Scott Robert Lane October 7th, 2013 Summary of the Patient Protection and Affordable Care Act The

Patient Protection and Affordable Care Act (referred to from here on as the PPACA, and known by many as simply Obamacare), signed into law on March 23rd, 2010 by President Obama, has three main goals: To get more Americans insured, to increase the quality of Americans' health insurance, and to keep costs down for the insured. Whether it accomplishes these goals adequately continues to be a mater of contentious debate. Here, I will spell out the law's most important provisions and the implications of these provisions (as estimated by the Congressional Budget Office), as well as refute some common myths about the act.

Summary of Provisions: First, the PPACA aims to get more Americans insured. There are several provisions that attempt to accomplish this. The law forbids insurers from denying coverage to those who have a pre-existing condition and allows children to remain on their parent's health insurance plan until the age of 26. It also expands Medicaid eligibility to those who have an income up to 138% of the federal poverty level (states are allowed, however, to opt out of this provision, and many have done so). Additionally, the PPACA establishes health insurance exchanges. These are online markets where people can compare policies and buy insurance. These are intended for people who are not covered by Medicare, Medicaid, some other public plan, or an employer plan. The PPACA also requires employers with fifty or more full-time employees to provide health insurance for them or else pay a tax penalty if one of their employees receives subsidized health insurance from an exchange market. This is known as the employer mandate. Finally, the PPACA mandates that individuals who are not covered by Medicare, Medicaid, another public plan, or an employer plan purchase insurance or else pay a fee. This fee will be $95 or

1% of annual income in 2014, $325 or 2% of annual income in 2015, and $695 or 2.5% of annual income in 2016. After that, the fine is adjusted for inflation. In each case, the fee-payer must pay whichever amount is greater. Individuals whose insurance would cost more than 8% of their income are exempt from this mandate. Most people know this provision as individual mandate. This is one of the law's more controversial provisions, but, as I will explain later in this report, it has an important purpose. The second goal of the law is to improve the quality of care that the insured receive. In order to achieve this goal, the PPACA enacts minimum standards on insurance policies. If an employer plan does not meet these standards, and does not change to meet them, the employees covered by it will be able to buy insurance on an exchange market as an alternative to the substandard employer plan. The final goal of the PPACA is to keep costs down for the insured. The first provision that seeks to accomplish this has already been mentioned: the individual mandate. This provision is intended to offset the premium hikes that would follow when people with pre-existing conditions gain health insurance (thus making the insurance pool sicker and more costly to insure). By mandating that everyone obtain coverage, the law makes the insurance pool healthier (since the healthy will be required to be insured), and thus less costly to insure, reducing the pressure to hike premiums. The law also requires insurers to offer the same premium for all individuals of the same age and geographical location. This does not allow for insurers to take gender or most pre-exisiting conditions into account (smoking is one of the few exceptions). The PPACA also shrinks the Medicare Part D Coverage Gap (donut hole), and eliminates it by 2020. This will only affect seniors who are on Medicare. Furthermore, the PPACA establishes subsidies for individuals who buy insurance on the exchange markets and whose income is lower than 400% of the federal poverty level. These subsidies are only available to people who cannot enroll in Medicaid or Medicare, and whose employer does not provide insurance with at least standard benefits and that costs less than 9.5% of the employee's annual

income. In states that are not expanding Medicaid, those with incomes at or above 100% of the federal poverty level, and who meet the above requirements, will be eligible for a subsidy. Subsidies provided are in the form of tax credits, and are based on the price of the secondlowest cost silver plan in a given exchange market. A Silver Plan is an insurance plan that covers 70% of medical costs. Individuals who qualify for a subsidy will receive one in the amount of the difference between the premium price of the second-lowest cost Silver Plan in their exchange and a certain percentage of their annual income (in effect, this enables them to purchase the second-lowest cost Silver Plan for this percentage of their income). The following table lists the income (as a percentage of the federal poverty level) and the maximum percentage of annual income an individual making this amount would have to spend on the premium of the second-lowest cost Silver Plan on the exchange market:

Income (as a percent of FPL): Up to 133% 133 - 150% 150 - 200% 200 - 250% 250 - 300% 300 - 400%

