Sunday, March 21, 2010

Health Reform Goes To President

The House of Representatives passed health care reform legislation late in the evening of March 21, 2010, after intense negotiations and a budget reconciliation bill that made changes to the original proposal. In the most sweeping health system changes since the passage of Medicare in 1965, the House first passed H.R. 3590, the Patient Protection and Affordable Care Act, by a vote of 219 to 212; subsequently, the House  passed H.R. 4872, the Health Care and Education Reconciliation Act of 2010 by a vote of 220 to 211.

The Affordable Care Act first was approved by the Senate on December 24, 2009, and President Barack Obama is expected to sign the legislation as soon as possible.

The Health Care Reconciliation Act strikes out and modifies a number of tax and revenue provisions in the Affordable Care Act to which the House objected. Under budget reconciliation rules, the Health Care Reconciliation Act now goes to the Senate, which can pass the bill with a 51 majority vote (that is, the budget reconciliation is not subject to the 60-vote filibuster rules for other legislation considered in the Senate).

The Senate is expected to take up the Health Care Reconciliation Act this week, and Senate Democrats have the goal of sending a final package to the White House before its scheduled April recess begins on March 29. However, if the Senate makes any changes, the House and the Senate versions will go to a conference of House and Senate negotiators. An agreement by negotiators then will go back to the House and the Senate for a simple majority final vote by the two chambers under strict rules that set a timetable for action and that prohibit any amendments. Assuming passage of this conference committee agreement, it will be sent to the President Obama for his signature.

The president’s signature of both H.R. 3590 and H.R. 4872 will put into effect the provisions of the Affordable Care Act as amended by the Health Care Reconciliation Act. These provisions include the following employer-related and private plan changes:

Employer Responsibilities. Effective in 2014, assess certain employers a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment: employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit.  Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $750 for each fulltime employee..

Employers with 50 or fewer employees are exempt from penalties.

Effective in 2014, employers that offer coverage would be required to provide a free choice voucher to employees with incomes less than 400% FPL whose share of the premium exceeds 8% but is less than 9.8% of their income and who choose to enroll in a plan in the Exchange. The voucher amount is equal to what the employer would have paid to provide coverage to the employee under the employer’s plan and will be used to offset the premium costs for the plan in which the employee is enrolled. Employers providing free choice vouchers will not be subject to penalties for employees that receive premium credits in the Exchange.

Employers with more than 200 employees must automatically enroll employees coverage offered by the employer. Employees may opt out of coverage.

Individual Reponsibilities. Citizens and legal residents are required to have “qualifying health coverage.” Those without coverage pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family or 2.5% of household income. The penalty will be phased-in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. After 2016, the penalty will be increased annually by the cost-of-living adjustment. Exemptions will be granted for those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold (in 2009 the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).

Health Benefit Exchanges. Effective in 2014, state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges are established, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. States are permitted to allow businesses with more than 100 employees to purchase coverage in the SHOP Exchange beginning in 2017. States may form regional Exchanges or allow more than one Exchange to operate in a state as long as each Exchange serves a distinct geographic area.

Individual subsidies. Refundable and advanceable premium credits are made available to eligible individuals and families with incomes between 133 and 400% of the federal poverty level to purchase insurance through the Health Insurance Exchanges. The premium credits will be tied to the second lowest cost silver plan in the area and will be set on a sliding scale.

Employer subsidies. Small employers with no more than 25 employees and average annual wages of less than $40,000 that purchase health insurance for employees are provided with a tax credit.

For 2010 through 2013, a tax credit of up to 35% of the employer’s contribution toward the employee’s health insurance premium is provided if the employer contributes at least 50% of the total premium cost or 50% of a benchmark premium.

For 2014 and later, for eligible small businesses that purchase coverage through the state Exchange, a tax credit is provided of up to 50% of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50% of the total premium cost. The credit will be available for two years. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000.

Effective 90 days after enactment and extending until Jan. 1, 2014, a temporary reinsurance program is established for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare. The program will reimburse employers or insurers for 80% of retiree claims between $15,000 and $90,000

Financing of health reform. Beginning in 2014, a tax on individuals without qualifying coverage is imposed that is the greater of $695 per year up to a maximum of three times that amount or 2.5% of household income.

Effective in 2018, an excise tax is imposed on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage. The tax is equal to 40% of the value of the plan that exceeds the threshold amounts and is imposed on the issuer of the health insurance policy, which in the case of a self-insured plan is the plan administrator or, in some cases, the employer. The aggregate value of the health insurance plan includes reimbursements under a flexible spending account for medical expenses (health FSA) or health reimbursement arrangement (HRA), employer contributions to a health savings account (HSA), and coverage for supplementary health insurance coverage, excluding dental and vision coverage.

Benefit design. Effective in 2014, an essential health benefits package is established that provides a comprehensive set of services, covers at least 60% of the actuarial value of the covered benefits, limits annual cost-sharing to the current law HSA limits ($5,950/individual and $11,900/family in 2010), and is not more extensive than the typical employer plan. Require the Secretary to define and annually update the benefit package through a transparent and public process.

Abortion coverage is prohibited from being required as part of the essential health benefits package.

Effective in 2014, all qualified health benefits plans, including those offered through the Exchanges and those offered in the individual and small group markets (except grandfathered plans) are required  to offer at least an essential health benefits package.

Private Insurance. Effective within 90 days of enactment and extending through Jan. 1, 2014, a temporary national high-risk pool is established to provide health coverage to individuals with pre-existing medical conditions. Individuals who have a pre-existing medical condition and who have been uninsured for at least six months will be eligible to enroll in the high-risk pool and receive subsidized premiums. Premiums for the pool will be established for a standard population and may vary by no more than 4 to 1 due to age; maximum cost-sharing will be limited to the current law HSA limit ($5,950/individual and $11,900/family in 2010). Appropriate $5 billion to finance the program

Effective in 2010, health insurance plans are required to report the proportion of premium dollars spent on clinical services, quality, and other costs. Effective in 2011, insurers must provide rebates to consumers for the amount of the premium spent on clinical services and quality that is less than 85% for plans in the large group market and 80% for plans in the individual and small group markets. A process is established for reviewing increases in health plan premiums and requiring plans to justify increases. States are required to report on trends in premium increases and recommend whether certain plan should be excluded from the Exchange based on unjustified premium increases.

Effective six months after enactment, all individual and group policies must provide dependent coverage for children through age 26; individual and group health plans are prohibited from placing lifetime limits on the dollar value of coverage and insurers are prohibited from rescinding coverage except in cases of fraud; plans are prohibited from imposing pre-existing condition exclusions for children

Beginning in January 2014, individual and group health plans are prohibited from placing annual limits on the dollar value of coverage. Prior to January 2014, plans may only impose annual limits on coverage as determined by the Secretary.

Six months following enactment, grandfathered plans are required to extend dependent coverage to age 26, prohibit rescissions of coverage, eliminate waiting periods for coverage of greater than 90 days, and eliminate pre-existing condition exclusions for children. Beginning in 2014, grandfathered group plans must eliminate lifetime limits on coverage and eliminate annual limits on coverage.

Effective in 2014, waiting periods for coverage are limited to 90 days and states have the option of merging the individual and small group markets.

Financing. The Congressional Budget Office estimates the cost of the coverage components of the reconciliation bill in combination with the Patient Protection and Affordable Care Act to be $940 billion over ten years. These costs are financed through a combination of savings from Medicare and Medicaid and new taxes and fees, including an excise tax on high-cost insurance, which CBO estimates will raise $32 billion over ten years. CBO estimates the proposal will reduce the deficit by $143 billion over ten years.


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