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Today, both houses of Congress passed HR 4872, the Health Care and Education Affordability Reconciliation Act of 2010, which now goes to the president. With the president’s signature, the reconciliation bill becomes law, amending the Affordable Care Act that President Obama signed on Tuesday.
Here’s Tim Jost explaining how the Reconciliation Act modifies the Affordable Care Act:
Slightly More Generous Premium Subsidies. Premium tax credits under the new House bill are slightly more generous than under the Senate bill. Individuals with a household income of between 133 percent and 150 percent of the federal poverty level will need to pay only 3 percent to 4 percent of household income for health insurance, compared to 4 percent to 4.6 percent in the Senate bill. At the upper end, individuals with household incomes of up to 400 percent of poverty will have to pay only 9.5 percent of their income, compared to 9.8 percent in the Senate bill. The percentages will increase over time to reflect the growth in health insurance premiums relative to income, so that the share of premiums paid by individuals will remain more or less constant. However, after 2018 a new inflation formula will kick in that will increase individual responsibility more rapidly if federal subsidies under the bill exceed 0.504 percent of gross domestic product (GDP), a provision apparently necessary to assure deficit reduction after 2019.
Signficantly More Generous Cost-Sharing Subsidies. While the reconciliation legislation increases premium subsidies only slightly, it reduces cost-sharing responsibilities at the low end significantly as compared to the Senate bill. This will make health care itself significantly more affordable. Cost-sharing reduction payments will leave individuals from households earning 100 percent to 150 percent of poverty owing 6 percent in cost sharing rather than 10 percent; individuals from households at 150 percent to 200 percent of poverty owing 13 percent instead of 20 percent; and those from households at 200 percent to 250 percent owing 27 percent rather than 30 percent.
Penalties On Individuals For Failing To Purchase Coverage. The penalties for failure to carry insurance are increased for individuals with higher incomes and reduced for individuals with lower incomes. The flat dollar penalty is reduced from $750 to $695 after 2016 (and from $495 to $325 for 2015). The alternative percentage of income penalty, however, increases from 2 percent to 2.5 percent, but it applies only to income above the filing threshold (currently $12,050 for an individual and $18,700 for a couple). Moreover, individuals with household incomes below the filing limit are exempted from the penalty. Under the Senate bill, individuals with household incomes below the poverty level—which is lower than the filing threshold—were exempted.
Penalties On Employers For Failing To Provide Coverage. The penalty on large employers who do not provide health insurance and whose employees receive public subsidies is, on the other hand, significantly increased—from $750 to $2,000 per full-time equivalent (FTE). The penalty for employers who offer insurance but who have employees who receive premium assistance because they cannot afford the employer-offered insurance (with affordability now defined at 9.5 percent of income) is increased to $3,000 for each such employee. The first thirty FTEs of an employer, however, will be disregarded for calculating penalties, to ease the transition to large-employer status for growing businesses. Also, the penalty for imposing excessive waiting periods on employees is dropped from the reconciliation bill.
Enhancing The Senate Bill’s Insurance Reforms. The legislation enhances slightly the insurance reforms of the Senate bill, providing that the medical expenses of adult children up to age twenty-seven are deductible for income tax purposes, and extending to grandfathered health plans some of the insurance regulation protections of the Senate bill, beginning in the first new plan year after enactment—including provisions related to excessive waiting periods, lifetime limits, rescissions, and the extension of dependent coverage. It also extends to grandfathered group health plans the provisions relating to annual limits and exclusions for preexisting conditions.
A new definition of “modified adjusted gross income” is created for the use of all sections of the reconciliation bill where household income is significant, including Medicaid eligibility. This definition is less generous than the one now used for calculating Medicaid eligibility, which disregards certain income such as some child care or support obligations. However, the bill requires states to disregard a part—equal to 5 percent of the federal poverty limit—of the modified adjusted gross income in determining Medicaid eligibility.More Federal Assistance For Relatively Generous State Medicaid Programs. The reconciliation bill significantly increases federal funding for the expansion of state Medicaid programs to cover individuals with household incomes of up to 133 percent of the poverty level. States will receive 100 percent federal matching funds for this population for 2014, 2015, and 2016; 95 percent for 2017; 94 percent for 2018; 93 percent for 2019; and 90 percent for each year thereafter. States that have already expanded their programs to cover this population will receive a gradually increasing enhancement of the federal match for this population, so that in 2014 they will receive 50 percent of what expansion states receive, and by 2019 they will receive 100 percent. The “Cornhusker kickback” is eliminated, but special treatment is retained for Louisiana and other states, as in the Senate bill.
Short-Term Federal Help For Medicaid Primary Care Payments. In a very important move, the reconciliation bill increases Medicaid payments for family and general practitioners and for pediatricians providing primary care services, to 100 percent of Medicare payment levels for 2013 and 2014 with 100 percent federal match. As was pointed out by Republicans at the health care summit, Medicaid expansions mean little if there are no practitioners to care for Medicaid recipients, so this provision will play a vital role in making Medicaid work. Unfortunately, it is limited to two years. The bill also increases to $1l billion new appropriations for community health centers, which will also serve the new Medicaid recipients (as well as the immigrants excluded from the exchanges).
