ObamaCare: Implementation Guide

With the Supreme Court upholding most of the provisions of the Patient Protection and Affordable Care Act (“PPACA”) – the Federal healthcare law otherwise known as ObamaCare – certain aspects of the law will begin to take effect starting in 2014. It is estimated that an additional 16 million individuals will be eligible for Medicaid starting in 2014. Below, we take a look at the biggest impacts of the law which are expected to be felt starting next year.

I.  Health Insurance Marketplaces

Open enrollment starts Oct. 1, 2013, less than 10 months away. Under PPACA, State or Federal healthcare marketplaces (they are no longer referred to as Exchanges) will offer Qualified Health Plans to individuals and small businesses.  In order for a plan to be considered “Qualified”, it must offer what are referred to as “Essential Health Benefits.”  As of late February, the Obama Administration issued rules defining the Marketplaces, what plans must do to become “qualified”, and identified the types of benefits these plans must offer. Furthermore, the health insurance marketplaces established under PPACA require that Federal subsidies of insurance premiums be available to individuals in households with income up to 400% of the Federal poverty line. To qualify for the subsidy, the individual/beneficiary cannot be eligible for another acceptable coverage.

As it relates to offering individual health insurance coverage, beginning in 2014, insurers are prohibited from discriminating against, or charging higher rates for, any individual based on gender or pre-existing medical conditions. Beginning in 2014, insurers are also prohibited from establishing annual spending caps.

As background, States were given three options with regard to how the Marketplaces would be set up and operated within their State:

  1. States could decide to establish a State-run marketplace, where the state can control their own market place and decide how it’s run and operated;
  2. States could “opt out” of running their own marketplace, in which case the Federal government (i.e. the Department of Health and Human Services (DHHS)) will  run and operate the marketplace; or
  3. States could choose to establish a partnership marketplace with the Federal government, which effectively means that the marketplace is set up and operated jointly by States and the Federal government (DHHS).

States that have decided to operate a State-run marketplace will perform all marketplace-related activities. These activities include contracting with health plans, providing consumer outreach and assistance, and building the necessary information technology (IT) infrastructure to assess eligibility and enroll individuals into coverage. The State-run marketplaces must meet all the requirements set out in the Federal health care law.

States unwilling to establish their own exchange (i.e. choosing to “Opt Out”) will operate under a Federally-facilitated marketplace where the DHHS will be responsible for operating the marketplace.  States operating under a Federally-facilitated marketplace will rely on the Federal government, via the DHHS, to provide plan certification and general oversight functions. States may transition into a partnership or State-run marketplace model in the future.

The State partnership marketplace allows for the combined management of marketplace functions (i.e. management plans, certain consumer assistance functions or both) and for a more streamlined transition to possibly a fully State-run marketplace in the future.

All three types of health insurance marketplaces will change the way many people buy coverage and is supposed to help millions of uninsured people get a private plan. People will need to disclose their income, marital status and number of dependents to the Exchange at the time they apply for coverage and the Exchange will calculate any potential financial assistance they might be offered. Only legal residents of the United States can get financial assistance.

The health care law offers sliding-scale subsidies based on income for individuals and families making up to four times the Federal poverty level, which is about $44,700 for singles, and $92,200 for a family of four.

There will be four levels of coverage, from “bronze,” which will cover 60 percent of expected costs, to “platinum,” which will cover 90 percent. “Silver” and “gold” are in between. Bronze plans will charge the lowest premiums, but they’ll have the highest annual deductibles. Platinum plans will have the highest premiums and the lowest out-of-pocket cost sharing.

The government’s subsidy will be tied to the premium for the second-lowest-cost plan at the silver coverage level that’s available in each area. One could take it and buy a lower cost bronze plan, saving money on premiums. But they’d have to be prepared for the higher annual deductible and copayments.

As an example, a family of four headed by a 40-year-old making $35,000 will get a $10,742 tax credit toward an annual premium of $12,130. They’d have to pay $1,388, about 4 percent of their income, or about $115 a month.

