Health Policy Basics for Residents and Medical Students

Health Policy Basics

The information on this page has been adapted from The Health Care Handbook by Elisabeth Askin and Nathan Moore and from the EMRA Emergency Medicine Advoacy Handbook (Free E-book available for download).

 

CONTENTS

General Things to Know

Entitlement Programs

Health Care Reform

Common Health Policy Acronyms

 

GENERAL THINGS TO KNOW

How a Bill Becomes a Law

  • The legislative process
  • Watch this link for a concise overview of legislative system. The process is basically the same at the federal and state level.
  • The adventure begins when a member of the House of Representatives or the Senate files a bill on an issue he or she wishes to change within current law or newly add to law. Elected representatives sometimes think of and write their own bills, but more often ideas are suggested to them by others, such as non-profit organizations, private industry, and government executive agencies (the Department of Health, Department of Education, etc.).
  • After the bill is filed, it must be vetted by one or several committees which have special expertise in the bill’s subject. Committees are comprised of a small number of Representatives or Senators who often have previous experience with the subject material of the committee (former teachers on the Education Committee, etc.). Staff of the committee analyze each bill, point out any errors or unintended consequences, and suggest amendments to its language to ensure the bill best achieves its intent. Elected representatives on the committee discuss bills at a public meeting, incorporate amendments as they see fit, and vote on whether to allow them to continue the journey to becoming laws.
  • Once the bill has passed through all the committees it has been assigned to, it is placed on a calendar to be heard on the House or Senate floor. On the floor, the entire House or Senate has the opportunity to debate the merits of the bill, offer and vote on amendments, and vote on whether the bill should become a law. The entire chamber has to vote on the bill twice (called second and third reading) before it may be passed by that chamber.
  • The House and Senate must both pass identical versions of the bill. This requires careful timing and also much political give and take between the leadership of both chambers.
  • Once a bill has passed both chambers, it goes to the President’s or Governor’s desk for final approval. The President or Governor can sign the bill into law, veto the bill, or ignore it for long enough (varies by state) that the bill automatically becomes law. The Legislature can override a veto and pass the bill into law anyway if enough members (again, varies by state) vote to do so.
  • Response to change
  • Less than 10% of all bills filed each year will become law. In fact, it is not uncommon for the same bill to be filed for several years in a row before finally passing. The lawmaking process is further impeded by the fact that many state legislatures are only in session for a few months each year. (Although, the United States Congress is in session year round, and many complain that they don’t get much done either.) The complexity and slowness of the legislative process helps to maintain status quo but also makes the government slow to respond to change.
  • One way to help the government respond more quickly to pressing changes is through rulemaking. Governmental executive agencies, such as the Department of Health, fall under the purview of the executive branch but are given rulemaking authority by the legislative branch. Rules are like mini-laws which the agencies write themselves and which allow the agencies to formalize details related to implementation of the duties assigned to them. For example, a state’s Department of Health may be assigned the responsibility by law to license physicians, but the law may not describe the exact criteria needed for licensure; rather, this information is elucidated in rules written by the department. Rules can be changed at any time of the year and require the approval of far fewer people.
  • Executive orders are issued by the President or the Governor and direct agencies to behave a certain way. Since they only require the approval of the President or Governor, executive orders can also help the government respond more quickly to change.
  • Lobbyists
  • Lobbyists are paid by all kinds of organizations, from the American Medical Association to Verizon, to ensure that bills which would help the organization become law and those that would hurt it don’t. Lobbyists write bills and amendments and find elected representatives to sponsor them, convince Representatives and Senators to vote for or against bills on behalf of their clients, and ask legislative leadership to make sure certain bills are heard in committees and on the floor. Lobbyists also remind elected representatives of the campaign contributions their clients have made. Just like for Big Pharma, there are laws preventing lobbyists from giving lavish gifts, but they still exert considerable influence over lawmaking. Health-related lobbying accounts for more spending than any other industry sector.

