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The Practical Effects of Healthcare Reform on Insurance Coverage


Above all else, The Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act of 2010 (together, the “Act”) will have a dramatic effect upon: (a) the provision of health insurance in this country, (b) the means by which individuals access health insurance, (c) the way in which employers offer health insurance, and (d) the administration of health insurance by health insurers.

Simply by way of example, in his March 20, 2010 letter to the Honorable Nancy Pelosi, Speaker of the U.S. House of Representatives, Congressional Budget Office (“CBO”) Director Douglas Elmendorf stated that the CBO and the Joint Committee on Taxation estimated that the Act would reduce the number of nonelderly individuals who are uninsured by 32 million. Mr. Elmendorf stated that the percentage of insured, non elderly persons would rise from its current 83 percent to 94 percent. In this connection, according to Mr. Elmendorf, there would be 24 million people who would purchase coverage through new health insurance exchanges that the Act mandates. Additionally, Medicaid and the Children’s Health Insurance Program ("CHIP") would enroll an additional 16 million individuals. According to Mr. Elmendorf, the number of individuals purchasing private insurance coverage, outside coverage accessed through the exchanges that the Act mandates, would decline by 5 million. In addition, according to Mr. Elmendorf, there would be a reduction of approximately 3 million individuals who obtain coverage through their employers by 2019. If all these projections prove reasonably accurate, then according to Mr. Elmendorf the number of individuals who would remain uninsured by 2019 would be approximately 23 million, of whom the CBO estimates 1/3 are unauthorized immigrants. Despite the substantial number of individuals who will still lack insurance coverage according to the CBO, the Act will have a tremendous impact upon the way health insurance is procured and administered in this country.

The most comprehensive reforms do not begin to take effect until 2014. However, significant reforms will take effect this year. Most strikingly, health insurers now will have to provide dependent coverage for children up to the age of 26 under all individual and group policies. Further, beginning in 2010 a prohibition will take effect upon the establishment of lifetime limits for health insurance coverage. As for annual limits, prior to 2014, plans may only impose limits on the annual amount of coverage as approved by the Secretary of Health and Human Services (“HHS”).

Likewise in 2010, the Act will impact practices of certain health insurers. The Act prohibits health insurers from rescinding coverage except for policyholders who obtain insurance through fraudulent misrepresentations. The Act also will prohibit insurers from excluding children from coverage under their parents’ plans because of pre-existing conditions, or exclude certain preexisting conditions that children may have from such coverage. There may be some ambiguity in the Act’s specific language respecting such preexisting conditions. In fact immediately following the Act’s passage some industry representatives indicated that the Act may not guaranty issuance of coverage. In other words, while an insurer may not be able to exclude conditions for children who are currently covered by a health plan, there is no guaranty of issuance of insurance for a child who has no such coverage.

This potential ambiguity prompted HHS Secretary Kathleen Sebelius to specifically state in a public letter on March 29 that the intent of the act is “to prevent any child from being denied coverage because he or she has a pre-existing condition.” Therefore, to “ensure there is no ambiguity on this point”, Secretary Sebelius noted that HHS was prepared to issue regulations that would confirm that beginning in 2010: (i) children with pre-existing conditions cannot be denied access to their parents’ plans; and (ii) insurance companies will no longer be able to insure a child, but exclude certain pre-existing conditions.” Importantly, however, this prohibition on the denial of coverage to a person with a pre-existing condition only applies to anyone 19 and younger until 2014.

As a transition to the health insurance exchanges that will begin operation in 2014, the Act has several other important provisions that take effect this year. The Act establishes a high - risk pool for uninsured individuals that cannot obtain coverage now or cannot afford coverage because of a pre-existing condition. The high-risk pool will take effect within 90 days of the Act's passage. The Act also begins to impose additional structural requirements upon the health insurance industry this year. Beginning in 2010 health plans must report the proportion of premium dollars that are spent on clinical services, quality, and certain other costs directly associated with the provision of healthcare services. Beginning in 2011, health plans will have to refund to policyholders revenues where the amount of the premium sent on clinical services and quality measures is less than 85 percent for health plans operating in large group markets, and less than 80 percent for plans in individual and small group markets.

