate. Cuts will primarily come from

hospital reimbursements and federal over payments to insurance companies through Medicare

Advantage, the private sector of Medicare. (Carey, 2012) Under the PPACA Medicare recipients will see

no cut to their benefits or increase in their premiums. Medicare trustees have stated that the changes

made by the PPACA to Medicare payment systems will extend the solvency of Medicare. (The Boards Of

Trustees, Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds, 2012)

By its own measures the policy is considered a successful piece of legislation because it achieves the

following: Reduction in the number of uninsured by 30 million by 2019, the reduction of insurance

premiums, a $109 billion dollar reduction in the deficit over a ten year period, and $716 billion in

Medicare savings. (Congressional Budget Office, 2012) Estimates of how many people will gain coverage

as a direct result of the Affordable Care Act may be significantly affected by individual states decisions

whether or not they accept federal funding for Medicaid expansion. According to the Henry J. Kaiser

Family Foundation, 17% of non-elderly Americans will be positively affected by the Medicaid expansion

and tax credits offered by health reform. (Claxton, Damico, Levitt, & Licata, 2012) The CBO estimates

that insurance premiums will decrease by 0-12% and for approximately 17% of the market premiums

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would increase. (Congressional Budget Office, 2009) For a little over half of those seeing their premiums

rise subsidies would reduce the effective rate paid to well below the current level of premiums. Despite

projections that the PPACA will lower the deficit over ten years, federal healthcare spending is projected

to reach a net total of $1.2 Trillion during the same period. (Congressional Budget Office, 2012)

Concerns have been raised that the savings in Medicare spending are unsustainable and may be

repealed on either a state or federal level.

All parts of the PPACA will be effective as of January 1st, 2019, but prior to then, important pieces of

the legislation have become active and many pieces are further scheduled to come into effect within the

next few years. Important components already in effect include coverage of the Medicare “donut hole”,

access to insurance for those with pre-existing conditions, Medicaid expansion, extended coverage for

young adults, elimination of annual and lifetime spending limits, tax credits for small businesses

providing insurance to their employees, addressing Medicare Advantage overpayments, and providing

access to insurance for those with pre-existing conditions. The individual mandate and the option to

buy insurance on health insurance exchanges will be effective January 1st 2014, additionally, once they

are established, members of Congress will only get their health insurance through one of these

exchanges. The final portion of the PPACA will be enacted January 1st 2019 when the Medicare D “donut

hole” would be finally closed. (Department of Health and Human Services, 2012)

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Works Cited(2012). 2012 Progress Report: States Are Implementing Health Reform. Washington, DC: Executive Office

of the President. Retrieved from http://cciio.cms.gov/programs/exchanges/index.html

EMTALA. (2012). Retrieved from American College of Emergency Physicians: http://www.acep.org/content.aspx?id=25936

Carey, M. A. (2012, August 17). FAQ: Decoding The $716 Billion In Medicare Reductions. Retrieved from Kaiser Health News: http://www.kaiserhealthnews.org/stories/2012/august/17/faq-716-billion-medicare-reductions.aspx

Chaikid, H., Fernandez, B., Newsom, M., & Peterson, C. (2010). Private Health Insurance Provisions in PPACA. Washington, DC: Congressional Research Service.

Claxton, G., Damico, A., Levitt, L., & Licata, R. (2012). Mapping the Effects of the Affordable Care Acts Health Insurance Coverage Expansions. Retrieved from The Henry J. Kaiser Family Foundation: http://healthreform.kff.org/coverage-expansion-map.aspx

Congressional Budget Office. (2009). An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act. Washington, DC: Congressional Budget Office.

Congressional Budget Office. (2012). Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision. Washington, DC: Congressional Budget Office.

Department of Health and Human Services. (2010, Septembe 23). Key Features of the Law. Retrieved from Healthcare.gov: http://www.healthcare.gov/law/features/index.html

Department of Health and Human Services. (2012, October 31). Key Features of the Affordable Care Act, By Year. Retrieved from Healthcare.gov: http://www.healthcare.gov/law/timeline/full.html

Edwins, L. (2012, October 5). Debate fact-check: Romney says $716 billion in Medicare cuts due to 'Obamacare'. Retrieved from Alaska Dispatch: http://www.alaskadispatch.com/article/debate-fact-check-romney-says-716-billion-medicare-cuts-due-obamacare

Elmendorf, D. W. (2011). CBO’s Analysis of the Major Health Care. Washington, DC: Congressional Budget Office.

Gotts, J. (2012). COVERING PEOPLE WITH PRE-EXISTING CONDITIONS: REPORT ON THE IMPLEMENTATION AND OPERATION OF THE PRE-EXISTING CONDITION INSURANCE PLAN PROGRAM. Washington, DC: Department of Health and Human Services.

Grier, P. (2010, March 21). Health care reform bill 101: Who will pay for reform? Retrieved from Christian Science Monitor: http://www.csmonitor.com/USA/Politics/2010/0321/Health-care-

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reform-bill-101-Who-will-pay-for-reform

Holahan, J., & Headen, I. (2010). Medicaid Coverage and Spending in Health Reform:. Washington, DC: Henry J. Kaiser Family Foundation.

Internal Revenue Service. (2012, October 5). Affordable Care Act Tax Provisions. Retrieved from Internal Revenue Service: http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

Internal Revenue Service. (2012, August 3). Small Business Health Care Tax Credit: Questions and Answers. Retrieved from Internal Revenue Service: http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit:-Questions-and-Answers

Jaspen, B. (2012, June 17). Mandate To Buy Coverage: Health Insurance Industry's Idea, Not Obama's. Retrieved from Forbes: http://www.forbes.com/sites/brucejapsen/2012/06/17/mandate-to-buy-coverage-health-insurance-industrys-idea-not-obamas/

Liptak, A. (2012, June 28). Supreme Court Upholds Health Care Law, 5-4, in Victory for Obama. Retrieved from New York Times: http://www.nytimes.com/2012/06/29/us/supreme-court-lets-health-law-largely-stand.html?pagewanted=all

Oller, S. (2012, October 31). Election 2012: Health Care Act's Unfinished Business. Retrieved from CSP News: http://www.cspnet.com/news/corporate/articles/election-2012-health-care-acts-unfinished-business

Pecquet, J. (2012, March 13). CBO: Obama's health law to cost less, cover fewer people than first thought. Retrieved from The Hill: http://thehill.com/blogs/healthwatch/health-reform-implementation/215795-cbo-health-law-to-cost-less-cover-fewer-people-than-first-thought

Sebelius, K. (2012, May). Strategic Plan 2010 - 2015. Retrieved from U.S. Department of Health & Human Services: http://www.hhs.gov/secretary/about/goal1.html

Sommers, B. D., & Schwartz, K. (2011, December). 2.5 Million Young Adults Gain Health Insurance Due to the Affordable Care Act. Retrieved from Department of Health and Human Services: http://aspe.hhs.gov/health/reports/2011/YoungAdultsACA/ib.shtml

The Boards Of Trustees, Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds. (2012). 2012 Annual Report Of The Boards Of Trustees Of The Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds. Washington, DC: Boards Of Trustees Of The Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds,.