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Inside the Patient Protection and Affordable Care Act: What Healthcare Reform Entails

Written by Nickel - 27 Comments

Patient Protection and Affordable Care ActIn case you haven’t heard, the House of Representatives passed the healthcare reform bill (H.R. 3590) yesterday in a divisive vote that saw every single Republican vote against the bill while 219 of 253 of Democrats voted for it. President Obama is expected to sign the bill into law on Tuesday.

This is a large and complex bill whose effects will be phased in over the next six years. If you’re interested in reading the entire bill, I encourage you to do so. If not, then you’re in luck…

The following rundown comes comes from an excellent summation by Reuters. Obviously, there’s a lot more to it than this, as the entire bills spans more than 2000 pages. But this is a good start.

Healthcare reform within the first year

  • Insurance companies will be barred from dropping people from coverage when they get sick.
  • Lifetime coverage limits will be eliminated and annual limits are to be restricted.
  • Insurers will be barred from excluding children for coverage because of pre-existing conditions.
  • Young adults will be able to stay on their parents’ health plans until the age of 26 instead of being dropped at age 19, or when they finish college.
  • Uninsured adults with a pre-existing conditions will be able to obtain health coverage through a new program that will expire once new insurance exchanges begin operating in 2014.
  • A temporary reinsurance program will be created to help companies maintain health coverage for early retirees between the ages of 55 and 64. This also expires in 2014.
  • Medicare drug beneficiaries who fall into the “doughnut hole” coverage gap will get a $250 rebate.
  • A tax credit will become available for some small businesses to help provide coverage for workers.
  • A 10% tax on indoor tanning services that use ultraviolet lamps goes into effect on July 1.

Healthcare reform in 2011

  • Medicare will provide 10% bonus payments to primary care physicians and general surgeons.
  • Medicare beneficiaries will be able to get a free annual wellness visit and personalized prevention plan service.
  • New health plans will be required to cover preventive services with little or no cost to patients.
  • A new program under the Medicaid plan for the poor goes into effect in October that allows states to offer home and community based care for the disabled that might otherwise require institutional care.
  • Payments to insurers offering Medicare Advantage services will be frozen at 2010 levels. These payments are to be gradually reduced to bring them more in line with traditional Medicare.
  • Employers will be required to disclose the value of health benefits on employees’ W-2 tax forms.
  • An annual fee will be imposed on pharmaceutical companies according to market share. The fee will not apply to companies with sales of $5 million or less.

Healthcare reform in 2012

  • Physician payment reforms will be implemented in Medicare to enhance primary care services and encourage doctors to form “accountable care organizations” to improve quality and efficiency of care.
  • An incentive program will be established in Medicare for acute care hospitals to improve quality outcomes.
  • The Centers for Medicare and Medicaid Services, which oversees the government programs, will begin tracking hospital readmission rates and puts in place financial incentives to reduce preventable readmissions.

Healthcare reform in 2013

  • A national pilot program will be established for Medicare on payment bundling to encourage doctors, hospitals and other care providers to better coordinate patient care.
  • The threshold for claiming medical expenses on itemized tax returns will be raised to 10% from 7.5% of income. The threshold will remain at 7.5% for the elderly through 2016.
  • The Medicare payroll tax will be raised to 2.35% from 1.45% for individuals earning more than $200,000 and married couples with incomes over $250,000. This tax will also be imposed on some investment income for that income group.
  • A 2.9% excise tax will be imposed on the sale of medical devices. Anything generally purchased at the retail level by the public is excluded from the tax.

Healthcare reform in 2014

  • State health insurance exchanges for small businesses and individuals will open.
  • Most people will be required to obtain health insurance coverage or pay a fine if they don’t.
  • Healthcare tax credits will become available to certain income groups to purchase coverage on the exchange.
  • Health plans will no longer be able to exclude people from coverage due to pre-existing conditions.
  • Employers with 50 or more workers who do not offer coverage will face a fine of $2,000 for each employee if any worker receives subsidized insurance on the exchange. The first 30 employees aren’t counted for the fine.
  • Health insurance companies will begin paying a fee based on their market share.

