Ruth Colker
Distinguished University Professor
The Ohio State University
Moritz College of Law

President
Obama
signed
ACA into
law with
the strokes
of 22 pens
on March
23, 2010.

Upheld most of Affordable Care Act in a 5-4
decision
Anti-Injunction Act did not bar suit before Act went
into effect
 Not valid under Commerce Clause
 But valid exercise of Congress’ taxing powers


Medicaid rules violated Spending Clause

Remedy: Give states option whether to opt in

Will states create exchanges or force federal
government to create an exchange for their state?

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Odd federalism dynamics!
Will states agree to expand Medicaid?
Will financial incentives on employers cause more
of them to offer employer-based health insurance?
Will financial incentives for individuals cause
more of them to purchase health insurance?
Will premiums rise or fall by virtue of new
minimum requirements for health insurance?

Insurers:
Cannot deny coverage of children under the age of 19
based on pre-existing conditions.
 Cannot rescind coverage based on a review of the original
application after someone gets sick.
 Cannot impose lifetime dollar limits on essential benefits,
like hospital stays.
 Must cover certain services without charging a
deductible, co-pay or coinsurance.

 Preventive care and wellness visits, immunizations and some
types of counseling and testing
 Long list of preventive services for women including
contraception


Each state (or HHS) must create a pre-existing
condition insurance plan for those who have been
uninsured for at least six months because of a preexisting condition.
Young adults are allowed to stay on their parents’
plan until they turn 26 years old (unless young
adult is offered insurance at work).


Those who choose to stay on parents’ plan could
potentially be those who need insurance, creating a
selection risk issue
States are able to receive federal matching funds
for covering some additional low-income
individuals and families under Medicaid for
whom federal funds were not previously available.


Parents are getting used to covering their child
up to age 26 on a family plan. Usually, there is
no additional premium for extra children.
If child obtains job which OFFERS health
insurance then parent’s policy will typically no
longer cover child under age 26 rule.


But child will typically have to pay for insurance
under new employer’s plan.
Child does need to purchase that insurance through
new employer even though that is not the most
economical decision.



85 % of all premium dollars collected by insurance
companies for larger employer plans must be
spent on health care services or health care quality
improvement.
80 % of the premium must be spent on benefits
and quality improvement for plans sold to
individuals and small employers.
If costs are too high, then must provide rebates to
consumers.

There has been some confusion about whether money
must be returned to consumer or employer can use funds
for wellness programs for all employees, because of
language about “quality improvement.”



Provides a one-time, rebate check of $250 to seniors
who reach the gap in Medicare prescription drug
coverage known as the “donut hole.”
Seniors who reach the coverage gap will receive a
50 % discount when buying Medicare Part D
covering brand-name prescription drugs.
Seniors receive free preventive services under
Medicare. (That’s similar to rule for all insurance
plans.)

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Employers must distribute a Summary of
Benefits & Coverage to employees
Employers must report the value of health
benefits on employees’ W-2 forms by January
2013
$2,500 limit on employee contributions to
health Flexible Spending Accounts
Requirement for employers to notify
employees of the availability of health
insurance exchanges
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Prohibit discrimination due to pre-existing
conditions or gender
Eliminates annual limits on insurance coverage
Tax credits for those whose income is between 133
% and 400 % of the poverty line who are not
eligible for other affordable coverage.
Can buy health insurance through an Exchange.
Will have to pay a tax penalty if health insurance is
available and affordable but has not been
purchased by individual.

Not affordable if individual’s
required contribution for the
month exceeds 8 percent of
such individual’s household
income. For this purpose, the
taxpayer’s household income
shall be increased by any
exclusion from gross income
for any portion of the
required contribution made
through a salary reduction
agreement. 26 USC § 5000A


Portion of employee’s annual premium if
eligible to purchase minimum essential
coverage through an employer-sponsored plan,
or
For those without employer-offered health
insurance, the annual premium for the lowest
cost bronze plan available through an exchange
reduced by the amount of available credit


The modified adjusted gross income of the
taxpayer, plus the aggregate modified adjusted
gross incomes of all other individuals who
were taken into account in determining the
taxpayer’s family size and were required to file
a return of tax for the taxable year.
Family size is equal to the number of
individuals for whom the taxpayer is allowed
a deduction for the taxable year.

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Income is defined as HOUSEHOLD income, but
Premium (to see if affordable) is defined as
premium for coverage through employer for an
INDIVIDUAL
Required coverage to purchase, though, is for the
FAMILY
So, employer could offer inexpensive individual
coverage, which is deemed affordable in light of
family income. Employee must then purchase
family plan in order to avoid tax penalty.

