JOHN C. RENDER, ESQ.HALL, RENDER, KILLIAN, HEATH & LYMAN, P.C.

The Transformation of Healthcare: The Affordable Care Act–Policy & Practice

UpdateMay 8, 2014

I. The Affordable Care Act (“ACA”) A Long and Incomplete Journey

A. BACKDROP TO HEALTH REFORM (OR CHANGE)1. Seven decades of discussion about health reform,

universal coverage, national health insurance, and similar descriptions. (President Truman discussed the concept after World War II).

2. Rare political and economic confluence usually required for significant legislatively embraced social change. (Social Security Act passed in 1935 in midst of the Great Depression. Vote in the House was 372 – 33 with 284 Democrats and 81 Republicans voting aye. In the Senate, the vote was 77-6 with 60 Democrats and 16 Republicans voting aye.

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I. ACA Journey (cont.)

A. BACKDROP (cont.)Similarly, Medicare passed in 1965 with the House voting 307 – 116 with 237 Democrats and 70 Republicans voting aye.)

3. Passage of both Social Security and Medicare required public support, calamitous conditions or events in the country, as well as political majorities in the Congress and White House to achieve the goal.

4. Contrast this with the ACA which was accomplished with the requisite political majorities, but without the public or political consensus or otherwise significant national emergency. Note the vote: Senate 60-39 with no Republicans voting aye and the House, 219-212 with no Republicans voting aye.

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I. ACA Journey (cont.)

A. BACKDROP (cont.)5. The origins of the ACA and the partisan voting

patterns reflected a divided country on the issue of health reform and ensured a contentious and divisive implementation.

6. A major reason for development and passage of the ACA was dire projections and expectations regarding the economics of health care in the United States, with particular concern over alarming projections in future decades.

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I. ACA Journey (cont.)

A. BACKDROP (cont.)a. While health care spending and health insurance

premiums costs leveled off in 2012 and 2013, studies attributed that moderation (3.7% increase in health care spending and 4% increase in health insurance premiums) to the slow down in the economy from 2008 – 2012) (Source: Kaiser Family Foundation, March 5, 2014).

b. Expectation and fears of dramatic increases in health care costs and spending were supported by various studies. From the period 2010 – 2020, it was expected that average annual health spending growth would be 5.8% which would outpace average growth in economy which was anticipated to be 4.7%.

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I. ACA Journey (cont.)

A. BACKDROP (cont.)Unabated, national health spending in 2020 would reach $4.6 trillion and comprise 19.8% of the GDP (in 2011, health spending was 17.9% of the GDP).

c. From the perspective of the federal government, Medicare and Medicaid (as well as Social Security which will be part of another discussion) represent enormous programs which consume increasing amounts of the federal budget. Those three programs account for about 45% of primary federal spending in 2012 (up from 25% in 1975). Medicare and Medicaid will be responsible for 80% of the growth in the three entitlement programs over the next 25 years. It is further projected that net federal spending on Medicare and Medicaid will rise in 2009 to about to about 10% in 2035 and over 17% in 2080.

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I. ACA Journey (cont.)

A. BACKDROP (cont.)(Source: Congressional Budget office (“CBO”), which is considered by many to be the gold standard for reliable data). These data are responsible in large part for the impetus to move forward with health reform in its many variations.

d. Aside from spending and per capita health care costs increases, demographic and the expected increase in utilization of health services in the next few decades is the primary driver urging change in health care economics and use. In the U.S., the share of people age 65 or older is projected to grow from 13% to 20% by 2035. (Source: CBO)

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I. ACA Journey (cont.)

B. POLITICAL ASPECTS OF THE ACA1. With the election of Barack Obama as President in 2008, it

soon became apparent that the President had decided that health care reform would be the centerpiece of his administration. This policy initiative was not entirely without merit as approximately 45.7 million people lacked health insurance during all or part of 2007. How coverage for these individuals as well as other reforms would be accomplished would become the source of extensive debate and partisan division that continues today.

2. Democrats generally favored a program that would be largely administered by the federal government, would insure national coverage and would be mandatory in nature.

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I. ACA Journey (cont.)

B. POLITICAL ASPECTS OF THE ACA (cont.)3. While many Republicans favored health care reform, they

generally opposed Democratic proposals that made the federal government as the principal overseer and participant in the provision of health care. They generally favored a free-market approach to achieving additional coverage for Americans.

4. When ACA passed into law (in a highly partisan way, as previously noted), Republicans generally united in opposition to the law and Democrats generally supported it and lauded its benefits. Republicans soon dubbed ACA as ObamaCare. Whatever the strengths and weaknesses of the ACA, this divisive, partisan division along political lines has hampered implementation of the Act.