Facts about the Uninsured

  • Courtesy of the Kaiser Family Foundation, 2011.
  • Characteristics
  • 61% of the uninsured are from families with at least one full-time worker, and 16% are from families with at least one part-time worker. 90% have a family income below 400% of the federal poverty level.
  • Young adults (age 19-25) have the highest uninsured rate of any age group: 30%.
  • 60% of uninsured, nonelderly adults have no education past high school.
  • 81% of the uninsured are U.S. citizens. They comprise 32% of Hispanics, 14% of Whites, and 22% of African-Americans.
  • They are more than twice as likely to report being in fair or poor health as those with private insurance. Almost half of all uninsured, nonelderly adults have a chronic medical condition.
  • More than 70% have gone without health coverage for over a year.
     
  • Access to care
  • About 26% of uninsured adults have forgone care in the past year (with more than 25% not filling a drug prescription) because of cost, compared to 4% of the insured.
  • The uninsured are diagnosed in later stages of diseases, includ¬ing cancer, and die earlier than those with insurance. They are also more likely to be hospitalized, where they receive fewer diagnostic and therapeutic services, and are more likely to die in the hospital than the insured.
  • When uninsured patients turn 65 and gain Medicare coverage, their access to care improves, their use of preventive care increases, and their overall health improves.
  • Finances
  • Hospitals frequently charge uninsured patients two to four times what insurers actually pay for services. Less than half of low-income uninsured adults report that they have received free or reduced-cost care in the past year.
  • In 2010, 27% of uninsured adults used up all or most of their sav¬ings paying medical bills. Half of uninsured households had $600 or less in total assets, compared to median assets of $5,500 for insured households.
  • Care compensation
  • In 2008, the average uninsured individual incurred $1,686 in health costs (compared to $4,463 for the nonelderly insured).
  • The uninsured paid for about a third of this care out of pocket. About 75% of the remaining, uncompensated cost was paid by federal, state, and local funds appropriated for care of the uninsured, which accounts for about 2% of total health care spending.
  • 60% of uncompensated care costs are incurred by hospitals. Most government dollars are paid indirectly based on the share of uncompensated care each hospital provides.
  • The percent of all physicians who provide charity care fell from 76% in 1996-97 to 68% in 2004-05.

Physician Shortage

  • Health care reform’s expansion of health insurance to millions of previously uninsured, coupled with the nation’s aging population requiring greater medical care, has caused many entities to warn of an upcoming physician shortage.
  • The Association of American Medical Colleges (AAMC) predicts that there will be a shortfall of 130,000 physicians by the year 2025.
  • The unequal distribution of the workforce, with most doctors practicing in metropolitan areas, will exacerbate the problem in rural and inner-city locations. The federal government already tracks parts of the country where medical care is scarce; these are known as Health Professional Shortage Areas (HPSAs). Locations and types of HPSAs (lacking in primary care practitioners, mental health services, dental services, or a combination of these) can be found here.
  • The shortage of primary care physicians is particularly concerning to many policymakers. Primary care is the easiest way for most patients to access health services, both for ongoing wellness or disease management and referral to specialists, and a lack of primary care physicians in an area almost always indicates a concurrent shortage of specialists. Primary care has also been associated with better health outcomes for a wide range of illnesses, primarily through greater access to needed services, increased focus on prevention, earlier management of health problems, and reduction of unnecessary and potentially harmful specialist care.
  • The rate-limiting step in producing more physicians is the amount of residency positions available nationally. Funding for residency positions comes principally from Medicare, and the number of residency positions has been capped at 1997 numbers by the federal Balanced Budget Act passed that year. While hospitals are free to create additional residency positions using private funds, few do. Any new residency programs must be approved by the Accreditation Council for Graduate Medical Education (ACGME, for allopathic programs) or the American Osteopathic Association (AOA, for osteopathic programs).

Professional Credentialing

  • Licensure is legal approval from a state government to practice a profession. Specific requirements for medical licensure vary from state to state, but all basically include graduation from medical school, passage of all parts of the USMLE, and completion of one or two years of residency training. Licenses must be renewed every few years by paying a fee and completing a certain number of hours of continuing education. State licensure is not transferrable; a physician who moves to another state must reapply for licensure in his or her new home.
  • Certification is a formal recognition of competence from a non-governmental, national professional organization. Most physicians who seek certification do so from member boards of the American Board of Medical Specialties or from the American Osteopathic Association. Certification is generally not required for state licensure, but many physicians take the certification exams after completing residency to improve their credentials for potential employers. Some certifying boards require renewal every few years through completion of continuing education courses, while others grant permanent certification after passing the entrance exam.
     