Healthcare reform in 2015

  • Medicare will create a physician payment program aimed at rewarding quality of care rather than volume of services.

Healthcare reform in 2016

  • An excise tax on high cost employer-provided plans will be imposed. The first $27,500 of a family plan and $10,200 for individual coverage will be exempt from the tax. Higher levels will be set for plans covering retirees and people in high risk professions.

What do you think?

As divisive as this issue has been for our country, I’m going out on a limb here and asking you guys to share your thoughts. At the same time, I’m going to have to ask you to keep the discussion civil and respectful. To the extent possible, please try to focus on the details of the legislation. Name-calling and other ugliness will not be tolerated.

If you’re looking for more info on the healthcare reform bill, be sure to check out the Tax Foundation’s summary, as well.

Source: Reuters.com via Bargaineering.com

Published on March 22nd, 2010 - 27 Comments
Filed under: Insurance, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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27 Responses to “Inside the Patient Protection and Affordable Care Act: What Healthcare Reform Entails”

  1. 1
    Dan Isaacs Says:

    On balance, it will be helpful. It is very inefficient, and leaves a lot of the overhead in place. I would have preferred an insurance program funded by the Gov’t (the “public option”). It would have done a lot more to reduce costs both to taxpayers and overall.

    But fixing the problem with pre-existing insurance, allowing children to be covered into their mid-20s, etc.. are all steps in the right direction.

    Insurance companies are just skimming profit off the top. They add no real value that could not be provided by a publicly funded solution for %30 less cost.

  2. 2
    Sara Says:

    I don’t understand fees on insurance companies and pharmaceutical companies based on market share. If you do well, you get punished? If it’s purely to raise more money, it will backfire, because companies will just make sure they fall below a certain percent of the market to avoid fees, the same as individual taxpayers who don’t want to be bumped up to a higher tax bracket. Same goes for fees on so-called Cadillac insurance plans. Shouldn’t they encourage people to pay for their own insurance, no matter how much they are paying? Who cares if they pay for more coverage, as long as it’s their money, not the tax-payers’.

  3. 3
    Ron Says:

    Add no real value?

    Medicare has 20% fraud rates and private insurance less than 2%. That’s efficient?

    Now with no pre-existing condition exemptions, you can get diagnosed with terminal cancer, and apply for and get health insurance. Yeah, that makes a lot of sense (not sure in which universe though).

    The public option hasn’t worked in any states or other countries where its been tried. The “leaders” in Congress could’ve done something great, but instead they chose to do something stupid. Government always does. Very few things that government does are wise, and none are efficient, yet we still keep going back to that same old muddy well, trying to convince ourselves that the water is purified.

    10% tax on tanning salons? C’mon, how does that help? Skin cancers from that type of exposure have been proven to be more hereditary than anything else.

    Raise the deductibility of health care costs from 7.5% to 10% of AGI. Oh yeah, that will help families (not).

    This bill was the worst of the worst. I’ll be very surprised if it survives the myriad of court challenges that are coming. If it was SO GREAT, why were the Democrats too chicken to vote for it, opting instead to “deem” it passed so they can claim they didn’t vote for it (right before their thrashing in November)?

  4. 4
    Nickel Says:

    Sara: That’s a fundamental misunderstanding regarding tax brackets. Only the dollars above and beyond the threshold of the next bracket are taxed at the higher rate, so you’re not losing anything by earning more. I would imagine that the fees mentioned above will work in a similar fashion.

    Ron: They didn’t deem it, though they did talk about that possibility. This passed on an old school vote.

  5. 5
    Jeff Says:

    My primary concern is that this bill is unafforable. We don’t have the money to pay for it, and it’s been widely shown that a lot of “savings” in the bill are being double counted for the new entitlements and medicare.

    Watching the financial meltdown in Greece where they can’t afford to do anything, the government is broke, and yet still the people who receive government pay or aid demand that there be no cuts to “their” benefits was a sobering look at the potential future of America.

    There are a lot of things that need to be fixed in our health care system (recision, pre-existing conditions, and most importantly the disconnect between what people pay and what real costs are) but this bill doesn’t really address those.

