The Affordable Care Act in 435 Words

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Earlier this year, I spent a week learning about US Health Policy at The Washington Campus, which provided an inside view of Washington DC, through lectures from members of congress, health policy advisors, officials from the department of Health and Human Services, attorneys from Federal Trade Commission, and numerous experts from think tanks.

One of the most important take-aways was a better understanding of the Affordable Care Act (ACA).

Background

From 2004 to 2007, there were 89 million people who went at least one month without health insurance. Two basic opposing philosophies for the provision of health care include a government-controlled single-payer system versus a pure market-based system of private health insurers and providers. The ACA attempts to steer a middle ground between these two extremes, facilitating coverage through existing insurance systems and providers, while controlling costs by stimulating a shift from a volume-based fee-for-service health care system system to a value-based system.

The ACA can be divided into four basic components;

  1. Coverage is encouraged through an “individual mandate”, which penalizes (taxes) individuals without insurance, as well as several other measures. Health insurance regulation mandates expanded insurance coverage (to those with pre-existing conditions, young adults under age 26 years who can remain on their parents health insurance plans, etc.) Medicaid is expanded to those earning up to 133% of federal poverty level income. Health insurance coverage is expanded through subsidies within the health insurance exchanges to those earning up to 400% of federal poverty level income. In order to encourage employer-sponsored coverage, the ACA penalizes (taxes) employers without health benefits, whose employees obtain insurance through the health insurance exchanges.
  2. Health insurance exchange systems facilitate insurance coverage for those who do not receive employer-sponsored coverage, or government-sponsored coverage (Medicare, Medicaid, etc). The exchanges pool individual and small group markets, and provide subsidies to lower and middle-income individuals, as described above.
  3. Costs are limited through a Medicare-led system of regulations that shifts the medical system from a volume-based fee-for-service system to a value-based system, including funding for comparative effectiveness research, encouragement of Accountable Care Organizations (ACOs) and bundled payments, support for the Center for Medicare and Medicaid Innovation, etc. A “Cadillac Tax”, imposed on expensive insurance plans, encourages companies to choose lower cost plans, freeing up funds to pay workers higher taxable wages (and generating more tax revenue). An independent payment advisor board (IPAB) controls Medicare costs; it cuts Medicare fees if the projected per capita growth rate exceeds the targeted growth rate determined by the Chief Actuary of the Centers for Medicare and Medicaid Services (CMS). This body of 15 appointed members has the authority to make changes to Medicare, with congress able to override proposed changes only with a super-majority vote.
  4. The system is financed through Medicare cuts (via Medicare Advantage programs, and declining payment updates) and tax increases on insurers, device manufacturers, drug companies (higher medication rebates to Medicaid, excise taxes on branded drugs, discount to seniors in the Medicare Part D “doughnut hole”) and an expanded Medicare payroll tax.

To read more about lessons learned in the Kelley Business of Medicine program click here.