Obamacare – An Introduction

INTRODUCTION AND A BRIEF HISTORY:

‘Obamacare’ or ‘Affordable Care Act (ACA)’ or ‘The Patient Protection and Affordable Care (PPACA)’ is a federal regulation signed by the 44^th President of the United States of America, Mr. Barack Obama on 23^rd October, 2010 and would be in effect beginning 1^st January, 2014.

After the passing of ‘Medicare’ and ‘Medicaid’ in 1965, the passing of PPACA is the most revolutionary event in the history of American healthcare. It envisages making healthcare affordable to all American people as well as well as improve the quality of healthcare by several means including provision of several subsidies, inclusion of directives for the benefit of public as well as starting health insurance exchanges in the country.

SALIENT FEATURES OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT:

The Provision of Guaranteed Issue

The United States Congress intends to abolish ‘discrimination based on previous health status’ by the insurance providers. The Guaranteed Issue provision requires insurance providers to not deny health insurance coverage to any person regardless of the ‘pre-existing medical conditions’ or the ‘current health status’.

Apart from this, the bill also restricts the ability of the insurer to limit the scope of coverage by asking the insurer to provide some basic services, by not permitting the insurance providers to set a maximum amount to be paid to the insurer during the period of his/her life i.e. imposing a life time limit, unreasonably increasing insurance premiums.

The provision also demands premiums to be charged at an ‘averaged rate’ rather than their reflection of actuarial risk.

The Provision of Minimum Coverage: The PPACA demands that all the legal residents of the United States and its residents to compulsorily obtain coverage –unless and until they are exempt from doing so, or to pay a penalty in lieu. This is popularly known as ‘Individual Mandate’.

The ‘Individual Mandate’ allows buying of all kinds of health insurance including employer based insurance, public insurance like the Medicare or Medicaid as well as individual insurance purchased through insurance exchanges.

The penalty would include a flat amount of USD 695 or 2.5 % of taxable income for an individual capped at three times that amount of a family phased over the period of 2014-2016.However, several individuals would be exempt from the individual mandate including those having incomes below 100 % of the federal poverty level, undocumented immigrants or incarcerated person, the ones not being required to file income taxes, incarcerated workers, the ones having restrictions due to religious reasons and several others. This provision ensures that markets remain balanced and the costs stay low.

The Provision of HIE (Health Insurance Exchanges)

The PPACA Act provides for starting of ‘Health Insurance exchanges’ which are online portals run either by the federal or the state government which would provide information on participating health insurance providers and their plans and also allows them to buy health insurance online.

The consumers would be able to compare and select the plan they want, register online with the Government to consider the eligibility for subsidies to be received and then purchase the insurance during the limited open enrollment period every year.

The Provision of Medicaid Expansion

Earlier, Medicaid required each of the states to cover the vulnerable sections of the society or lose federal funding. The Medicaid eligibility is now extended to all families and individuals who fall under 138% of the Federal Poverty level. Many excluded groups (for e.g. Single men) are now eligible.PPACA allows the states to opt out of Medicaid expansion.

The Provision of subsidies for low-income segments and small businesses

Legal residents of the United States and its’ residents whose incomes fall between 100 % to 400 % of poverty are eligible for subsidies under the PPACA. Also, it would be ensured that the ones who fall between 133 % to 150 % of the poverty level would have to pay only 3-4 % of their incomes as costs towards premium

Premium assistance in exchanges is not offered to the ones who are avail Medicaid.

Moreover, in states where there is no Medicaid coverage, people with incomes less than 100% of poverty will not be eligible for subsidies made available on HIE, but those with incomes at or above poverty will be. Moreover, those employers whose plans do not have an actuarial value of at least 60 % or unless the persons’ share for of the premium for the employer sponsored insurance is greater than 9.5 % of income, no subsidies would be provided to them. Small Business would also be eligible for subsidies.

SOCIAL IMPACT OF OBAMACARE:

Rise in the number of beneficiaries

The population of United States who fall under 400 % of the Federal poverty level would see a decrease of approximately 30 % in their premiums towards insurance. Of the total 55 million uninsured populations in the United States, 32 million would get covered by insurance leaving behind 23 million un-insured populations by 2019.

Assuming that all the elderly citizens are covered by Medicare, there would be an increase in the coverage of presently covered young insured population by 11 %.

Also, the number of 19-25 years old who are currently uninsured would reduce by 1.9 %. Moreover, below 26 years of age, kids were to be included in the parents plan earlier. As a result, many insurance companies had stopped issuing only children’s’ policies due to which 1.9 % kids had not been covered. After the passage of the PPACA, companies have started issuing ‘child only’ policies.