    Something that got vitually no press, no debate and no coverage at all is the inclusion of the government take over of the student loan market that was included with the House reconciliation package. It’s another way of turning college education into yet another unfunded entitlement. Built into the government student loan plans are sanctioned ways to get off without paying back the entire loan, leaving tax payers on the hook.

  6. 6
    tom Says:

    I struggle with two overarching issues:

    How will we pay for this?

    Is it constitutional to require health insurance?

    I do not see how we can pay for this without reducing benefits and raising taxes. I agree that health INSURANCE reform is needed, however we need to get to the root of the problem. Why is health CARE so expensive, which drives up health INSURANCE costs? Why does a tablet of asprin cost $20? Why is an MRI $5,000? Why is insurance limited to within the state and not national? These are the core issues that should be dealt with.

    I do not think it is constitutional to require a citizen to purchase health insurance. Unfortunately, the people who wouldn’t buy will most likely be young, healthy and fit, the very same people needed to pay for the old and unhealthy. It doesn’t work without mandating all citizens buy insurance.

    I am curious to see what will happen in the future with many states filing federal lawsuits against the bill.

    One thing I am certain about is that Congress needs an overhaul. I would go as far as saying in order to pass a bill, at least 50% of each party needs to vote “yes”. I realize that would create congressional gridlock, however, they will quickly realize that they will lose their jobs if they don’t start working together.

  7. 7
    Jeff Says:

    Nickel: You’re completely correct about the tax rate thing (although in some states with income tax at rate border zones you can see some weird things happen but you’ll get it all in a refund anyway).

    The major issue regarding increasing income under this health bill is that at some point you would cross the threshold and lose your government subsidy eligibility that dollar of gain that puts you over the subsidy amount results in a huge effective income loss. There was a good analysis of this in the Wall Street Journal on Feb 3 by Douglas Holtz-Eakin.

  8. 8
    Aryn Says:

    My main question is where did Congress learn basic math? How is a couple earning $250,000 the same as an individual earning $200,000? It should be $125 and $250 or $200 and $400. They pulled a similar move with the new homebuyer tax credit.

  9. 9
    Jim Says:

    Don’t forget that in 2013 the annual contribution limit for the FSA goes from 5,000 to 2,500. Better get that Lasik and orthodontics done now!

  10. 10
    The Biz of Life Says:

    I have two main gripes with the bill: 1) the philosophy that pervades government that though we can’t afford the entitlements we have now, so let’s go for more; it won’t be our problem when the bill comes due, and 2) when everyone realizes the plan is a massive failure, it’ll be the fault of the free market and more government spending will be the solution to the problem.

    The only way to pay for all this is with much higher taxes on everyone. Don’t be surprised to see a VAT in a 3 -5 years. After all, we are trying damn hard to become Europe and there aren’t enough rich sugar daddies to go around.

  11. 11
    Ryan@TheFinancialStudent Says:

    I would prefer the US move to a single payer system…like the one implemented in dozens of other countries.

  12. 12
    Michael Harr @ Wealth...Uncomplicated Says:

    Fundamentally, this bill isn’t health care reform as much as it is health care access reform. A comprehensive bill for health care reform would have done much more to get to the root of the cost problems whereas this bill does very little in that way.

    I’ve always viewed our health care problem as having two components: access and cost. This legislation addresses the first, and the second will need to dealt with sometime in the future.

    It is my hope that the economy and massive budget deficits will move Congress to center or a little right of center and that the new faces will be able to work on some targeted legislation to cut costs.

    Regardless of political view, this legislation was the right thing to do. Now, it needs to be paired with other legislation to make it the right thing to do for the long run as well.

    By the way, the tax penalties are far too low to be effective. My wife’s employer currently doles out over $6,000 annually for our insurance coverage and a penalty of $2,000 isn’t large enough to matter.

    Overall, happy that the problem of access has been addressed, but very much want to see some cost controls put in place.

