McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 26 Health Care Reform: The Patient Protection and Affordable Care Act

1- 2 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-2 Chapter Outline Changes to the Health Insurance Industry Changes to Medicaid Changes to Medicare Institution of Requirements That Large Employers Provide Health Insurance The Exchanges and the Subsidies to Individuals Buying and Small Employers Providing Health Insurance Through Them Increases in Taxes Other Assorted Provisions

1- 3 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-3 Changes to the Health Insurance Industry Prior to PPACA health insurers could cut off dependent children from coverage under their parents’ health insurance the first year after their children reached 23, consider, charge more for, and deny coverage for any medical condition a prospective client had prior to purchasing insurance through the company. set annual and lifetime limits on how much they would cover. set prior conditions by which they could rescind coverage and they were free to raise the rates of those who became ill (and therefore expensive to the company). charge rates that were different for men and women. Be free from most government intervention when it came to premiums, profit and the proportion of premiums taken up with administrative costs.

1- 4 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-4 Changes to the Health Insurance Industry PPACA will require that health insurers allow dependent children to stay on their parents health insurance through age 26. to accept everyone without regard to health status. charge the same to healthy and the unhealthy alike charge the same for men and women. no longer set lifetime limits and after 2014, they can no longer set annual limits. no longer rescind coverage or raise rates on the sick.

1- 5 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-5 Are These All Good For Everyone Preventing on person from facing an adverse consequence spreads the adverse consequence to others. Some provisions will cost employers (who may choose to employ fewer people). Some will simply shift costs from one group to another.

1- 6 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-6 Adverse Selection Adverse selection: those in most need of insurance are the most willing to pay for insurance and drive up the price of insurance with their illnesses to such a degree that those people who are not as sick leave the market altogether. With no preexisting condition exclusion there is no penalty to waiting until you are sick to get insurance.

1- 7 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-7 Mandation Requirement that individuals get insurance There is no employer mandate (only a penalty)

1- 8 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-8 What Insurance Companies Can Still Do They will be allowed to charge older customers no more than three times what they charge younger ones (though younger ones typically cost one fifth or less than what older ones cost), charge 50 percent more to tobacco users. set up broad geographic price differences charge more for larger families than smaller ones.

1- 9 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin 26-9 Effect on MiniMeds administrative costs and profits make up not more than 15% of premiums (in large groups and 20% for small groups).

1- 10 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Changes to Medicaid Everyone in the household will be eligible for Medicaid if they have under 133% of poverty line. Will cost $30-$40 billion Will make the biggest dent in the uninsured problem

1- 11 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Changes to Medicare Closes the donut whole in D $250 checks Restricts private insurers (in Medicare Advantage ) from changing the out of pocket portions Paying out less than 85% in benefits 50% required reduction in brand name prices sold to D Limit Physician owned Hospitals Counseling

1- 12 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Large Employers Large employers (Magic number 50 full time) must provide insurance or pay a $2K fine per employee>30 or $3K fine per subsidy recipient. No more than 40% from employees Out of pocket no more than HSA max

1- 13 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Problems with the Employer Mandate Disincentive to hire Disincentive to go beyond 50

1- 14 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Exchanges State run Two non-profit options No public option Setup financed by Federal Government States have to pay for their operation

1- 15 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Individual Fines $695 or 2.5% of income

1- 16 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Increased Taxes Proportion of industry tax for Drug companies Medical device companies 10% indoor tanning tax Taxes on the rich Restart of Medicare tax on unearned income above $200K Surtax on high incomes Limits on deductibility of pay to executives of insurance companies

1- 17 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Legal Incidence Versus Economic Incidence

1- 18 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Assorted Other Provisions Health savings accounts can no longer be used for over- the-counter medications without a prescription from a physician. The most that can be deposited in HSA was halved. Tax deductions that currently exist to employers who provide post-retirement drug benefits will disappear. W-2 forms will include a portion that shows the employer’s payment for employee insurance coverage. Large employers will be required to assume that employees want to opt in on insurance when they are hired rather than being allowed to assume they wish to opt out.