Thursday, July 12, 2012

The ACA and cost-sharing

The ACA will put limits on "cost sharing" - i.e., deductibles and co-pays - for all insureds. 

Section 1301(c) provides that employer-sponsored health insurance policies may not impose total deductibles and copayments over $2,000 for a single person or $4,000 for a family. That, and the prohibition on any cost-sharing for certain preventive services, discussed below, is the only limitation placed on coverage by medical insurance paid by the employer outside the exchanges. 

For coverage under the exchanges, the calculations are much more complicated. There will be limits which apply to all cost-sharing for most plans, and there will be separate "actuarial" requirements which will also affect the cost of coverage. This is from the Kaiser Foundation's "Questions about health insurance subsidies": 
PPACA sets maximum out-of-pocket spending limits (discussed below), but otherwise does not specify the combination of deductibles, copayments, and coinsurance that plans must use to meet the actuarial value requirements. So, for example, one plan may choose to have relatively higher deductibles but relatively low copayments for office visits and other services, while another plan may choose a lower deductible but higher copayments or coinsurance for each service. The Secretary of Health and Human Services may choose to address this issue through rulemaking. 
Section 1302(c)(1) provides that the annual limitation on cost-sharing for exchange-provided coverage is the amount specified in section 223 of the Internal Revenue Code, 26 USC § 223(c)(2), for high-deductible health plans under health savings accounts. That section imposes these limits: 
  • Maximum deductible of $1,000 per person, $2,000 per family 
  • $5,000 limits on total deductibles and copays
These cost-sharing maximums are then reduced (section 1402) for those with a household income under the "400% of Federal poverty limit" level - about $100,000 for a family of four in 2014 - when enrolled in a "silver" level exchange-provided health plan.  (No such limits are specified for other levels of coverage.) This is accomplished in a complicated three-step fashion. 

Step 1 - direct limits on cost-sharing - 1402(c)(1)(A)

The following chart shows how the reduced maximums are implemented for a family of four, again using the 2012 Federal poverty limit figures, and based on the $1,000 per person, $2,000 per family limits:

Thus, for a family of four with less than $46,100 in household income, the $2,000 maximum deductible is reduced to $667 per year. The $5,000 total cost-sharing limit for that family (not shown) would be reduced to $1,667 per year. 

Step 2 - coordination with actuarial value limits - 1402(c)(1)(B) 

This one is the most difficult to comprehend and involves a great deal of uncertainty and unpredictability. Much will depend on the details of the regulations to be adopted by the Department of Health and Human Services. The statute states "The Secretary [of HHS] shall ensure the reduction does not result in an increase in the plan's share of total allowed costs" above certain percentages, according to income: 
  • 90% for those between 100-150% of the FPL
  • 80% for those between 150-200%
  • 70% for those between 200-400%
The goal is to provide, on average, that the lower-income insureds will pay 10% of their medical costs, those earning a little more 20%, and almost everyone else paying 30%. The way that the statute is written, however, those insureds will have to pay at least 10%, 20%, or 30% of the cost of health care, and may have to pay more, as deductibles or co-pays. These provisions are not maximums on payments by citizens, they are minimums. 

Step 3 - lower income persons - 1402(c)(2)

There is a further reduction for "lower income insureds", those making less than 200% of FPL - $22,340 for a single person, $46,100 for a family of four. Roughly speaking, those with incomes from 100-150% of FPL will have cost-sharing reduced to approximate the platinum level coverage, and those from 150-200% the gold level, without having to pay the difference in premium.

We do not know whether anyone has yet noticed that each of these steps more or less accomplishes the same thing. Perhaps someone will figure it out. 

No cost-sharing for preventive services

For certain types of medical services, such as annual Pap smears and mammograms for women, prostate testing for men, blood pressure screening, lab tests to screen for high cholesterol or diabetes, prenatal care, well baby checks, etc., no cost-sharing is allowed. Those services have to be paid for by an employer health plan without applying the otherwise-applicable deductible, and without co-pays. (Section 1001) The same will apply to coverage provided through the exchanges. 