  13. 13
    MGP Says:

    There are good and bad aspects to the bill. One of the main problems in the health care industry is related to incentives. It is difficult to expect an insurance to be comprehensive and generous with benefits to patients when at the same time they are for-profit entities.

    When a company has to choose between the welfare of patients or their own pockets (and dividend holders), it is obvious that they would choose themselves. In this environment, it is really to be expected of them and to expect them to be generous with benefits really is in some sense not fair to the companies. With that said, hopefully this bill will address some of those issues, which is seems that it tries to, and deal with this dividing factor of serving themselves and the public health care system.

  14. 14
    MGP Says:

    I partially agree with Tom saying:

    One thing I am certain about is that Congress needs an overhaul. I would go as far as saying in order to pass a bill, at least 50% of each party needs to vote “yes”. I realize that would create congressional gridlock, however, they will quickly realize that they will lose their jobs if they don’t start working together.

    But the practical problem of this rationale is that if say one house is 80% one party, and just 20% of the other, then requiring 50% of each party comes down to just a few people having influence, which in some sense, means little.

  15. 15
    John @ The Financial Ladder Says:

    What about the penalties the IRS will be imposing on people who don’t buy health insurance or are covered by a plan? Starting in 2014 it will be 1% of your gross income, or $95. The next year, 2% and the third year, 2.5%. Buy health insurance or pay the penalty, pay the penalty, or go to jail. It’s unconstitutional.

  16. 16
    cemccon Says:

    I was hoping for a nationwide, conception-to-death single-payer system. I wonder if anyone’s cost estimates included the time spent getting one’s medical bills / insurance straightened out. I have Blue Cross thru my employer, and spend at least 5 hours a month making sure clains are handeled properly. We also handle my mother-in-law’s health insurance, which is very complicated. We probably spend 10 – 20 hours per month working through her claims and bills. I also wonder how many people, especially the elderly, pay errorenous doctor bills when those bills should have been paid by their insurance company instead. Pfooey..

  17. 17
    cemccon Says:

    On another note, my Dad used to say “don’t do a half-assed job.” WE have a half-assed health-care system (both before and after the bill is implemented).

    Either we force EVERYONE to pay into the health-care system (a consumption or VAT tax would be most well-suited for this, in that evrtyone who spends money in America, even thouse who are here illegally, or those who work ‘under the table’) their entire lives, or we let those who can not pay suffer and die at the ER.

  18. 18
    Floridian Says:

    John #15 – that’s the basis for the lawsuit the Attorneys General of several states is filing. It will be interesting to see what happens. One one hand, we are required to buy insurance for such things as our cars, and our house when we have a mortgage. But, we can avoid those insurance requirements by not purchasing the car or house. THIS is an insurance requirement on living. No one can avoid it! I, for one, was glad to see that provision in the bill. I know way too many people whining that they can’t “afford” health insurance, yet they blow money on other things they don’t need and truly can’t afford(one of my uninsured friends was showing off his blackberry this weekend – “and it only costs $180/month for me and my wife!” yeah, he’s got his priorities straight! *rolls eyes*). Anyhow – the penalty may help to get certain people’s priorities straight. And it is quite funny to see the reactions when people who wanted “free health insurance” find out they will now have to purchase it or pay a penalty!

    and BTW – I think it was utterly disgusting HOW this got passed. Anyone who still believes there is not corruption among MOST of those (not just some) in Washington, including the so-called “president,” is living in a fantasy land!

  19. 19
    BG Says:

    “..Employers will be required to disclose the value of health benefits on employees’ W-2 tax forms…”

    I can’t wait to see that one. From my calculations, my employer is paying exactly $0 towards my health insurance. However I am getting a group discount rate that I otherwise wouldn’t be able to get on my own (estimated value $300).

  20. 20
    Daron Says:

    I love the 2014 provision for the exchanges that will include those starting their own companies. It’s a dream of mine, but with four kids and a great spouse it was just too scary a financial proposition to do it now. I’ll start preparing for the possible jump later this year…it’s crazy that something like health care insurance expenses would keep folks that would otherwise add a huge amount to the general tax revenues don’t take the chance due to one item not even related to the current job or future opportunities.