The legislation also reduces but moves forward to 2014 Medicaid disproportionate share hospital payment reductions, and provides disproportionate-share hospital (DSH) payments for a state that would otherwise have none after FY 2011—reportedly this would apply only to Tennessee. The Medicaid provisions also increase funding for the territories (and allow them to decide to operate an exchange); delays by one year the Community First Choice Option, which will cover community-based attendant care services and supports for persons who would otherwise be institutionalized; and narrows the definition of new formulations of drugs, subject to an additional rebate under the Medicaid drug rebate program to line extensions of the drugs in the form of a solid dosage.
Closing the Doughnut Hole. The biggest change in Medicare from the beneficiary’s perspective will be the provisions of the bill intended to close the doughnut hole. The legislation provides for a $250 payment to anyone who ends up in that hole in 2010, but will then begin closing the dougnut hole by gradually reducing the coinsurance amount paid by beneficiaries until, by 2020, it reaches the 25 percent level imposed prior to the doughnut hole. The bill delays the 50 percent discount program for name-brand drugs bought by beneficiaries in the doughnut hole to 2011.
Cutting Medicare Advantage Payments. The reconciliation bill reduces Medicare advantage (MA) payments by almost $14 billion from levels in the Senate bill. It shifts MA payments toward benchmarks that will vary from 95 percent of fee-for-service payment levels in high-spending states to 115 percent in low-spending states. These benchmark-based payment levels will be phased in over three, five, or seven years, depending on the initial disparity between MA payment amounts and the benchmark. After 2014, plans will be able to earn increased payments of up to 5 percent based on quality rankings. Higher quality plans will also be able to make up for a higher percentage of their premiums to beneficiaries via lowered cost sharing or increased benefits. The bill extends the authority of the Centers for Medicare and Medicaid Services to risk adjust scores for observed differences in coding patterns between MA plans and fee-for-service plans.
The legislation requires MA plans that have administrative costs in excess of 15 percent to pay the difference to CMS, prohibits new enrollments into any such plan after three consecutive years of excessive administrative costs, and requires termination of the plan after five consecutive years. Finally, with little fanfare, the bill repeals the Medicare Modernization Act provision requiring competition between MA plans and traditional Medicare that provoked so much controversy in 2003.
In other Medicare provisions, the legislation accelerates the Medicare DSH reductions, but reduces their amount. It increases reductions in market basket-based payment updates for inpatient hospitals, long-term–care hospitals, inpatient rehabilitation facilities, psychiatric hospitals, and outpatient hospitals by an additional $9.9 billion over ten years. The bill delays from August 1, 2010, until December 31, 2010, the date after which physicians are no longer allowed to own hospitals to which they refer patients, and it creates a new exception to allow grandfathered physician-owed hospitals to expand in counties in which they treat the highest percentage of Medicaid patients and in which they are not the sole community hospital. Finally, the bill creates an assumption of a 75 percent utilization rate for determining the practice-expenses portion of advanced imaging payments, which will reduce those payments for low-volume providers..
Fraud And Abuse Provisions. No health care legislation is complete without new fraud and abuse provisions, and the reconciliation bill is no exception. It requires community mental health centers to treat a significant number of patients who are not Medicare beneficiaries to qualify for Medicare payments. It eliminates limitations imposed on Medicare prepayment medical reviews and provides for data matches between CMS and the IRS to identify fraudulent providers. It increases funding for fraud and abuse control and allows CMS to withhold funding from new durable medical equipment (DME) providers for up to ninety days if there is a significant risk of fraud.
The Excise Tax On High-Cost Plans. The legislation changes significantly the excise tax imposed on high-cost plans. It delays the tax from 2013 to 2018 and increases the threshold of the tax from $8,500 to $10,200 for individuals, and from $23,000 to $27,500 for families—in both instances, adjusted for excessive intervening increases in the cost of health insurance and for the age and gender characteristics of the specific employer compared to the national workforce. It excludes from consideration the cost of dental and vision plans. The legislation also increases the enhanced thresholds allowed for high-risk occupations, but it eliminates the Senate’s transition rule for high-cost states.
Initially, the premium-cost threshold at which the excise tax kicks in would increase by the level of general inflation (the consumer price index, or CPI) plus one percentage point. However, beginning in 2020, the threshold would increase only at the rate of general inflation, which would extend the tax to more plans over time.
Revenue Increases. To make up for lost revenue, the reconciliation legislation extends the Medicare tax to cover net investment income for those earning more than $250,000 a year (on a joint return) or $200,000 (on a single return). The bill delays but increases the tax on brand-name drugs. It changes the imposition on medical devices from a fee to a tax; delays it; and exempts eyeglasses, contact lenses, hearing aids, and devices purchased by individuals at retail. The legislation also delays to 2013 the limitation on flexible spending account (FSA) contributions and the elimination of the deduction for expenses allocable to the Medicare Part D subsidy.
Sorry about the length of that quote. No time to do my own writing. Or editing.
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