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II. The ACA Short Explanation

A. COVERAGE EXPANSION AND MARKET REFORMS1. Temporary high-risk pools; individual mandate;

elimination of pre-existing conditions barrier to insurance; employer penalties, incentives, credits and subsidies; several insurance industry reforms; state exchanges; and various others.

B. HEALTH CARE QUALITY AND PAYMENT INCENTIVES1. Center for Innovation; programs focused on

quality and delivery reforms; pilot and demonstration projects; focus on primary care, coordination, and outcomes; VBP for many providers; and various others.

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II. ACA Short Explanation (cont.)

C. COST CONTAINMENT AND FINANCING OF HEALTH CARE REFORM1. Increased taxes, restrictions in Medicare payment,

or thresholds; reduction in payments to certain providers, reduction of DSH, enhanced compliance enforcement; and more.

D. ACCESS1. Requires most U.S. citizens and legal residents to

have health insurance. 2. Creates state-based Health Benefit Exchanges

through which individuals can purchase coverage with premium and cost-sharing credits available to individuals/families with income between 100 – 400% of the federal poverty level.11

II. ACA Short Explanation (cont.)

D. ACCESS (cont.)3. Creates separate Exchanges through which

businesses can purchase coverage (“Small Business Health Insurance Options Program, or “SHOP Exchanges”; states can combine Exchanges.

4. Requires “applicable large employers” to pay penalties for employees who receive tax credits for health insurance through an Exchange.

5. Imposes new regulations on health plans in the Exchanges and in the individual and small group markets.

6. Allows for expansion of Medicaid to 138% of the federal poverty level. 12

III. Strengths and Weaknesses of the ACA

A. STRENGTHS1. Improves affordability of health insurance.2. Expands Medicare.3. Subsidizes low and moderate- income people,

particularly important in high-unemployment times when markets are less effective.

4. Assists small business in providing insurance coverage.

5. Improved access.6. Some shared financial responsibility for

citizens and employers.7. Health Insurance Options.

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III. ACA Strengths and Weaknesses (cont.)

A. STRENGTHS (cont.)8. Elimination of pre-existing coverage barrier to

health insurance.9. Improved coverage for children.10. Improved coverage for preventive care and

screening.11. Expanded funding for health care careers.12. Children up to 26 can retain coverage under their

parents coverage.

B. WEAKNESSES1. Mandatory coverage of pre-existing conditions will

increase insurance premiums (especially if the risk pool has less than 40% of its insured in the 18-34 year old range). 14

III. ACA Strengths and Weaknesses (cont.)

B. WEAKNESSES (cont.)2. Some argue that the ACA could reduce full-

time equivalent work force from 2 to 2.5 million between 2017 to 2024. This would mostly affect low-wage workers.

3. Does not adequately address shortage of physicians and other health care workers, which may be exacerbated by the ACA. The Bureau of Health Professions estimated in 2008 there would be a physician shortage of 49,000 by 2020. In 2010, (after ACA passage) the Association of American Medical Colleges predicted that by 2025 there would be a shortfall of 130,600 physicians nationally.15

III. ACA Strengths and Weaknesses (cont.)

B. WEAKNESSES (cont.)4. Some continuing gaps of coverage,

particularly for those Americans of modest incomes may not be able to afford their employers’ family policies, but be unable to qualify for government subsides to buy their own.

5. Children may not have same health insurance plan as parents.

6. Greatly reduces payment to some health care providers (hospitals, for example, will have reductions in Medicare payments of $55 billion over a ten-year period. They will also have reduced DSH payments). 16

III. ACA Strengths and Weaknesses (cont.)

B. WEAKNESSES (cont.)It remains to be seen whether increased insurance or Medicaid coverage for some individuals will offset these reductions. It seems unlikely since original projections were that under the ACA as many as 25 to 30 million individuals might be newly covered. To date, something in excess of 7 million have new coverage nationally. In excess of 65,000 have enrolled in Indiana.

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IV. Judicial Modification of the ACA

A. NATIONAL FEDERATION OF INDEPENDENT BUSINESS V. SEBELIUS, 132 S.Ct. 25661. By a 5-4 margin, in a decision authored by Chief

Justice John Roberts, the Supreme Court ruled that the ACA is constitutional. The individual mandate requiring individuals to buy health insurance is ACA’s most controversial component. The Court held that, while the Federal Government does not have the power to order people to buy health insurance, it does have the power to tax, and the individual mandate represents a tax on people who choose not to buy health insurance. The other key component of the ACA expanded Medicaid to cover all non-elderly people with incomes below 133% of the poverty line.

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IV. Judicial Modification of the ACA (cont.)

A. NATIONAL FEDERATION OF INDEPENDENT BUSINESS V. SEBELIUS, 132 S.Ct. 2566 (cont.)

Further, the government was empowered to penalize states that choose not to participate in this expansion by taking away their existing Medicaid funding. The Court found this latter provision violated the Constitution. The effect of this part of the ruling is that states can decide to expand Medicaid or not on a voluntary basis.

