Professor Leonard J. Nelson, III

1. OBAMACARE Professor Leonard J. Nelson, III

2. SCOTUS Case • NFIB v. Sebelius decided 6/28/2012 • Upholds constitutionality of individual mandate as a tax (5:4 decision) • Holds mandate unconstitutional exercise of commerce clause because inactivity (5:4 decision) • Medicaid expansion violates Congressional spending power (and 10th amendment) by amounting to undue coercion (7:2 decision) • Remedy for unconstitutional Medicaid expansion is to limit penalty to loss of federal match for expansion (5:4 decision)

3. Insurance Exchanges • States to establish exchanges to facilitate purchase of “qualified health plans” by individuals and small businesses • If State doesn’t, then Federal Government will set up exchange

4. Insurance Exchanges • Administered by non-profit or governmental agency • individuals and small businesses with up to 100 employees can purchase qualified health plans • > 2017 states can permit businesses > 100 employees to purchase coverage through the exchange

5. Essential Health Benefits Package • “Qualified Health Plans” must include an essential health benefits (EHB) package to be designated by the Secretary • Except for “grandfathered” plans , all small group and individual plans offered both within and outside exchanges must offer at least EHB • Self Insured Plans not required to offer EHB

6. Essential Health Benefits • To be defined by States rather than Federal Government but subject to broad statutory guidelines

7. Essential Health Benefits • Essential health benefits must include items and services within at least the following 10 categories: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services, including behavioral health treatment • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory services • Preventive and wellness services and chronic disease management, and • Pediatric services, including oral and vision care

8. Benefit Tiers • In the Exchanges-Four Categories (all providing essential benefits package) plus separate Catastrophic plan • Bronze: covers 60% of the standard benefits cost • Silver: Covers 70% of the standard benefits cost • Gold: covers 80% of the standard benefits cost • Platinum: covers 90% of the standard benefits cost • Catastrophic: • Only available for those age <30 • Only available in the individual market

9. “The Three Legged Stool” • Insurance Reforms • Individual Mandate • Premium Subsidies • http://theincidentaleconomist.com/wordpress/stools-need-more-than-two-legs/

10. Insurance Reforms • Prohibition on use of pre-existing condition limitations • Guaranteed Issuance and Renewal • Adjusted Community rating - age ratio limited to 3:1, geography, family size, and tobacco use (1.5:1 ratio) • No annual and lifetime caps • f

11. Problem: Community Rating & Adverse Selection • Private insurance markets suffer from adverse selection – people know more about their likely future use of services than does the insurer • Medical underwriting & experience rating put people & groups in risk pools commensurate with their expected use. • Putting everyone in the same risk pool raises premiums for the young/healthy but lowers them for the old/sick.

12. Individual Mandate • Penalty imposed on applicable Individuals for failure to maintain minimum essential health insurance coverage for themselves and their dependents • Person providing coverage required to report annually to IRS

13. Individual Mandate • Rationale: • Necessary to prevent adverse selection if you have insurance reforms • Reduces free riders and cost shifting

14. Individual Mandate • Enforcement • 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. • Capped at average premium for bronze plan • Penalty to be phased in: • $95 or 1% of income in 2014 • $325 or 2.0% of income in 2015 • $695 or 2.5% of income in 2016 • > 2016 annual COLA

15. Individual Mandate • Exemptions from fine: • Financial hardship • religious objections • American Indians • Those without coverage < 3 months • Undocumented immigrants • Incarcerated individuals • Those for whom the lowest cost plan option > 8% income • Those with incomes <tax filing threshold

16. Premium Subsidies to Individuals • Rationale: Increases access and enables lower income persons subject to mandate to afford to buy insurance • Provided for purchase of insurance through exchanges • Refundable & advanceable premium credits for those with incomes between 133-400% of FPL • Pegged to the “silver” plan

17. Premium Subsidies to Individuals • Sliding scale limiting premiums to % of income • Up to 133 %-2% • 133-150% FPL: 3 – 4% • 150-200% FPL: 4 – 6.3% • 200-250% FPL: 6.3 – 8.05% • 250-300% FPL: 8.05 – 9.5% • 300-400% FPL: 9.5%