Nevertheless, the following population would still remain uninsured:

1. Several states have opted out of the Medicaid expansion and citizens living in these states who do not come under the purview of existing Medicaid coverage nor subsidized coverage through the states’ new insurance exchanges would continue to remain uninsured
2. Younger and single Americans, who continue to not avail medical insurance despite being eligible and prefer to pay a fine.
3. Around 8 million illegal immigrants in the United States of America—which forms approximately 1/3^rd of the total 23 million uninsured populations—will be ineligible for insurance subsidies and Medicaid. Under provisions in the 1986 Emergency Medical Treatment and Active Labor Act (EMTALA), they could continue to avail services and do not have any compulsion to buy medical insurance.
4. Citizens not enrolled in Medicaid despite being eligible
5. Citizens who are exempt from paying the annual penalty insurance coverage would cost more than 8% of household income.

Essential Health Benefits

To provide adequate health benefits to their enrollees – no matter which plan or which insurance company is chosen, the PPACA enlists some essential health benefits to be covered by all individual plans offered. In general, they are similar to a typical employee sponsored plan. The rules would be laid down by the Secretary of Health and Human Services. Nevertheless, the standards for both the types of the benefits to be covered and the cost benefits to be applied under the essential health benefits package are defined by PPACA. In addition, actuarial value standards would be set for the plans, based on what is covered under the essential benefits package. Alternatively, the full scope of benefits defined in the essential benefits package will be covered by the plans; the actuarial value of the policy he or she purchases will determine the level of cost-sharing an individual.

The following are covered under the clause: Ambulatory patient services, emergency services, hospitalization, maternity and new-born care, mental health and substance use of disorder services, including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices ,laboratory services, preventive and wellness services and chronic disease management, pediatric services including oral and vision care.

Contraceptive coverage

Under Obama Care, free contraceptives would be provided to women for birth control. Oral birth-control pills, emergency contraceptives and diaphragms as well as services like sterilization, counseling of patients and contraception education services would also be covered under Obama care.

The Act does not cover all pills and contraceptives. The insurance company has the discretionary power to decide on which contraceptives are to be covered and which ones are to be not. Condoms are not covered under this Act.

Obama care provides for Catholic hospitals, Catholic Charities, Catholic universities, and other enterprises owned or controlled by Catholic organizations that oppose contraception on doctrinal grounds to not provide for their employees, a cover for contraceptives.

In those instances, contraceptive coverage would be provided to the employees at no additional cost, by the insurance company itself.

ECONOMIC IMPACTS OF OBAMACARE

Public deficits

Healthcare costs have been projected to increase in the next few years in the United States. According to a report made by Congressional Budget Office in 2011, it is estimated that the total receipts by the federal government would be USD 813 billion while the total outlays would be around USD 614 billion thereby reducing the deficits by USD 210 billion.

The major reasons for decrease in the public deficits are a result of the following changes in the PPACA:

1. Levying higher Medicare taxes on the rich individuals.
2. Fees from health insurance companies.
3. Fees from other healthcare industry providers such as pharmaceutical companies and medical devices companies.
4. From 2018, both fully insured and self-funded employer health plans will be assessed the non-refundable 40 percent excise tax on the dollar amount of any employee premiums that exceed annual limits of $10,200 for individual coverage and $27,500 for family coverage, excluding stand-alone dental and vision plans. These plans are called ‘Cadillac Plans’ and offer generous benefits to the plan holders.
5. Penalty payments from Americans who are supposed to buy insurance but do not buy insurance.
6. Federal sales tax on indoor tanning services.
7. Reduction in Medicare reimbursements to insurers and drug companies for private Medicare Advantage policies that the Government Accountability Office and Medicare Payment Advisory Commission found to be overpaid (relative to government Medicare).
8. Reductions in amount of reimbursements to hospitals that do not meet standards of efficiency and care.

Contrary to these, it is estimated that the Act would increase the annual deficit by USD 75 billion per year and as a result the total public deficit would be around USD 753 billion. This would lead to an estimated 670,000 lost job opportunities every year.

Investment Scenario in USA:

The taxes, penalties and fees lay on investors and businesses will decrease the amount of investment in the United States. The economy would produce $706 billion less worth of goods and services due to decreased productivity due to the dismal investment scenario in the country. This in turn would result in lower wages and salaries for the workers. Higher taxes on investment also put upward pressure on interest rates as investors seek to achieve their after-tax desired rate of return.

Moreover, because of the decrease in the wages, there would be a reduction in the collection of taxes which could have been achieved otherwise. This in turn would increase the deficits as well as increase the debts causing an increase in the interest rates re-directing the money which could have been invested in alternative businesses. It is estimated that the government would spend USD 23 million more on interest rate payments over the 2010-2012 period than it would have done without the PPACA glooming the investment scenario.

Effect on Workforce

Under the PPACA, employers with a workforce of more than 50 are required to either provide health insurance for their employees who work full-time for them or pay a penalty to offset costs the government incurs to provide health care for the uninsured.

This could significantly reduce the number of uninsured, since approximately 70% of the uninsured workers are in families with at least one full-time worker.

This would help in the inclusion of poor families in the insurance coverage.

On the flip side, it is believed that the employers will respond to the mandate by reducing wages of the workers and paying for their insurance. In the case of workers at or near the minimum wage, the cost of insurance would be much higher and would not be able to compensate for the wages.