Insurance Reimbursement

  • Insurers negotiate contracts with individual health care facilities as well as with individual providers. These contracts can mix and match any of the reimbursement systems listed here, and at different rates, depending on the situation.
  • Entitlement programs such as Medicare and Medicaid rarely provide sufficient reimbursement to completely cover the costs of treating their beneficiaries. (Or so say hospitals—this may not actually be the case).
  • Types of reimbursement
  • Bundled payments for episodes of care: insurer will pay one lump sum, per diagnosis, for the entirety of a patient’s care, from laboratory tests and nursing assistance in the hospital to placement in a rehabilitation facility after discharge.
  • Capitation: insurer pays a flat rate per patient served, regardless of the severity or complication of the illness or the length of hospital stay.
  • Diagnosis-related group (DRG): DRGs were originally developed as a classification scheme to relate the types of patients a hospital treats to the costs incurred by that hospital. DRGs are used primarily by Medicare for hospital payment purposes but may also be used by other insurers. Insurers provide prospective payment for treatment of a patient based on the DRG which best described his or her condition. Reimbursement for treating essentially the same illness can vary widely depending on what DRG the patient falls into. A list of current DRGs can be found here.
  • Fee-for-service: insurer pays a set price for a given health care action. This type of payment tends to incentivize providers to perform more procedures and tests than might otherwise be necessary.
  • Pay for performance: insurer reimburses providers and facilities based on measures of clinical quality, safety, efficiency, and patient satisfaction.
  • Per diem: insurer pays a flat fee for each day the patient is admitted to the hospital to cover any care therein.
  • Relative value unit (RVU): like a DRG, but for physicians instead of hospitals. Medicare calculates the RVU for each action a physician performs based on work of the physician, expense to the practice, and cost of malpractice insurance. As you might imagine, this system rewards specialists who perform risky, costly procedures more than practitioners of primary care. RVUs are updated frequently by the Relative Value Update Committee of the American Medical Association, which suggests reimbursement rates to Medicare.
  • Sustainable Growth Rate (SGR): a formula established in 1997 and used by Medicare to determine how payments to physicians should be adjusted to control costs. The SGR was meant to correct for inflation and ensure that the yearly increase in expense per Medicare beneficiary does not exceed the growth in GDP. However, medical costs have been increasing much faster than GDP, and physicians will be reimbursed for a smaller and smaller fraction of what they do if Medicare adheres to SGR-predicted rates. Physicians reacted with fury in 2002 when the SGR recommended a 4.8% cut to their reimbursement, and since then, Congress has been enacting laws to prevent this pay cut from kicking in. Such laws have often been passed within days or hours of the next scheduled SGR cut, or sometimes even after the cuts have taken place, and every time the cut is forestalled, the potential percentage drop in physician reimbursement increases. However, Congress is loath to completely repeal the SGR for fear of the perceived multi-billion-dollar cost. Many national physician organizations have been working with the government to propose another solution.
     

How Residency is Funded

  • Medicare is the largest single program providing explicit support for graduate medical education (GME). Medicare pays teaching hospitals in two major ways, direct GME funding (DME), and indirect GME funding (IME).
  • DME covers a portion of the direct costs of training residents, such as residents’ stipends and benefits, teaching physicians’ salaries, accreditation fees, and related overhead expenses. The amount of DME funding a teaching hospital receives is related to the share of the hospital’s patients who are Medicare beneficiaries and to how many residents in ACGME-accredited programs (or AOA, for osteopathic programs) train there.
  • IME helps cover increased patient care costs associated with treating more complex cases, requiring standby capacity in burn and trauma centers, etc. These costs do not directly relate to resident training, but hospitals that have such characteristics make for better teaching environments. IME payments are based in part on the hospital’s ratio of residents to beds (the intern and resident-to-bed ratio or IRB ratio).
  • Special conditions apply to trainees who switch residency programs or do research years. In these situations, Medicare might not fund the entirety of their training.
  • In addition to funding physician training, Medicare also supports residencies in dentistry and podiatry.
  • Since pediatric hospitals receive very few Medicare patients, their residency programs are funded differently. The Children’s Hospitals GME Payment Program is funded with general federal appropriations dollars and administered by the Health Resources and Services Administration (HRSA).
     