18. Employer Responsibilities • Small Employers (< 50 full-time employees) • Not required to provide coverage or make contribution to coverage provided through exchanges • May purchase coverage outside or through exchange but subject to essential benefits requirement unless “grandfathered” • Tax credits for employers <25 full time employees with average compensation <$50,000 that offer health insurance and pay at least 50% of premiums • Available beginning in 2010 • >2013 must be offered QHP through exchange • May only be claimed in two tax years >2013

19. Employer Responsibilities • Larger Employers (50 or more full time employees) • Not required to offer coverage • May purchase coverage outside or through exchange (SHOP) but subject to essential benefits requirement unless “grandfathered” in • If fail to offer “minimum essential coverage” and one fulltime employee receives a subsidy through the exchange, then employer will be assessed $2000 per full time employee (excluding first 30 employees) • If does offer coverage, but one fulltime employee receives subsidy, employer will be assessed the lesser of $3000 for each employee receiving subsidy or $2000 per full time employee (excluding first 30 employees).

20. Medicaid Expansion • Expand Medicaid eligibility to all <age 65 w/ incomes below 133% FPL (actually 138% because of 5% income disregard) • All newly eligible adults to get at least essential benefits package • States have to expand eligibility if they participate in Medicaid (but see SCOTUS opinion holding this condition is unconstitutional)

21. Medicaid Expansion • Increased Federal Funding for Medicaid Expansion • 2014 – 2016-100% • 2017 -95% • 2018-94% • 2019-93% • >2020-90%

22. Medicaid Expansion • Governors in several states including Alabama have rejected Medicaid expansion pursuant to SCOTUS opinion

23. HHS Mandate • All non-grandfathered group health plans (including self insured plans) and individual plans have to provide without co-pays and deductibles • Defined by HHS-August 1, 2011 • Contraceptives, EC (including Ella) and sterilization included –limited religious exemption that would cover parishes but not larger organizations (e.g., Dioceses, hospitals, Catholic Charities).

24. HHS Mandate • HHS delays, but does not change, rule on contraceptive coverageBy Nancy Frazier O'BrienCatholic News ServiceWASHINGTON (CNS) -- Although Catholic leaders vowed to fight on, the Obama administration has turned down repeated requests from Catholic bishops, hospitals, schools and charitable organizations to revise its religious exemption to the requirement that all health plans cover contraceptives and sterilization free of charge.Instead, Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services, announced Jan. 20 that nonprofit groups that do not provide contraceptive coverage because of their religious beliefs will get an additional year "to adapt to this new rule."Jan.20, 2012

25. HHS Mandate • 47 lawsuits involving 130 plaintiffs have been brought challenging HHS contraceptive mandate • Plaintiffs include individuals, colleges, dioceses, business, Catholic charities, for profit businesses • Beckett Fund Information Centralhttp://www.becketfund.org/hhsinformationcentral/,

26. HHS Mandate • 14 for-profit plaintiffs that have obtained rulings on injunctive relief • 11 have secured injunctive relief against it, for a current score of 11-3 • Injunctive relief means that don’t have to comply pending resolution of the case • Beckett Fund Information Central, http://www.becketfund.org/hhsinformationcentral/

27. HHS Mandate • 30 non-profit lawsuits have been filed • At this time none of these lawsuits have \ been decided on the merits • There have only been rulings on procedural issues such as timing (i.e., is the lawsuit premature) • Beckett Fund Information Central, http://www.becketfund.org/hhsinformationcentral/

28. HHS Mandate • Key Issues • First Amendment Free Exercise Clause-Smith Case • Federal Religious Freedom Restoration Act

29. HHS Mandate • “After nearly a year, the Obama administration released, on February 1, its latest version of a “compromise” with the employers who object, on religious grounds, to the Health and Human Services (HHS) mandate that their health plans cover no-cost access to sterilization services and contraceptives, including those that can act as abortifacients, destroying the early-stage embryo.”