2. The ruling in National Federation regarding Medicaid expansion is likely to have a profound effect on the extent of national coverage of uninsured individuals since much of the coverage was going to be undertaken under Medicaid under the ACA.19

IV. Judicial Modification of the ACA (cont.)

A. NATIONAL FEDERATION OF INDEPENDENT BUSINESS V. SEBELIUS, 132 S.Ct. 2566 (cont.)

It now seems likely that several states will ultimately choose (many for financial reasons) not to implement the Medicaid expansion envisioned by the ACA. For example, currently 26 states and the District of Columbia have chosen to expand Medicaid. 24 states (mostly in the south and west) including Indiana have decided against Medicaid expansion or are still negotiating with the Department of Health and Human Services (“HHS”). Governor Pence has announced that Indiana wants to expand coverage through its existing Healthy Indiana Plan. HHS has not yet approved that option.))

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V. Implementation of the ACA

A. EXTENDED IMPLEMENTATION1. Many ACA provisions went into effect upon

passage of the Act in 2010, or soon after. Others are being phased in over time. Many major reforms including Medicaid expansion, insurance exchanges, minimum coverage provision, are to go into effect in 2014, but others will not go into effect until later. (See Exhibit A for summary of the timeline for ACA implementation.)

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V. Implementation of the ACA (cont.)

A. EXTENDED IMPLEMENTATION (cont.)2. While the timeline for implementation is set

out in the ACA, supplemented by rule-making by HHS, the implementation of the ACA has subjected to many delays and slow starts. (See Exhibit B which summarizes anticipated implementation and delays, changes, and repeals)

3. Given the complexity and breadth of the ACA, it likely will face many additional fits and starts before complete or substantial implementation in 2018.

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EXHIBIT A , PAGE 1

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EXHIBIT A , PAGE 2

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EXHIBIT A , PAGE 3

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EXHIBIT B

VI. The Future of ACA and Related Health Care Opportunities.

A. THE VIABILITY OF THE ACA (cont.)1. Unlikely to be repealed, particularly after

millions of new enrollees now have health insurance coverage and popular reforms like pre-existing conditions not disqualifying people from obtaining insurance and 26-and-under individuals having health insurance availability through their parents now existing.

2. Very likely to be amended and modified and possibly even renamed, particularly if there is a Republican Congress and Presidency in 2016.

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VI. The Future of ACA (cont.)

A. THE VIABILITY OF THE ACA (cont.)3. The ACA, even with many false starts and

very uneven implementation to date, has within it elements which incentivize or penalize and will have the effect of modifying the health care system. It may be left to successor laws and regulations to further shape and mold the American health care system into one that providers improved health care quality, at more affordable costs, in a right-sized, appropriate and accessible environment, served by the inter-disciplinary team of health care professionals.

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VI. The Future of ACA (cont.)

B. OPPORTUNITIES1. ACA has provided the impetus for greatly

expanded health insurance coverage.2. Increased emphasis on prevention and wellness

have immense short and long-term benefit.3. The rebirth of the “medical home” is a positive in

terms of medical management and appropriate utilization.

4. It appears health care spending is now slowing for reasons unrelated to the 2007- 2009 recession. Recent research suggests that structural changes in the U.S. health care system are responsible including initiatives related to quality of care improvements which are reducing hospital readmission rates and promoting integrated care.

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VI. The Future of ACA (cont.)

B. OPPORTUNITIES (cont.)5. The ACA, as a government program, with

incentives and penalties will do two important things: (A) it will absolutely modify patient, provider, and insurers’ behavior (remember Medicare Prospective Payment in 1983.) (B) it will have a “spill-over” effect whereby changes in Medicare and Medicaid will become pervasive in the private health care sector as well.

6. Increased primary care emphasis will greatly improve medical management and likely improve management of chronic disease and illness. 30

VI. The Future of ACA (cont.)

B. OPPORTUNITIES (cont.)7. Reduced health care costs and spending result

in higher wages and standard of living for all. Additionally, it dramatically reduces the nations long-term deficit. The CBO has recently revised its projections of future Medicare and Medicaid spending in 2020 by $147 billion since August of 2010.

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Summary

In summary, we are embarking on significant and likely lasting changes in how health care is delivered, paid for, and accessed in the U.S. It will likely be a less costly, higher quality service delivered and monitored in a more convenient forums. It is a challenge I believe we are up to.

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John C. Render, Esq.Hall, Render, Killian, Heath & Lyman, P.C.One American Square, Suite 2000Indianapolis, IN 46282(317) 977-1436jrender@hallrender.com

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Questions?