U.S. Health-Care Reform: The Patient Protection and Affordable Care Act

By Harrington, Scott E. | Journal of Risk and Insurance, September 2010 | Go to article overview

U.S. Health-Care Reform: The Patient Protection and Affordable Care Act


Harrington, Scott E., Journal of Risk and Insurance


ABSTRACT

This short article provides an overview of the Patient Protection and Affordable Care Act, which was approved by the U.S. Congress and signed by President Barack Obama in March 2010, with an emphasis on provisions related to the expansion of health insurance. It highlights key provisions concerning coverage expansion, insurance market reforms, and the projected costs and financing of the legislation.

INTRODUCTION

The U.S. House of Representatives approved the Patient Protection and Affordable Care Act (PPACA) on March 21, 2010 by a 219-212 vote with no Republican support. The Senate had previously passed the bill on December 24, 2009 by a 60-39 vote with no Republican support. Shortly after approving the PPACA, the House passed a package of amendments in the Health Care and Education Reconciliation Act of 2010, which, with a few minor changes, was approved by the Senate (56-43) and again by the House (220-207) on March 25. President Obama signed the original PPACA on March 23 and the final reconciliation bill on March 30, 2010, completing the most significant social legislation in the United States since the enactment of Medicare and Medicaid in 1965.

This short article provides an overview of the PPACA, as amended, with an emphasis on provisions dealing with health insurance. It highlights the law's key provisions concerning coverage expansion, insurance market reforms, and the projected costs and financing of coverage expansion. It serves as an addendum to my article (Harrington, 2010) dealing with earlier U.S. House and Senate health-care reform bills. Although the details vary in some significant ways from those bills (e.g., the absence of a public option and the inclusion of a Medicare tax on unearned income--see below), the structure of the new law is similar, and most of the discussion in that article remains applicable.

COVERAGE EXPANSION

Table 1 highlights key insurance-related and financing provisions of the new law. (1) The law will expand health insurance coverage primarily by (1) requiring individuals to obtain qualified health insurance, (2) subsidizing the cost of coverage for low- to moderate-income persons, (3) requiring other than small employers to offer health coverage to employees, and (4) significantly expanding eligibility for Medicaid.

Beginning in 2014, most legal residents will be required to have health insurance that meets minimum requirements, unless the cost of minimum qualified coverage exceeds 8 percent of their income. The penalty for noncompliance with the "individual mandate" will be the greater of $95 or I percent of taxable income in 2014, increasing to the greater of $695 or 2.5 percent of taxable income in 2016, and indexed to inflation in later years. (2) Premium credits (subsidies) will be provided to individuals/families with income between 133 and 400 percent of the federal poverty level (FPL). The credits will limit premium contributions to specified percentages of income (e.g., 3-4 percent for incomes between 133 and 150 percent of FPL, increasing to 9.5 percent for incomes between 350 and 400 percent of FPL). The law also reduces cost sharing for persons with incomes up to 400 percent of FPL, with greater reductions for lower income individuals/families. (3) Eligibility for the taxpayer-funded Medicaid program will be expanded to people with incomes up to 133 percent of the FPL and will include nondisabled, nonelderly adults without dependent children.

Apart from establishments with fewer than 50 employees, businesses will have to offer health coverage to employees or pay a penalty. Businesses with 50 or more employees that offer coverage to employees will pay a penalty if one or more of their employees obtain subsidized coverage outside of employment. Employers with 25 or fewer employees and with annual wages averaging less than $50,000 will be eligible for tax credits for offering coverage.

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