Impact of Supreme Court Decision on Affordable Care Act
By Richard G. Stefanacci, DO, MGH, MBA, AGSF, CMD
While the Supreme Court of the United States (SCOTUS) let stand the majority of the Affordable Care Act (ACA) a few key points are worth noting. Most significant perhaps in the SCOTUS opinion is that the federal expansion of Medicaid is now left at the discretion of the States meaning that perhaps some States will not move forward in expanding Medicaid to 133% of FPL although most will probably take advantage of the additional federal funding. This expansion of Medicaid highlights perhaps the biggest impact of ACA for pharmaceutical and device manufacturers.
Specially, the three most significant areas of impact for pharmaceutical and device manufactures from ACA will likely be:
(1) Increase in Number of Americans Insured: An increase in the number of American moved from the ranks of uninsured (55 million) to insured (32 million). This will occur through three primary avenue: the Insurance Exchanges (12 million), Medicaid (17 million), and the Dependent 26 Provision (3 million).
(2) Accountable Outcome Organizations Controlling Physician Actions: The movement of physicians into coordinated care organizations such as ACOs where pharmaceutical and device decisions will be made at an executive level and on the basis on their ability to delivery of the outcomes that these organizations are being held accountable. These accountable outcomes will include such objectives as hospitalization rates and service utilization.
(3) Increase in Required Rebate Payments: An increase in required rebate payments through Medicaid and Medicare. Specifically the Medicaid drug rebate percentage for brand name drugs is increased to 23.1 (except the rebate for clotting factors and drugs approved exclusively for pediatric use increases to 17.1%). Also there is an increase in the Medicaid rebate for non-innovator, multiple source drugs to 13% of average manufacturer price. These Medicaid drug rebates extend to the Medicaid managed care plans. On the Medicaid side, there is a requirement for pharmaceutical manufacturers to provide a 50% discount on prescriptions filled in the Medicare Part D coverage gap.
The decision leaves in place the individual mandate -- the requirement on Americans to have or buy health insurance beginning in 2014 or face a penalty (although considered a tax by the SCOTUS) - although several individuals are exempt from that provision such as religious groups like the Amish. 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. Beginning after 2016, the penalty will be increased annually by the cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, undocumented immigrants, incarcerated individuals, 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). The Urban Institute's Health Policy Center estimated that without a mandate, 40 million Americans would remain uninsured with the mandate that number is expected to be 23 million.
Those Gaining Insurance through the Insurance Exchanges
It is estimated that 13 million Americans will obtain insurance through the State Insurance Exchanges with many of them receiving federally funded premium subsidies. Premium and cost sharing credits will be available to individuals/families with income between 133-400% of the federal poverty level.
It had been estimated that 17 million Americans would gain insurance through Medicaid because of ACA’s expansion of Medicaid from 100% FPL to 133%. The Supreme Court’s decision on the constitutionality of the Medicaid expansion leaves the decision of expansion in the hands of each State. If a State accepts the Medicaid expansion funds, it must obey by the new rules and expand coverage. But a state can refuse to participate in the expansion without losing all of its Medicaid funds; instead the state will have the option of continue the its current, unexpanded plan as is. It is likely that most if not all states will accept the Medicaid expansion funds but may return to the 100% FPL level when the federal funding for this expansion expires.
The two most significant ACA Medicare components are the elimination of copayments for many preventive services and the reduction of the Part D coverage gap. The Part D coverage gap will be funded in part through a 50% rebate paid by pharmaceutical companies whose products are utilized during the coverage gap. In addition there will be federal subsidies of 25% of the brand-name drug cost beginning in 2013 such that the Medicare beneficiary out-of-pocket for medication obtained through the Part D coverage gap will drop to just 25%. For generic drugs, the federal subsidies of 75% of the generic drug cost by 2020 for prescriptions filled in the Medicare Part D coverage gap.
Other changes to Medicare include provisions which will cause some Medicare beneficiaries to pay higher premiums through a freeze on the threshold for income-related Medicare Part B premiums for 2011 through 2019, and reduction in the Medicare Part D premium subsidy for those with incomes above $85,000/individual and $170,000/ couple.
3.1 Million Young adults up to age 26 are estimated to have gained access to insurance through the dependent 26 provision of ACA. The law requires insurers to cover the children of those they insure up to age 26.
People with pre-existing conditions
Insurers under ACA are required to cover people with pre-existing medical conditions and would no longer have limited benefits. Starting in 2014, the law makes it illegal for any health insurance plan to use pre-existing conditions to exclude, limit or set unrealistic rates on coverage. It also established national high-risk pools that people with such conditions could join sooner to get health insurance. As of April, a total of only about 67,000 people were enrolled in federally-funded pools established by the health care law, according to the National Conference of State Legislatures.