Premium as a Percent of Income: 2.00% 3 - 4% 4 6.3% 6.3 8.05% 8.05 9.5% 9.50%

To establish what is meant by federal poverty level, the table on the next page lists what 100% of the FPL would be for a family of a given size (in 2013):

Family Size 1 2 3 4 5 6 7 8 Each additional member adds

FPL in most of U.S.: $11,490.00 $15,510.00 $19,530.00 $23,550.00 $27,750.00 $31,590.00 $35,610.00 $39,630.00 $4,020.00

FPL in Hawaii: $13,230.00 $17,850.00 $22,470.00 $27,090.00 $31,710.00 $36,330.00 $40,950.00 $45,570.00 $4,620.00

FPL in Alaska: $14,350.00 $19,380.00 $24,410.00 $29,440.00 $34,470.00 $39,500.00 $44,530.00 $49,560.00 $5,030.00

Finally, the PPACA attempts to control costs for insurance consumers by placing limits on the cost-sharing aspect of insurance. For example, while Silver Plans generally cover 70% of medical expenses, this amount is raised for individuals making at or below 250% of the federal poverty level. The following table lists the income as a percent of FPL and the amount of medical expenses the Silver Plan must cover for a person making this income:

Income as Percent of FPL: 100 - 150% 150 - 200% 200 - 250%

Coverage of Medical Expenses: 94.00% 87.00% 73.00%

Additionally, out-of-pocket expenses for essential benefits are limited for all insured persons. In 2013, the maximum out-of-pocket expense for essential benefits would be $6,250.00 for an individual or $12,500.00 for a family. This amount is indexed for change in the cost of health insurance. Individuals making below 400% of the federal poverty have this number reduced, however. The following table lists the income as a percent of FPL and the maximum out of pocket expense a person

making this amount would have to pay:

Income as a Percent of FPL: 100 - 200% 200 - 300% 300 - 400%

Maximum OOP Expense: One third of the normal limit One half of the normal limit Two thirds of the normal limit

These provisions cost money and require revenue. The PPACA fulfills this requirement with three provisions. First, the individual mandate will result in new revenue when some individuals choose to pay its penalty rather than buy insurance. Second, the cost of Medicare is streamlined by making the program more efficient. This is done by allowing a new agency, the Independent Payment Advisory Board, to make cost-saving changes in the administration of Medicare. Additionally, the current feefor-service model of Medicare is replaced by a bundled-payment system, in which a single payment will be made to a hospital and physician group for a defined period of care. This is in place of the old system, in which payments are made to each care provider. Finally, the law establishes several new taxes and fees: Higher Medicare taxes on wealthy individuals, fees on insurance providers, fees on drug and medical device manufacturers, a 40% excise tax on "Cadillac" insurance plans, and a federal sales tax of 10% on indoor tanning. In conjunction with the above measures, these revenue sources provide funding for the PPACA.

Implications of These Provisions: The PPACA will have five major implications on the healthcare market. First, an estimated thirty-two million Americans will receive health insurance. Five categories of people will remain uninsured: Illegal immigrants, those who choose to pay the individual mandate's fee rather than buy insurance, those who are exempt from the mandate, those who choose not to enroll in Medicaid despite being eligible, and those who fall into the coverage gap created by some states opting not to expand

