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The Health Bill Explained at Last

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Ken Regan/Showtime/Photofest
Peter Facinelli and Edie Falco in Nurse Jackie, June 2009

In a June 21 survey of the public’s response to the health care reform bill passed by Congress in March of this year, the Kaiser Family Foundation found that while 48 percent of those polled were favorable to the bill, 42 percent were confused about it and 41 percent were opposed—a number that has been even higher in other polls.

No wonder. Republicans have sought to make health care reform Barack Obama’s “Waterloo,” as South Carolina Senator Jim DeMint put it in July 2009, by scaring the public. Ominous and utterly false warnings about “death panels,” a government “takeover” of American medicine, and “pulling the plug on grandma” followed. With Republicans hoping to use their opposition to the bill to gain seats in this fall’s midterm elections, there is little sign that such attacks will stop.

The irony is that for all the apocalyptic rhetoric, the new health reform law is anything but radical. In fact, it closely resembles the 2006 reform in Massachusetts supported by then- governor Republican Mitt Romney.1 And most strikingly, it does not replace the current mix of US health insurance schemes with a single public health insurance program like Medicare. Instead, the 2010 reform legislation introduces a complex system of subsidies, mandates, regulations, and programs that build on our present patchwork arrangements and will affect Americans in different ways and at different times, depending on income, age, employment, and other considerations.2

1.

The bill, known as the Patient Protection and Affordable Care Act, begins to take effect this year but many of its provisions will be carried out during the coming decade. As of now, a majority of working-age adults and their children—some 157 million people—obtain private health insurance through their employers, while virtually all Americans over age sixty-five, as well as younger adults with permanent disabilities, are covered by Medicare. Low-income Americans who fit certain demographic categories, such as pregnant women and children, have access to Medicaid and the Children’s Health Insurance Program (CHIP). (These two government insurance programs cover nearly one third of all US children.) Still others depend on a loose health care safety net, including community health centers that provide subsidized care, as well as on hospital emergency rooms that must by law see all patients, which of course doesn’t mean they will get timely or adequate care.3

There are sizable gaps in US health insurance coverage. Some 46 million persons—over 16 percent of the population—have no health insurance. Millions of others are underinsured, with policies that do not provide adequate coverage for costly care. A high percentage of workers in small businesses are not covered by their employers and find purchasing their own insurance prohibitively expensive. Those with preexisting conditions like diabetes or asthma face particularly serious obstacles since insurers vary premium rates by health status and regularly deny coverage to those they regard as expensive risks.

Medicare’s benefit package and financial protection is limited. Patients must pay for the first $1,100 of hospitalization costs as a deductible, as well as 20 percent of the costs of physician services, and there is no limit on the total costs they can incur.4 Low-income adults without dependent children are generally not eligible for Medicaid, leaving many of the nation’s poor uninsured. Most of the nation’s seven million uninsured children are eligible for the Children’s Health Insurance Program or Medicaid, but are not enrolled in them. That itself is a testament to the confusion created by our complex insurance arrangements.

The measures of US health—including life expectancy, infant mortality, and deaths preventable by medical care—remain mediocre compared to other rich nations. At the same time, American medical care is notoriously the most expensive in the world. Premiums for family coverage under employer-sponsored insurance now average over $13,000 a year. Expenditures on health care in the United States amount to more than $2.5 trillion, or about 17 percent of national income, while Western European democracies average about 10 percent.

2.

Despite such deep flaws in the US health care system, the central assumption of both the Obama administration and the Democratic leadership in Congress was that only legislation that did not seek to radically change it had a chance of success.5 That political calculation, in turn, was based on the view that the Clinton administration’s health reform effort failed during 1993–1994 because it tried to change too much and provoked too much opposition from insurance companies and other powerful interests.

This time around, reformers hoped to reassure the large number of insured Americans who say they are satisfied with their current coverage that they had nothing to fear from change. Democrats also wanted to work with rather than fight against the health care industry. They hoped to gain support from the insurance, hospital, and pharmaceutical industries, which stood to gain financially from expanded insurance coverage and had the financial resources and political influence to undercut reforms they opposed. As a consequence, the creation of a Canadian-style health program, in which universal insurance—Medicare for all—is provided by the government, was never seriously considered. Such a reform would have caused, in the administration’s view, too much disruption of prevailing arrangements and led to an inflammatory and unwinnable debate over “socialized medicine.”

In building on the existing system, the 2010 reform law largely emulates the 2006 Massachusetts health reform, which expanded coverage by broadening eligibility for Medicaid, grouping the uninsured into a newly created purchasing pool, and providing them, according to their incomes, with subsidies to purchase insurance. Massachusetts residents are required to obtain health insurance or pay a fine. The 2010 law also followed Massachusetts in mostly deferring the harder question of how to reduce the rate of inflation of medical costs in favor of expanding coverage.

During the 2008 presidential campaign and 2009–2010 health reform debate, Democrats added an important proposal to the Massachusetts model. They suggested that uninsured Americans should have access to a newly created public insurance plan modeled on Medicare. It was designed to be a means to control health care spending by using the substantial purchasing power and lower administrative costs of the US government. This proposal was opposed by conservative Democrats, Republicans, and the insurance industry. Although a weakened public plan passed in the House, Democratic leaders could not get it included in the final bill.

3.

How will the new law work? First, all Americans who earn less than 133 percent of the federal poverty level—in 2009 it was $10,830 for an individual—will become eligible for Medicaid. For the first time, Medicaid will offer coverage solely on the basis of income and regardless of family circumstance—including the single adults without children who are now excluded.

The Congressional Budget Office (CBO) estimates that, as a result, about 16 million Americans will gain insurance coverage through Medicaid. The federal government would initially pay all of the costs for this expansion, which begins in 2014; after 2020 Washington would finance 90 percent of the costs, with states funding the remainder. In contrast to the attention given to the failure of the public option to pass Congress, this major change in government coverage for the poor has been given little notice.