This provision states to affect some of the more than 13 million American non-elderly adults have been denied insurance specifically because of their medical conditions, according to the Commonwealth Fund. The Kaiser Family Foundation says 21% of people who apply for health insurance on their own get turned down, are charged a higher price, or offered a plan that excludes coverage for their pre-existing condition – these individuals will now have access through the insurance exchanges and cannot be denied or charged higher premiums.
One of the rationales for the individual mandate was to force those individuals who had previous avoided coverage because lack of perceived need. This group tends to be a source for high margins for insurers, margins that can be used to lower premiums for high cost individuals; therefore it is believed that as a result of the individual mandate insurance premiums will be lower.
As of 2014, under the law, small firms with more than 50 full-time employees would have to provide coverage or face fines. Specially employers with 50 or more full-time employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. The Insurance Exchanges will have separate Exchanges through which small businesses can purchase coverage. Businesses will be required to pay penalties for employees who receive tax credits for health insurance through the Insurance Exchanges, with exceptions for some small employers. ) Employers with 50 or more full-time 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 $2,000 for each full-time employee, excluding the first 30 employees from the assessment. (Effective January 1, 2014
Employers with more than 200 employees are required to automatically enroll employees into health insurance plans offered by the employer although employees may opt out of coverage. In addition, ACA will eliminate the current tax deduction for employers who receive Medicare Part D retiree drug subsidy payments.(Effective January 1, 2013) Employers with under 50 full-time employees are exempt from any of these penalties.
ACA imposed insurance market regulations relating to guarantee issue, premium rating, and
prohibitions on pre-existing condition exclusions in the individual market, in the Exchange, and in the small group market. Insurers participating in the Exchanges: individual and small group must offer benefits that meet the State established essential benefit offering. In addition, there is an established process for reviewing increases in health plan premiums; one that requires plans to justify increases. Plans can be excluded from the Exchange based on unjustified premium increases. The Federal government will provide grants to states to support efforts to review and approve premium increases.
As a result of the mandated Medical Loss Ratio (MLR) requirement health insurers will issue about $1.1 billion in rebates to some 12.8 million policyholders. Medical losses include those premium dollars spent on clinical services, quality, and other costs. The MLR must be more than 85% for plans in the large group market and 80% for plans in the individual and small group markets.
Medicare Advantage (MA) plans will continue to experience a decrease in their reimbursement through the setting of MA payments to percentages of Medicare fee-for-service (FFS) rates, with higher payments for areas with low FFS rates and lower payments (95% of FFS) for areas with high FFS rates. This will be accomplished through a phase-in revised payments over 3 years beginning in 2011, for plans in most areas, with payments phased-in over longer periods (4 years and 6 years) for plans in other areas. Despite these MA reimbursement decreases MA places will have the opportunity to receive bonuses by receiving 4 or more stars, based on the current 5-star quality rating system, beginning in 2012; qualifying plans in qualifying areas receive double bonuses.
Doctors and other health care providers
Some physicians will see an increase in reimbursement under ACA – specifically primary care doctors (family medicine, general internal medicine or pediatric medicine) will see an increase in their Medicaid payments in fee-for-service and managed care to 100% of the Medicare payment rates for 2013 and 2014. In addition, these same primary care providers can receive an additional 10% bonus payment in their Medicare payments from 2011 through 2015. For those primary care providers practicing in health professional shortage areas an additional 10% bonus is available from Medicare now through 2015.
Through the Center for Medicare and Medicaid Innovation health care providers will see several coordinated care models such as accountable care organizations (ACOs) being established. These organizations require an adequate participation of primary care physicians, define processes to promote evidence-based medicine, report on quality and costs, and coordination of care. These organization will be based on payment reform models that focus on improvement of quality and reduction in the rate of cost growth.
The federal government is estimated to spend more than $1 trillion over the next decade to subsidize coverage and expand eligibility for Medicaid. The nonpartisan Congressional Budget Office estimated that the law could reduce deficits modestly in the first 10 years and then much more significantly in the second decade.
Richard G. Stefanacci, DO, MGH, MBA, AGSF, CMD is Chief Medical Officer for the Access Group and an associate professor of health policy at University of the Sciences. He was a Health Policy Scholar for the Centers for Medicare & Medicaid Services (CMS), where he spent a year working on the policy and implementation of the Medicare Part D pharmacy benefit, especially as it applied to access issues for older adults. As a practicing internist/geriatrician, Dr. Stefanacci has a long-standing interest in and commitment to geriatric health. His experience includes more than a decade as a medical director for various organizations, including a large primary care private practice, a full-risk provider group, a Medicare + Choice health maintenance organization, and, currently, the Program of All-Inclusive Care for the Elderly in Philadelphia. Currently, Dr. Stefanacci continues clinical practice with direct patient care and the implementation of quality assurance and utilization-management initiatives.