Tax credits for insurance premium:



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Contribute no more than 2 % AGI towards health
insurance if less than 133 % of federal poverty line
Contribute between 2 and 9.5 % of AGI if 133 to 300
% of federal poverty line
Contribute no more than 9.5 % if 300 to 400 % of
federal poverty line
No premium tax credits if over 400 % of federal
poverty (but can take deduction if health costs above
10 % of AGI) or eligible for public coverage
(Medicaid, CHIP, Medicare or military coverage)

Cost sharing subsidies ranging from $604 (225
% of federal poverty line) to $4834 (125 % of
federal poverty line) for things like deductibles,
coinsurance

Cost sharing subsidy phases out at 225 % of federal
poverty line whereas premium credit phases out at
400 %

If states elect to participate:


Americans who earn less than 133% of the poverty
level ($14,000 for an individual and $29,000 for a
family of four) will be eligible to enroll in Medicaid.
States will receive 100% federal funding for the first
three years, phasing to 90 % in subsequent years.

Who are they available for?

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
Primarily serve individuals buying insurance on their own
Small businesses with up to 100 employees can also buy
insurance through Small Business Health Options Program
(SHOP)
What are rules governing insurance under exchanges?


Minimum basic coverage
Limits on out of pocket expenses


Employers with more than 50 employees (with
exceptions we’ll discuss)
All individuals, unless:
Religious objection; undocumented immigrant;
incarcerated; member of an Indian tribe
 Family income is below threshold requiring you to file a
tax return
 You have to pay more than 8 % of your income for health
insurance, after taking into account any employer
contributions or tax credits
 You were insured through Medicare, Medicaid, CHIP,
military insurance, employer plan, or purchased
insurance


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In defining whether insurance is affordable to
an INDIVIDUAL (so avoid penalties),
threshold is 8 % of family AGI.
In defining whether an EMPLOYER has offered
to affordable insurance (so it avoid penalties, as
we will see), threshold is 9.5 % of family AGI.

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2014: $95 per adult and $47.50 per child (up to
$285 for a family) or 1.0% of family income,
whichever is greater
2015: $325 per adult and $162.50 per child (up to
$975 for a family) or 2.0 % of family income,
whichever is greater
2016 and beyond: $695 per adult and $347.50 per
child (up to $2085 for a family) or 2.5 % of family
income, whichever is greater

CBO estimates average annual premium for individual
would be $4,500 – 5,000 and for a family would be $12,000
- $12,500 (equivalent to 2.5 % for 4-person family with
income of $50,000).

Small employers (fewer than 50 workers):


Imposes no new requirements
Provides new health insurance alternatives through
state-based Small Business Health Options Program
(SHOP) exchanges
 If they offer insurance, may achieve some savings

State has option of combining small employer
and individual exchange

Tax credits became available in 2010 to offset a
portion of the purchase of health insurance by
low-wage employers with 25 or fewer workers.


Tax credits up to 35 percent of the employer’s
premium contribution available to an eligible
employer until 2014
Credits of up to 50 percent of the employer’s
contribution will be available for two consecutive
years as of January 1, 2014, for coverage purchased
through the exchanges

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IF do provide coverage (voluntarily), they must
limit waiting periods to no more than 90 days
and eliminate lifetime and annual benefit
limits.
IF offer dependent coverage then must make
that coverage available for workers’ adult
children up to age 26 (with no requirement that
employer contribute to that coverage).
AND may not have pre-existing condition
exclusions for children covered by health
insurance
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Required to meet essential benefit requirements
Must be rated consistent with rating limits in
the law
Must limit deductibles to $2,000 for single
coverage and $4,000 for family coverage
Annual cost sharing limited to the current law
for Health Savings Account limits ($5,959 for
single coverage and $11,900 for family
coverage in 2010)

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Need not meet essential eligibility requirements
BUT will have to meet those requirements if
terminate current plan and purchase another one
HOWEVER, can allow family members of enrolled
individuals to enroll without jeopardizing grandfathered
status
 AND can allow new employees of employer to join


Grandfathering will, in the short term, help firms
that currently have an advantage in risk-rated
insurance market

But if they purchase a new plan then new rules will likely
increase expense of plan because part of larger risk pool

Rule available to employers in all size groups:

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An amount equivalent to what the employer would
have contributed to the firm’s plan on behalf of such
a worker
Voucher allows worker to apply that amount toward
the purchase of coverage through a nongroup
insurance exchange
Worker using these vouchers are not eligible
for premium subsidies in the exchange
No penalties will apply to employers providing
them.