Wednesday, July 11, 2012

The ACA - Exchanges and coverage levels

Health insurance exchanges 

Section 1311 of the Affordable Care Act calls for each state to set up an American Health Benefit Exchange, with Federal grant money to assist. 

We will not try to explain the health insurance exchanges in detail. The high points are: 
  • The exchanges under the ACA will be run by one or more states. 
  • If a state does not set up an exchange, the Federal government will do it.  
  • The exchanges will not sell or place insurance. Instead, they will coordinate the offering of ACA-compatible coverage with private insurers. 
  • The exchanges will coordinate placement for individuals and for small businesses (under 100 employees). 
  • Each exchange will offer a choice of up to four levels of coverage, called platinum, gold, silver, and bronze. 
  • Michigan is one of a majority of states which have had legislation initializing compliant exchanges introduced but not passed into law. 
Details may be found at 

Coverage levels 

Coverage through the exchanges will be available to individuals who do not receive employer-provided coverage, or for whom the coverage that is available through their employers is not "affordable" under a program to be established by the Department of Health and Human Services (section 1411). A key provision is that exchange-sponsored coverage is divided into four categories, based on how much of the overall cost of health care they cover. Section 1302(d) specifies the four levels: 
  • bronze - 60%
  • silver - 70% 
  • gold - 80% 
  • platinum - 90% 
Each exchange will be required to offer at least silver and gold coverage. (Section 1301) The other two will be optional. Also optional will be a fifth choice, catastrophic coverage only. For some reason, that will only be available to citizens under the age of 30.

Section 1302(d) requires that the plan in each level will provide benefits that are "actuarially equivalent to" the specified percentage of "the full actuarial value of the benefits." Our best guess at what that means is that HHS regulations will direct the health insurers, by using a combination of deductibles, copayments, and coinsurance, to arrive at the specified rate of shared coverage between insurer and insured. One complication with that approach is that deductibles and copays are imposed by insurers, while coinsurance is a function of the employment agreement - many employers require their employees to contribute a certain percentage of the premium for their coverage. It is not clear how those separate concepts are going to be melded into one set of rules regarding "cost-sharing". 

It appears that the expectation is that most insureds will choose coverage at the silver level. The Act itself is designed to encourage the issuance of silver plans. Only enrollees in that level, for example, are eligible for limits on cost-sharing under section 1402. Further, those who earn under approximately $100,000 per year (family of four) and who are thus eligible for the premium assistance credit will receive that credit only based on the silver level of coverage. If they want to choose coverage at the gold or platinum levels, they will have to pay the entirety of the additional premium. But there are also provisions for those in the lower income levels (under $46,000 for a family of four) that will provide the approximate equivalent of the gold or platinum level as a result of a series of requirements on "cost-sharing". 

We hope to have more on the complicated issues surrounding cost-sharing in the next few days. 

Monday, July 2, 2012

The ACA - exemptions from the mandate

The ACA itself provides for a number of exemptions from its otherwise general requirement (going into effect in 2014) that citizens purchase health insurance. In addition, it authorizes the Department of Health and Human Services to approve additional exemptions.

Those who are covered under the VA, Tricare, Medicare, Medicaid etc. are regarded as in compliance and thus do not have to be concerned about the penalty or exemptions. 

The exemptions cover:
  • Members of Indian tribes 
  • Undocumented aliens 
  • Persons serving a sentence for a conviction of crime (but not those detained pending trial or sentencing) 
  • Persons earning so little that they do not have to pay taxes (about $9,500 per year) - but recall that persons earning up to $14,856 (single person) will be eligible for Medicaid in 2014 even if they do not qualify now 
  • Those whose health insurance premiums, even with the premium assistance credit, would exceed 8% of household income. 
What does this last requirement mean in practice? The Kaiser Foundation has an explanation accompanied by a graphic that needs a bit of interpretation.

The Kaiser Foundation calculation is based on 2016 projections for a family of four, and the graphic depicts the amount that the family will pay for health insurance - with the assistance of the premium credit, in the middle of the chart. 

From 0 to about $37,000, the family pays nothing for health insurance; they are instead eligible for Medicaid. From $37,000 to $100,000 (rough figures), an increasing percentage of income goes for premiums, but always under 8%.