30. HHS Mandate • New “accommodation” announced by Obama adminstration in February 2013 to defuse lawsuits • Three categories of employers: • Religious Employers • Eligible Organizations • All other employers Helen Alvare, Public Discourse, http://www.thepublicdiscourse.com/2013/02/7883/

31. HHS Mandate • “ The first category is “religious employers,” a term now used to refer … to “churches, their integrated auxiliaries, and conventions or associations of churches, as well as to the exclusively religious activities of any religious order.” • The government will no longer insist that these employers serve or employ primarily their own co-religionists, nor that they be exclusively in the business of “inculcation of religious values.” • This category has grown but not by much; it might now include not only a parish ministry but its parochial school next door, but that is uncertain. It would not include, for instance, Belmont Abbey College (one of the litigants suing the government), despite the fact that it is owned by the Benedictine monks of Belmont Abbey. In any case, a “religious employer” in this first category is wholly exempt from the HHS mandate.” • Helen Alvare, Public Discourse

32. HHS Mandate • “Not so an employer in the second category, called an “eligible organization,” defined as a nonprofit that has “religious objections” to the mandate and “holds itself out as a religious organization.” Such an employer will now receive the dubious gift of an “accommodation” intended to smother its conscience. • Under this arrangement, the employer’s contract with a health insurance company would not mention contraception coverage, but the female employees (and dependents) of childbearing age would be informed that the insurer provides the coverage at no cost to them. The administration’s eighty-page proposed rule makes multiple assurances that there will be no cost to the employer, either—a matter to which we will return—and this is certainly the feature on which the government will pin its hopes in court, pleading with judges that no employer can object to an arrangement that costs it nothing.” • Helen Alvare, Public Discourse

33. HHS Mandate • “In the third category are all other employers, including all those in the for-profit sector as well as any nonprofit that does not “hold itself out” as religious. The administration has given no credence to the claims of commercial employers with religiously informed moral objections—some of which have prevailed in the preliminary proceedings of their suits in federal courts.”  • Helen Alvare, Public Discourse

34. IPAB • The ACA establishes the Independent Payment Advisory Board (“IPAB”), for the purpose of reducing the per capita rate of growth in Medicare spending. The board is to be composed of fifteen full-time members who are health care experts drawn from various fields. • Beginning in 2014, IPAB is required to make annual recommendations to Congress to reduce per capita growth rates when these costs exceed a targeted per capita growth rate set by the Chief Actuary of CMS. • These recommendations will be implemented unless blocked by subsequent congressional action. Notably, a 3/5 vote in the Senate is required to change the IPAB recommendations. • See generally Timothy StoltfutzJost, Independent Payment Advisory Board, 363 New Eng. J. Med. 103 (2010).

35. Source: Michael Morrisey, Health Insurance from Palmer and Savings (2006), A Message to the Public, Chart D, http://www.ssa.gov/OACT/TRSUM/tr06summary.pdf

36. From: James Lubitz, The Effects of Longevity on Spending for Acute and Long-term Care, http://www.mcgill.ca/files/management/longevity.pdf

37. IPAB • But there are some significant limitations on the nature of these recommendations. The ACA provides that these recommendations “shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums . . . increase Medicare beneficiary cost-sharing . . . or otherwise restrict benefits or modify eligibility criteria.” • Prior to 2020, the recommendation cannot include cuts in payment rates for hospitals and suppliers, which the ACA already targets.

38. IPAB • Professor David Hyma doubts that IPAB’s recommendations will be politically acceptable to Congress and notes that “nothing prevents Congress from allowing IPAB’s recommendations to take effect and then reversing them with a simple majority vote.” • Michael Tanner, a health policy expert at the Cato Institute, likewise notes that in light of the restrictions on IPAB, it will have few options other than reducing payments to physicians and that would likely drive more physicians out of the program. Accordingly, he concludes that it “will end up as neutered as previous attempts to impose fiscal discipline on government health care programs.” • David A. Hyman, In Medicine, Money Matters, Regulation, Winter 2010-2011, 40 at 43;Michael D. Tanner, Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law 23 (The Cato Institute) (2010.