  21. 21
    Floridian Says:

    BG – your employer doesn’t show that on your paystubs? I’ve only had 3 jobs in the last 10 years – but all of them show (have shown) how much they contribute towards my healthcare (as well as other benefits). Mostly b/c they want to make it very clear that they are “paying” more than a salary. According to my employer – they are paying $21K per year (over and above my salary) for my benefits ($13,533 of which is for my insurance).

    I whould think you can find that out pretty easily from your HR dept. – I mean, I think every one should consider benefits as part of the total compensation package…not JUST the salary. (and as a hiring manager, I saw that most DO…well, the hirable ones any way ;) …)

  22. 22
    tom Says:

    @Michael Harr #12 – Agree with you on addressing costs. This bill does not begin to address $50 asprin and $5,000 MRI. They need to target medical malpractice insurance (tort reform), and all other major costs that are passed on to the consumer.

    I think cost and access go hand in hand. If they were to address all the costs that hospitals and doctors incurr, then insurance premiums would drop and millions more would be able to afford coverage. Subsidize the rest and everyone can be covered. Don’t require coverage, if it’s affordable, people will buy. Plus, requiring coverage might be found unconstitutional, and without addressing rising medical costs, many of the young and healthy will drop coverage which destroys the system.

  23. 23
    Todd Says:

    There is no such thing as free lunch.

    There are SO many reasons this bill is bad news, but since this is a finance discussion I’ll just say that it’s ironic that a bill that claims to reduce costs will, in time, increase the cost of health care to every American (who actually pays taxes) in a very, very big way. Americans need to prepare for this portion of their personal budgets to be even more inflationary than they’re used to. And as health insurance premiums rise (and they will rise significantly), employers will not be able to magically absorb the costs so look for other benefits at work to diminish like that yearly raise or that 401(k) match.

    There is no free lunch.

  24. 24
    MikeS Says:

    To echo Todd’s point.

    Here’s just a few things that will certainly increase the costs of policies in the future:

    Lifetime coverage limits will be eliminated. This means insurance companies will have to pay more than they did before, they’ll get that money from policy holders.

    New health plans will be required to cover preventive services with little or no cost to patients. Again, any additional claims the insurance companies are forced to make will result in higher premiums.

    Insurance companies will be barred from dropping people from coverage when they get sick. This one gets tricky I think because what happens if they can’t pay their premiums. The person loses their job because they got sick and now can’t afford their policy. Can they be dropped for non-payment? They are not being dropped because they are sick, but because they are not paying the premium.

    I think healthcare reform is needed, but I don’t believe this bill accomplishes that.

  25. 25
    tom Says:

    Todd and MikeS said it best.

    There is nothing in this bill that i’ve seen that prohibits insurance companies from jacking up premiums. The only thing to counteract the rise in rates will be federal subsidies.

    The only way to pay for subsidies is to tax you, me and corporations. You better believe corporations will, in turn, push those taxes back onto the employees and consumers. So bottomline is we end up paying for everything!

    I don’t understand how anyone can argue this bill reduces the deficit when it doesn’t even address cost of care!!! Cost of care, as I’ve said before, drives everything! What are the major overhead costs of hospitals and doctors (that are passed onto you, me and insurance)? Address that problem.

  26. 26
    ar Says:

    This one gets tricky I think because what happens if they can’t pay their premiums. The person loses their job because they got sick and now can’t afford their policy. Can they be dropped for non-payment? They are not being dropped because they are sick, but because they are not paying the premium.

    I think there are also subsidies and other help for people who can’t afford to pay their premiums. This should alleviate that problem somewhat.

    I am for the plan and the fact that pre-existing conditions will not be denied.

  27. 27
    T.S. Says:

    Unfortunately, the president lied when he said “if you have existing coverage, it won’t change”. It does change. I pay for healthcare through my company, and use the flex-care spending. We need this, as it pre-tax, and we can have (and need) up to $5000 in the account. In 2013, it changes to a capped $2500. That is unacceptable, as would be a mandate forcing us to buy it. I will be voting for anyone that will repeal this “healthcare”.

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