At $100,000, the percentage suddenly goes up to 12% because the premium credit is no longer available. The projection for 2016 is that, without Federal assistance, the average cost of health insurance will be $12,000 per year for a family of four. (One could question that projection, given the fact that employer-provided group health insurance for a family is slightly higher than that figure at this time.) That is 12% of this family's income. From $100,000, the percentage goes down, and at $150,000, it meets the 8% limit on the declining slope. It is the group of citizens who are in that income range, those who make a good living but are not regarded as "rich", who will be exempt from the individual mandate.

The calculations could be done in the same fashion for other family groups. A single person hits the 400% mark (of Federal poverty level) at an income of $45,000, but his premium is much less because he is covering only himself.

Thus, one or the other Federal program will assist up to the $100,000 income level, using this hypothetical, and above that level and up to $150,000 of household income, the law provides an exemption from the individual mandate. Above $37,000 and below $100,000, the mandate applies but the credit helps. Above $150,000, the mandate applies.

Sunday, July 1, 2012

The Affordable Care Act - premium assistance

This is the first in what is expected to be a series of short pieces describing selected details of the Patient Protection and Affordable Care Act. Today, we will talk about how the "individual mandate" will affect working families who are not covered by health insurance provided by their employers and who are not eligible for Medicaid.

By now, everyone knows that the individual mandate will compel individuals and families to purchase health insurance. The states will be developing plans for statewide insurance exchanges to make coverage available from sources other than the currently-available commercial insurers, HMOs, and Blue Cross Blue Shield. If the uninsured individual fails to buy insurance, a penalty (which the Supreme Court has determined is a "tax") must be paid. This flow chart published by the Henry J. Kaiser Family Foundation helps to show how and where this penalty applies. For a family of four with a total annual income of $50,000, the penalty assessed would be:

2014 - $500
2015 - $1,000
2016 - $1,500

In addition, section 1401 of the Act provides for financial assistance for those for whom  buying insurance coverage is difficult. That section provides for a refundable and advanceable tax credit, called the "premium assistance credit", to assist with the cost of buying health insurance. A tax credit is a dollar for dollar reduction in tax liability. A refundable credit is one which generates a refund to the taxpayer who does not have any income tax liability because he does not make enough to require that he pay income tax. An "advanceable" refundable tax credit is a new creature in the law. It allows the taxpayer who will be eligible for it to receive the money during the tax year, rather than having to wait until his tax return is filed early the next year. How this will work out in practice has yet to be determined. (Section 1415 does say that the advances will be paid directly to health carriers, not to  individual taxpayers.)

A key question is: How much will the credit be? The language of the statute is horribly impenetrable. The operative language is:
(A) Applicable percentage.
(i) In general. Except as provided in clause (ii), the applicable percentage with respect to any taxpayer for any taxable year is equal to 2.8 percent, increased by the number of percentage points (not greater than 7) which bears the same ratio to 7 percentage points as--
    (I) the taxpayer's household income for the taxable year in excess of 100 percent of the poverty line for a family of the size involved, bears to
    (II) an amount equal to 200 percent of the poverty line for a family of the size involved.
Most sites which try to explain this provision simply make reference to "150% of the federal poverty level," etc., without explaining what the actual dollar amounts are.

The Federal Poverty Level is redefined each year.  This year's FPL for a family of four is $23,870, and four times that amount is $95,480

The statute uses a sliding scale depending on income, up to 400% of the FPL. This means that every person or family with a total income over the 133% figure and less than the 400% figure will be eligible for this assistance. (Those who make less than 133% of the FPL, which comes to $31,747 for a family of four in 2012, and who are not covered by employer-provided insurance, will be eligible for Medicaid coverage under the ACA.) 

The following is a rough and oversimplified calculation (using the 2012 FPL figures) demonstrating how the premium assistance credit will work. For a family of four, the following amounts represent the amount that the family would have to pay for health insurance premiums, with the aid of the credit, if this plan were currently in effect:

This is the same calculation (again, rough and oversimplified) for a married couple with no children: 

This program will be effective in 2014, assuming no change before then. These calculations will need to be updated depending on the FPL figures in effect then.