After implementation of these transitional measures dealing with health insurance reform, in 2014 the Act then will require implementation of the most encompassing health insurance coverage reforms. Initially, in 2014 U.S. citizens and legal residents will be required to have qualifying health coverage. There will be escalating tax penalties upon individuals who do not obtain such coverage. There is skepticism in some quarters whether those disincentives for individuals will be sufficient to prevent otherwise healthy individuals from attempting to game the system by foregoing coverage until illness strikes. While the Act does not explicitly mandate that employers offer health insurance to employees, the Act does impose penalties on employers of 50 or more employees that fail to offer affordable coverage if the employer has at least one employee who is eligible for a premium tax credit.

Probably most significantly, the Act directs individual States to implement health insurance exchanges by 2014. Those exchanges are referred to as American Health Benefit Exchanges and Small Business Health Options Program Exchanges. If a State does not implement such exchanges, then the Department of Health and Human Services will be required to implement an insurance exchange in that State or contract with a non-profit organization to do so. Hence, those States reluctant to implement health exchanges will invite greater Federal Government participation in how the mandate for health insurance is administered in those States.

At the individual State level, the exchanges may either be implemented by the State or by a not for profit agency. The Act mandates that health plans that are offered through the exchanges have the same minimal basic coverage. The Act categorizes the required plans into four different levels of cost sharing. As for health plans offered by the exchanges, as well as health plans for small businesses and individuals, there will be requirements of guaranteed issuances and renewability, which means that any individual must be offered coverage regardless of any pre-existing condition. The Act will only allow variation in ratings for plans offered at the exchanges and in the individual and small group markets based on age, family composition, premium rating area and tobacco usage.

As for the Exchanges, the Act requires the Office of Personnel Management to contract with insurers to provide a minimum of at least two multi-state plans in each Exchange. Further, at the Exchange level at least one plan must be offered by a non profit agency and at least one plan must not provide coverage for abortions beyond that permitted by federal law. The Act also makes available premium subsidies for purchase of health insurance policies at the Exchanges in the form of premium credits and cost sharing subsidies to individuals and families who have incomes between 133 percent and four hundred percent of the Federal Poverty Limit.

Further, while the Act will not establish a public health plan option, it will materially increase enrollment in Medicaid. Under the Act, any individual under the age of 65 will be eligible for Medicaid benefits if their modified adjusted gross income does not exceed 133 percent of the Federal Poverty Limit. As for individuals who would otherwise be eligible to receive premium subsidies through the Exchange, the Act permits States to establish an alternative Basic Health Plan for such uninsured individuals.

By 2015, or a year after the Exchanges should be operational, the Act will permit individual states to enter into health insurance compacts with other states and permit health insurers to offer policies in any state that is a party to such compact. This may significantly reduce a barrier to entry that certain health insurers may now face in certain States.

The Act will impose further changes on the terms of health insurance policies. For health plans in the small group market, there will be a limit on deductibles of $2000 for individuals and $4000 for families unless the plan offers offsetting contributions. The Act also will require additional reporting requirements on the part of health insurers.

The foregoing is just a summary of the myriad provisions in the Act that govern health insurance reform. Of course, it remains to be seen whether the CBO's estimates of expanded coverage prove accurate. We can take as a given, however, that the Act will dramatically change the landscape through which privately insured individuals obtain health insurance and the types of policies that health plans will offer.

Robert C. Threlkeld is a partner in the firm’s Healthcare, Litigation and Exempt Organizations Practices. Mr. Threlkeld actively represents hospital systems, physician practice groups and other healthcare providers in a range of regulatory matters, and regulatory and business disputes. Mr. Threlkeld received his bachelor’s degree from Emory University, his master’s degree from Harvard University, and his law degree from Georgetown University.