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At least one employee received a premium tax
credit or cost sharing subsidy in an Exchange,
then
Must pay penalty for not offering coverage:

Penalty is $2,000 annually times the number of fulltime employees minus 30.

Two situations:

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Insurance does not pay for at least 60 % of covered
health care expenses for a typical population OR
Employees have to pay more than 9.5 % of FAMILY
income for the employer coverage
AND some employees choose to buy coverage
in an Exchange and receive a premium tax
credit

Penalty is $3,000 annually for each full-time
employee receiving a tax credit, up to a
maximum of $2,000 times the number of fulltime employees minus 30.

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Whether plan is affordable is determined by
family income although employer may only be
aware of the individual’s income.
Also, income is defined as AGI and an
employer may not know an employee’s AGI
(even if person is single).


Can purchase insurance through Exchanges
Can also benefit from “grandfather” rules so
long as they retain their health insurance
policies



Same penalties as for medium size firms if an
employee chooses a subsidized, exchange
option
Same penalties if do not provide insurance (but
98 % do)
Until 2017, can purchase insurance through
exchanges

Beginning in 2017, that rule is up to the states

These prohibitions do apply:


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Preexisting conditions exclusions
Recissions
Lifetime and annual benefit limits
 Therefore, large employers will likely need stop-loss
insurance if they self-insure

These rules do NOT apply:

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Rating rules
Essential benefits minimums
Limits on deductibles

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Considered “self-insured” if ANY portion of
benefits result from self-insurance.
These obligations DO NOT apply:
Comprehensive coverage for health benefits package
 Essential health benefits requirements
 Prohibition of discrimination based on salary
 Annual limitations on deductibles for employersponsored plan
 Guaranteed issue and renewability of coverage

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Employer must automatically enroll all fulltime workers and all previously enrolled
workers into a plan each year

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Workers will have the opportunity to opt out if they
choose
This rule applies to regular insurance as well as
self-insurance plans

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The Medicare Modernization Act of 2004 provides
subsidy payments to corporations equal to 28
percent of their costs for retiree prescription drug
benefits
Payments for retiree health benefits are tax
deductible for the firm
But ACA no longer allows firms to deduct the 28 percent
subsidy they were receiving from federal government as
part of their health care expenses
 Firms have taken a “write down” to reflect this change
($1.0 billion by AT&T alone) because the 28 percent
deduction was previously taken as an “asset.”

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Forty percent excise tax on “high-cost” plans

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This tax will apply to the total cost of health
coverage of an active or retired employee exceeding
certain annual cost thresholds
Many employers will hit the excise tax threshold
unless they take steps to cut costs or lower their cost
increases
The tax of these “Cadillac plans” was delayed
until 2018. So who knows what will really
happen by 2018.


People who earn between 100
and 133 percent of poverty
guidelines will not be entitled to
subsidies to buy insurance under
assumption they would move to
Medicaid.
If employer offers “affordable”
individual plan, and have family,
then must buy family plan (or be
subject to penalties).
But family plan might be terrifically
expensive.
 Only assistance is deduction if
expenses above 10 % of AGI

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Children currently covered by CHIP between 100 %
and 133 % of poverty would be transitioned to
Medicaid
CHIP is funded through 2015, with increased federal
match
CHIP eligible children (6 to 19 years old) who cannot
enroll in the program due to federal allotment caps
must be screened to determine if they are eligible for
Medicaid and, if not, would be eligible for some new
tax credits
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Establishes the Community First Choice Option in Medicaid to
allow states to provide community-based attendant supports and
services to individuals with incomes up to 150 % FPL with
disabilities who require an institutional level of care through a
state plan amendment.
Provides states with new options for offering home and
community-based services through a Medicaid State Plan
Amendment rather than through a wavier for individuals with
incomes up to 300 % of the maximum SSI payment
Creates the State Balancing Incentive Program to provide
enhanced federal matching payments to eligible states to increase
the proportion of non-institutionally-based long-term care
services.
Extends the Medicaid Money Follows the Person Rebalancing
Demonstration program through 2016

Uncertainty:
 Will states go through with threat not to participate in
Medicaid expansion?
 If so, will individuals in those states become eligible for
premium credit and cost sharing subsidies?
 Will all states set up Exchanges (eventually if not
immediately)?

Kaiser Family Foundation:
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Federal government website:
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http://healthreform.kff.org/the-basics/employerpenalty-flowchart.aspx
http://www.healthcare.gov/law/index.html
Pre-existing condition health care plan
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For Ohio: https://www.ohiohighriskpool.com
Run by Medical Mutual of Ohio