A similar hypothetical family making $90,000 will get a much smaller tax credit, $3,580, meaning they’d have to pay $8,550 of the same $12,130 policy. That works out to more than 9 percent of their income, or about $710 a month.

Although it’s called a “tax credit” the government assistance goes directly to the insurer. The subscriber does not receive a check. More information on Exchanges will be provided as we move closer to the October 2013 open enrollment date.

A.   Impact on Employers and the “Employer Mandate”
The marketplaces are meant to make purchasing insurance easier for small businesses and uninsured individuals starting January 1st, 2014. Two years of tax credits will be offered to qualified small businesses.  To receive the full benefit of a 50% premium subsidy, the small business must have an average payroll per full-time equivalent (“FTE”) employee of no more than $50,000, AND have no more than 25 FTEs. For the purposes of the calculation of FTEs, seasonal employees and owners and their relations, are not considered.  The subsidy is reduced by 3.35 percentage points per additional employee, and 2 percentage points per additional $1,000 of average compensation.  As an example, a 16 FTE firm with a $35,000 average salary would be entitled to a 10% premium subsidy.

However, large businesses (i.e. those having 51 or more full-time employees) will not be able to participate in the exchange until 2017. In 2017, employers with 51 or more FTEs must abide by the Employer Mandate provision. The Employer Mandate is a proposed rule which will subject employers with 51 or more full time employees or full-time equivalents to potential penalties unless they offer 95% of their full-time employees health coverage that is “affordable” and provides “minimum value”.  “Affordable” implies that the cost of coverage for any employee must be less than 9.5% of the employees W-2 wages with the employer and the later implies that the plan pays at least 60% of all covered expenses. Penalties, in the form of taxes, are as follows:

  • $2,000 per full-time employee if a single full-time employee receives Federal premium assistance for Exchange Coverage.
  • $3,000 for each employee who receives the Federal premium tax credit.

Break Away from the Static

II. Medicaid Expansion

In addition to the operation of the newly established health insurance marketplaces, another aspect of PPACA to be felt in 2014 will be the expansion of the Medicaid program and the changes in how the Medicaid program will be funded.

In participating States, Medicaid eligibility is expanded.  Beginning in 2014, all individuals with income up to 133% of the poverty line will qualify for coverage, including adults without dependent children.  As written, the PPACA withheld all Medicaid funding from States declining to participate in the expansion. However, this part of the law was the one part that was struck down when the Supreme Court ruled that this withdrawal of funding was unconstitutionally coercive, and that individual States had the right to opt out of the Medicaid expansion without losing pre-existing Medicaid funding from the Federal government. Therefore, in light of the option States were given to “opt out” of Medicaid expansion, as of February 26, 2013, ten (10) States – Idaho, South Dakota, Maine, Texas, Oklahoma, Alabama, Mississippi, Louisiana, Georgia, and South Carolina-have announced that they would decline to participate in the Medicaid expansion, and four (4) more States – Wyoming, Nebraska, Iowa, and Virginia – were leaning toward opting out.

Currently, States and the Federal government share the cost of Medicaid, with the Federal government paying about two-thirds and the States paying one-third of the total. The percentage varies by State based on the wealth of each State, with the poorer States receiving a higher match rate.  The State match rate also varies for both Medicaid and the Children’s Health Insurance Program (“CHIP”), which covers children from low-income households.

With regard to funding the Medicaid program, beginning in 2017 under PPACA, the matching rates from the two programs (Medicaid & CHIP) would be blended into a single matching rate.  However, beginning in 2014, and continuing through 2016, States with a higher enrollment would receive a higher Federal match rate.  The idea is to give States incentives to enroll more individuals starting in 2014. It is estimated that an additional 16 million individuals will be eligible for Medicaid starting in 2014.  The Federal government will still pay all the costs for the expansion of Medicaid coverage from 2014 through 2016, as prescribed by PPACA.

ADVOCATE will continue to provide updates as information becomes available.  If you have any questions regarding the issues in this communication, please feel free to contact me at Andre.Perrotta@radadvocate.com.

Very kind regards,

Andre Perrotta, Esq.
Chief Compliance Officer