With implementation underway, how will it affect Kentucky businesses?
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In 2008, Barack Obama campaigned on “hope and change.” In March 2010, he signed into law the Affordable Care Act (ACA) — now known as “Obamacare.” Legal challenges were filed immediately, but earlier this year, the Supreme Court largely upheld it. No matter what outcome one may have hoped for in terms of health-care reform, as the speaker of the House recently conceded, “Obamacare is the law of the land.” The issue now is how to prepare for the change that’s coming soon to health care in America.
The ACA’s twin aims are to increase access to health care and make it more affordable. Currently, more than 50 million Americans are uninsured, and while the law will not attain universal coverage by 2020, it is expected to cut that number in half or even better. Contrary to opponents’ beliefs, it does not “take over” health care, but relies on tax policy, market forces, insurance reforms and an expansion in Medicaid to achieve its goals.
Obamacare tax and insurance reforms
“Play or pay” tax incentives are the ACA’s main tool to increase health-care access. After January 2014, employers with 50 or more full-time employees must provide affordable health coverage to employees or pay a tax. People not insured through employment must obtain individual coverage or pay a tax. The ACA calls these taxes “penalties.” However, the Supreme Court sustained them as “taxes,” and the IRS will collect them.
Obamacare also relies on tax credits and insurance-premium subsidies to encourage health-insurance purchases. By 2014, small businesses of 25 or fewer full-time employees with average wages not exceeding $50,000 annually may claim tax credits up to 50 percent of the cost of employee coverage. Individuals not covered through employment can purchase coverage in a health-insurance exchange. If their incomes are between 138 and 400 percent of the federal poverty line (i.e., an individual earning $14,876 to $44,680 annually or families of four earning $30,656 to $92,200 annually), they will receive premium subsidies toward their purchase of insurance.
Additionally, Obamacare’s insurance reforms broaden access to health care. In 2014, the law requires all coverage to be “guaranteed,” meaning no one can be turned down based on health status or pre-existing conditions. Furthermore, young adults who often go uninsured must be allowed to stay on their parents’ insurance through age 26, if they choose.
The Medicaid expansion issue
Obamacare originally envisioned that individuals living below 138 percent of the federal poverty line could obtain health-care coverage through an expanded Medicaid. Medicaid is a joint state-federal program, with the federal government bearing well over half its cost and states picking up the remainder.
The Supreme Court decided earlier this year to strike down the portion of the ACA that mandated states to expand their Medicaid programs. The court left intact the law’s offer to states for the federal government to fund virtually 100 percent of Medicaid’s expansion but gave states the choice to accept. The court’s decision decreased Obamacare’s expected improve-ment in the number of uninsured Americans. Depending on how many states refuse to expand Medicaid and how populous those states are, the decision could result in as many as 10 million Americans remaining uninsured.
Whether Kentucky expands Medicaid is not decided, but the general assembly will likely address the issue in the 2013 session. If Kentucky refuses, hospitals providing more care to the poor stand to lose the most. The ACA reduces payments to hospitals that aid larger proportions of the poor because Medicaid’s expansion was anticipated to cover them. Without expanding Medicaid, the law provides these hospitals no relief for uncompensated care to the poor. This may deter their continuing charity care, or force them to charge more for other patients’ care, raising everyone’s cost of coverage.
In a recent study by the Kaiser Commission on Medicaid and the Uninsured, the net increase in Kentucky’s general-fund spending to expand Medicaid would be less than 1 percent over the next decade. This means the state would spend, on average, $845,000 more per year to expand Medicaid, most of which would occur after 2017, while the federal government’s share would be about $1.79 billion per year. By agreeing to expand Medicaid, the state would enable an additional 181,000 impoverished Kentuckians to get medical coverage who otherwise would likely receive only charity care.
Market competition to boost affordability and better coverage
Obamacare relies on competition to produce efficiency, lower cost and better quality, substantially reforming markets in health insurance, employee benefits and health-care delivery.
To spur competition in health-insurance markets, the ACA establishes “health insurance exchanges,” which are marketplaces where insurers compete to sell qualified health plans. Plans become qualified by offering 10 essential health benefits and must be actuarially valued so that consumers can readily comparison-shop. Plan value will be measured in “metallic” ratings, including bronze (60 percent value), silver (70 percent), gold (80 percent) and platinum (90 percent). Plans will be subject to quality reporting and satisfaction surveys, the results of which will be available to consumers as they shop. Reliance on robust competition in the exchanges is expected, over time, to check unwarranted premium increases and improve the quality of plans and customer service of insurers.
States may create their own exchanges or use one the federal government sets up for them. In Kentucky, Gov. Steve Beshear issued an executive order on July 17, 2012, establishing the Kentucky Health Benefit Exchange. Competition in the exchanges will occur among qualified plans offered by various insurers regulated in the state. These in-state insurance plans will also compete with two or more multi-state plans approved nationally by the Office of Personnel Management, which procures federal-employee health benefits.
Exchanges will also offer plans from new entities created under Obamacare called Consumer-Oriented and Operated Plans (CO-OPs). In June 2012, the Kentucky Health Cooperative was loaned start-up funds to establish Kentucky’s first non-profit, member-owned and -governed health insurance CO-OP. CO-OPs will be answerable to consumer-members, distri-buting profits, setting premiums and providing service as they demand. By 2017, Kentucky’s exchange could also offer plans underwritten by insurers regulated in adjoining states. Kentucky’s general assembly recently passed a provision, authorized by Obamacare, to explore the feasibility of interstate compacts to regulate across-state-line insurance plans.
To minimize costs to small businesses that provide employees health coverage, the ACA creates a Small Business Health Options Program (SHOP), which is an insurance exchange for small employers to find competitive employee coverage. Kentucky’s SHOP will be part of the Kentucky Health Benefit Exchange, and it will allow employers with no more than 50 employees to enroll, and their employees will select health benefits in SHOP. Small employers using SHOP can avoid the time and expense typically associated with establishing and administering an employee health-benefit plan.
While the Affordable Care Act does not penalize employers with less than 50 employees for not providing health coverage, it does promote a national “norm” to do so. Businesses considering strategies to avoid its “play or pay” incentives — such as cutting benefits or payroll or moving full-time employees to part-time — or simply paying the tax penalties without providing coverage, may want to reconsider. These may appear attractive and even make financial sense at first, but over time the playing field will predictably level, with businesses, both large and small, finding it difficult to attract and retain quality employees without offering health benefits. When providing coverage becomes “the new normal,” insurance pools should remain flush and premiums affordable for everyone.
Douglas L. McSwain is a partner at the law firm of Wyatt, Tarrant & Combs, LLP. He advises and litigates for clients related to healthcare, employment, trade, regulatory and constitutional law.
Part II of this three-part series is scheduled for the next edition of Business Lexington (January 4, 2013) and will address the ACA’s unleashing of market forces in health-care delivery and payment reform, with the intended goal of achieving quality, affordable care and improving health.