As for Medicare, the law actually improves its benefits. The infamous “donut hole” in Medicare’s prescription drug coverage—beneficiaries have to pay all medication costs after exceeding a predetermined threshold and before reaching a second, much higher threshold—will be phased out by 2020. Medicare beneficiaries will also have better preventive care, including payment for an annual wellness visit.6 Some primary care physicians treating Medicare patients will be paid more—a bonus of 10 percent in areas short of doctors—and those treating Medicaid patients will also be paid at a higher rate.7 On the other hand, persons enrolled in Medicare Advantage plans—offered by private insurers that contract with the federal government—could lose extra benefits beyond what the standard Medicare program offers. These private plans have long been overpaid by the government relative to what it costs them to take care of Medicare patients.

Most Americans under age sixty-five will continue to receive employer-sponsored coverage. As a new feature, children can stay on their parents’ insurance plans until age twenty-six. New regulations banning insurers from imposing caps on both annual and lifetime payments will also benefit policyholders. Larger employers will have to offer health coverage to their workers or pay a penalty ($2,000 per worker) to the federal government.8 Smaller employers with fewer than fifty workers will be exempt from this requirement, and, depending on their average wage, businesses with twenty-five or fewer workers are eligible for tax credits to help them buy health insurance for their workers.

The law also expands coverage by offering subsidies to uninsured Americans to purchase insurance in newly formed health benefit exchanges. Each state is expected to set up and administer these exchanges as a regulated market for health insurance. If a state chooses not to do so, its residents can join a federally sponsored exchange. In either case, people will choose from a variety of private insurance plans within each exchange, with federal subsidies available on a sliding scale to help them pay their premiums. Those with incomes up to 400 percent of the federal poverty level (i.e., now up to about $43,000) will be eligible for subsidies.

In all, 29 million Americans are expected to obtain insurance through the exchanges by 2019. This pooling of the uninsured, the reform assumes, will increase the purchasing power of the group, reduce administrative costs, and thereby produce lower-priced plans than would otherwise be available to persons without employer-based coverage.

The insurance exchanges will be regulated extensively. Starting in 2014, insurers will not be able to deny coverage to would-be policyholders or charge them higher premiums because of their health status (though insurers can vary premiums by age). Insurers will also be prohibited from retroactively canceling coverage for sick policyholders. Most Americans will be required to obtain health insurance or pay a federal tax penalty—starting in 2014 at $95 per person or 1 percent of taxable income, whichever is greater, and then increasing to $695 or 2.5 percent of taxable income by 2016.

4.

The CBO estimates that 32 million Americans will gain coverage through the expansion of Medicaid, subsidies, and insurance exchanges. This will make an enormous difference to the financial circumstances of many Americans with modest means and large medical expenses. Contrary to what conservative critics have claimed, the reform will undoubtedly mean less, not more, rationing of medical care as tens of millions of uninsured persons gain access to health insurance.

By broadening health insurance coverage, the law moves the United States closer to the principle that no one should go without access to medical care. In regulating the health insurance industry, with provisions to end discrimination on the basis of preexisting conditions, it brings about a long-overdue expansion of federal authority. In these ways and more, the Affordable Care Act is a substantial achievement.

  1. 1

    Romney supported the approach to expanding health insurance coverage in Massachusetts though he opposed and ultimately vetoed provisions in the law requiring employers to pay for their workers’ insurance or pay a penalty. The Massachusetts legislature overturned his veto.

  2. 2

    See the Kaiser Family Foundation, “Summary of New Health Reform Law,” March 26, 2010.

  3. 3

    Uninsured adults are “25 percent more likely to die prematurely than insured adults overall, and with serious conditions such as heart disease, diabetes or cancer, their risk of premature death can be 40 to 50 percent higher.” Statement of John Z. Ayanian, Presented to the Committee on Ways and Means, United States House of Representatives, March 11, 2009.

  4. 4

    Medicare patients currently pay $1,100 as a deductible for each benefit period. A benefit period begins the day a patient starts their hospital stay and ends when they haven’t received inpatient hospital services for sixty days. Consequently, Medicare beneficiaries can have multiple benefit periods in a given year and if so, they would have to pay the required deductible for each new benefit period. See Centers for Medicare and Medicaid Services, Medicare & You: 2010. www.medicare.gov/publications/pubs/pdf/10050.pdf.

  5. 5

    See Theodore Marmor and Jonathan Oberlander, “Health Reform: The Fateful Moment,” The New York Review, August 13, 2009.

  6. 6

    Beginning in 2011, Medicare will offer coverage, with no patient cost-sharing, for preventive services recommended by the US Preventive Services Task Force.

  7. 7

    Under the new law, primary care doctors seeing Medicare patients in defined health professional shortage areas will receive a 10 percent bonus for their Medicare patients from 2011–2015. Primary care doctors seeing Medicaid patients will have their fees raised to 100 percent of Medicare levels during 2013–2014 (currently, Medicaid payment rates for physicians average 72 percent of Medicare rates). See Kaiser Family Foundation, “Summary of New Health Reform Law,” and Stephen Zuckerman et al., “Trends in Medicaid Physician Fees, 2003–2008,” Health Affairs, April 28, 2009.

  8. 8

    Employers with over fifty workers who do not offer coverage and have employees who received premium credits in the insurance exchange will pay $2,000 per full-time employee, excluding their first thirty employees. Employers with over fifty workers who do offer coverage but have employees who qualify for premium subsidies in the exchange will pay “the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first thirty employees from the assessment.” See Kaiser Family Foundation, “Summary of New Health Reform Law.”

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