Employers might start laying off workers in response if the workers’ total compensation (wages plus insurance) exceeds their productive value to the firm.

This would depend on the following three factors:

1. The cost of the insurance, which will depend on the specifics of the mandate
2. The cost of coverage that will be passed on to workers via lower wages – workers generally bear the entire cost.
3. The number of uninsured workers who have their earnings closer to the minimum wage making it difficult for the employees to reduce the wages making, and how employers respond to the implied increase in compensation for these workers.

The PPACA is applicable only to full-time workers in organizations who work for more than 30 hours/week. This would in turn make many employers to hire part-time workers thus exiting out of the mandate to provide for insurance.

There has been a decrease of full-time staff by 4% in a survey from the Federal Reserve Bank of Minneapolis, but this is an insignificant number to prove that the effects have been due to the PPACA. Also, companies would refrain from doing so because of the increasing costs of training newer workforce.

There exists a possibility that those who will gain coverage from the mandate are not poor. Fewer than half of newly insured workers are in families with income less than twice the poverty line. Even those earning less than USD 15 / hour do not belong to poor families. Thus, many low wage workers are not from low-income families implicating that Obamacare might beneficiaries as intended.

IMPACT OF OBAMACARE ON INDIAN ECONOMY:

Rise in outsourcing business

With the passage of PPACA, the U.S. Department of Health and Human Services predicts that, call centers will receive 42 million calls about federal market place. On an average 2,00,000 telephonic calls. 2,400 postal mails and 740 electronic mails and approximately half a thousand web-chats would be hosted bringing in a lot of business for Indian BPO’s.

The healthcare market in India is expected to grow by 6.05 % to reach USD 17.9 billion in 2013 and call centers would have a growth of 9.8 % with an expected market size of USD 1.66 billion creating lots of job opportunities in India.

Boom in Medical tourism

US insurance companies plan to encourage medical tourism.

A 2011 KPMG report clearly establishes India’s cost advantage vis-à-vis other countries. A heart surgery in India costs USD 70,000-133,000 in the US, while it would cost USD 7000 in India, USD 31,750 in South Korea and USD 22,000 in Thailand. Similarly, the cost of knee replacement in the US is $30,000-53,000, while it comes to just $9,200 in India, $11,800 in South Korea and $11,500 in Thailand.

Many companies have started doing so in order to save money while others would do so when the Act becomes fully operational in 2014. And, India would have a greater edge, given its cost advantage, which has risen significantly with the recent fall in the rupee’s value.

LESSONS FOR INDIA:

Increase in reach and Poverty reduction

Currently, in India, less than 15 % of the population has health insurance coverage in some form or the other. If India passes an act similar to PPACA, the Out of Pocket expenditure which was 86.25 %, according to a World Bank report, would drastically reduce.

Out-of-Pocket Health Expenditure (% of Private Expenditure on Health in India)

(SOURCE: http://www.tradingeconomics.com/india/out-of-pocket-health-expenditure-percent-of-private-expenditure-on-health-wb-data.html)

This would also help reduce the phenomenon of ‘Poverty Penalty’ in India – wherein people tend to fall below poverty line due to out-of-pocket expenditures in healthcare. Nevertheless, gross written premiums for health insurance increased by 16 per cent. In 2011-12, it was Rs 13,212 crore while in 2012-13, it was Rs 15,341 crore. The health insurance premium has registered a compounded annual growth rate (CAGR) of 32 per cent for the past eight financial years.

Reduction in costs of medical treatment and standardization

With insurers having access to larger pool of data across regions, it would be used for analysis of claims for diagnosis, treatment etc. which would go way further to enable insurance firms to standardize treatment costs across healthcare providers making product prices more transparent and reasonable to the patients.

In the United States, the insurance companies negotiate with healthcare providers to provide a discount of as high as 30 % – 50 % to their subscribers. This is done would ensure a greater patient flow to doctors as well as ensure competition for the provision of quality care.

Rashtriya Swasthya Bima Yojana (RSBY) of the Ministry of Labor has been an outstanding example where 35 million families living below poverty line have been covered by insurance and the premiums came down from INR 600 in 2008 to INR 350 in 2012.

Need for the creation of a regulatory environment

Lack of information on the consumer side with regards to insurance in India demands for a regulatory mechanism to keep a check on prices of medical treatment – a fixed rate/slab for treatment being availed.

This would limit the scope of variation in treatment costs, thus disabling unreasonable hike in premiums over long-term.

Political Will & Commitment

If the goal of ‘Universal Healthcare’ is to be achieved as envisaged in the 12^th Five Year Plan by the Planning Commission of India, it has to understood that public health is a political issue, re-allocation of a greater amount of budget for public health is important for the well-being of our nation and all political resources should be mustered together to achieve the holistic plan.

Thus, the policy makers, civil society and health insurance companies have an equal role to play to reach the utopian dream of ‘Healthcare for All’ for India.

By: Dharmik Shah

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