Medicaid (some of these individuals will be eligible for neither Medicaid nor subsidized insurance on the exchange market). Second, health plans will be legally required to meet certain standards if they are to be in the exchange market. Some of these requirements were discussed above. Third, premiums will be affected, perhaps slightly and perhaps noticeably, by the requirement for plans to meet certain standards, the requirement for plans to accept people with pre-existing conditions, the individual mandate, and the fact that many people buying insurance in the exchange market will receive a subsidy for doing so. If the first two conditions outweigh the latter two, premiums will likely increase. If the latter two conditions outweigh the first two, premiums will likely decrease. The Kaiser Family expects a net decrease for the majority of individuals, but other reports contradict this. Whatever happens in regard to premium price, subsidies will help to lessen the impact of possible increases for most people. In the employer-provided insurance market, premiums are unlikely to change significantly. It is important to note that when I say increase or decrease, in terms of premium price, I am doing so in a relative since. With or without the PPACA, the price of premiums will increase by at least the rate of inflation from year to year. In recent years (2000 and on), the rate of premium increases has exceeded the rate of inflation. The real test of the effect of the PPACA on premiums is whether this growth rate is reduced or increased, and whether the percent of the average person's income that is spent on premiums increases, decreases, or stays constant. The effect of the PPACA on out-of-pocket costs will need to be measured in a similar way. Given the innate desire of most Americans to abide by the law, I am inclined to believe that most people to whom the individual mandate applies will choose to purchase insurance, even if the cost of doing so exceeds the penalty they would pay for not doing so. This notion is further supported by the fact that people would likely prefer to spend a moderate amount of money to gain something (in this case, health insurance, which is a rather valuable commodity) rather than spend a relatively small

amount of money to gain nothing. Thus, I am inclined to believe that the rate of premium growth will slow to a more reasonable level under the PPACA. Fourth, individuals falling in the Medicare Part D Coverage Gap will save approximately 40%. This is because the PPACA secured a discount from pharmaceutical companies on brand-name drugs. Finally, according to the Congressional Budget Office, the PPACA will reduce the United States budget deficit by $210 billion from 2012-2021, with larger savings in the 2022-2031 decade. Some take issue with the fact that this assessment does not cover the doc fix, but this is a separate issue that would have occurred with or without the PPACA. Another implication, not mentioned above because it is purely theoretical at this point, is the possibility that employers, in response to the employer mandate, will opt to pay the penalty rather than provide insurance, or that they will switch to employing part-time workers rather than full-time. The first possibility is unlikely, as employers have a much greater incentive to not provide health care for their employees before the PPACA is implemented (since there is currently no penalty for this) rather than after (when there will be a penalty). The second possibility is also unlikely, since 90% of employers with fifty or more full-time workers are already providing health insurance to their employees. Furthermore, switching to part-time workers would increase costs in other areas for large employers. This will act to discourage these employers from making such a switch. Finally, even if some of the 10% of large employers who do not currently provide insurance switch to part-time workers, these workers can obtain subsidized insurance in the exchange market.

Common Misconceptions Concerning the Act There are six main myths about the PPACA. These are a result of a misunderstanding of the law's provisions. Each will be refuted below. First, the PPACA does not create so-called "death panels". The Independent Payment Advisory Board will be given authority to save costs in Medicare via efficiency and finding savings in

administration. It does not have the power to limit Medicare eligibility or coverage, nor can it raise costs on beneficiaries. Additionally, though the cost of end-of-life counseling will be re-imbursed (if the patient chooses to undergo it), this counseling is not required under the law. In short, the government will not be given authority to pull the plug on people who need expensive treatment to stay alive. The decision to refuse additional care will still rest entirely with the patient or the person who is appointed to make such decisions for the patient in the event of a comatose state. Second, the PPACA requires members of Congress to obtain insurance the same way as anyone else would be required to: Either by Medicare, Medicaid, an exchange plan, or some other plan. Congress members are not exempt from the PPACA. Third, illegal immigrants are not given insurance under the PPACA. In fact, they are explicitly denied coverage. Fourth, the PPACA does not mandate that individuals covered under a public health plan have a chip implanted. An early draft stated that the Department of Health and Human services could collect data from devices implanted in patients (pacemakers, etc.), but this did not mean that people would be mandated to have such implants, and, furthermore, this provision was not even in the bill that the President finally signed. Fifth, he PPACA will most likely not have a significant impact on employment, negative or positive. The only likely employment effect of the law is that individuals clinging to a job purely for insurance will finally retire. The claim that the law will cause 650,000 people to lose their jobs, often cited by the law's opponents, is very likely false. Finally, the PPACA does not, at least according to the Congressional Budget Office, increase the deficit. In fact, it decreases it, by $210 billion from 2012-2021, with savings projected to be even larger in the 2022-2031 decade. With these myths now refuted, as well as the major provisions of the law explained, we can have a more honest and civil discourse concerning the Patient Protection and Affordable Care Act. This

was my purpose in generating this report.