Emergency-Specific Issues

  • The Emergency Medical Treatment and Active Labor Act (EMTALA) is a federal law which requires all hospitals participating in Medicare to evaluate every patient who presents to the ED for an emergency condition and stabilize such a condition if it is found, regardless of the patient’s ability to pay.
  • Emergency departments are generally money-losing enterprises for hospitals. Although the ED does serve as an entry point for admission to the hospital, only a fraction of patients get admitted. The groups with the highest rates of ED usage are Medicaid recipients, individuals with incomes under the federal poverty level, and the elderly. These groups also have higher than average rates of chronic medical conditions, which are expensive to care for in the ED, and are more likely to be insured by the government, which reimburses medical services at less than cost.
  • For a variety of reasons, including their inability to turn patients away, many EDs are overcrowded and patients often must wait several hours to see a physician. Since up to one-third of ED visits are for non-urgent or semi-urgent issues, one suggested solution to ED crowding is to increase access to primary care and urgent care.
     

State-Specific Issues

  • Scope of practice
  • In every state and for each licensed profession, laws regulate what members of that profession can and cannot do. This is termed “scope of practice” and determines what diagnoses, treatments, and procedures a health care professional may perform in each state. Scope of practice regulations may differ significantly from state to state for the same profession. For example, in some states, nurse practitioners are allowed to practice independently and prescribe controlled substances, while neither practice is allowed in other states.
  • Bills aiming to expand or reduce the scope of practice of various health care practitioners are part of a state’s legislative agenda almost every year.
  • Certificate of Need (CON).
  • CON laws are present in many states to help local governments control the planning of and access to new health care services. Before construction on a new hospital, nursing home, or other health care facility may begin, the facility must prove to the government that there is a need for such services in the region.
  • Proponents state that CON helps policymakers ensure that care is equally distributed across the state, rather than concentrating resources in a few areas. Detractors state that CON turns the construction of hospitals into a political game and that the laws are inconsistently applied.
     

 

ENTITLEMENT PROGRAMS

Medicare

  • Established in 1965 to insure the elderly and some disabled individuals. It is the largest insurer in the nation and is run by the Center for Medicare and Medicaid Services (CMS), part of the federal Department of Health and Human Services.
  • Medicare is funded by federal general revenue, payroll taxes, and beneficiary premiums.
  • Eligibility
  • Be at least 65 years old, have been a U.S. citizen or permanent resident for at least five years, and have paid (or have a spouse who has) Medicare taxes for at least ten years.
  • Be under age 65, be permanently disabled, and have received Social Security disability benefits for at least the previous two years.
  • Be under age 65 and receive Social Security benefits for amyotrophic lateral sclerosis (ALS).
  • Be under age 65 and need continuous dialysis or a kidney transplant.
  • Components
  • Part A: inpatient insurance, covering stays in hospitals and nursing homes, home health visits, and hospice. These benefits have a limit on the number of days they will pay for in a facility and are subject to co-pays and deductibles.
  • Part B: outpatient insurance, covering physician visits, preventive services, and home health visits. Also subject to co-pays and deductibles.
  • Part C: also called Medicare Advantage, this allows beneficiaries to enroll in a private insurance plan which will cover all regular Medicare benefits and may cover additional benefits or require co-pays and deductibles. Medicare pays these private insurers a fixed amount per month, per beneficiary. About 25% of all Medicare beneficiaries are enrolled in a Medicare Advantage plan.
  • Part D: for purchasing prescription drugs. This program is voluntary, operates through contracted private insurers, and is subsidized for low-income beneficiaries. There is, however, a coverage gap called the "donut hole:" Part D covers 75% of annual prescription costs up to $2700 and 95% of prescription costs over $6154, but costs in between $2700 and $6154 are not reimbursed at all. Those who are dual eligible for Medicare and Medicaid don't fall into this hole.
  • Supplemental insurance
  • Medicare requires somewhat high co-pays and deductibles, doesn't have a limit on out-of-pocket costs, and doesn't pay for long-term care (like a permanent nursing home), eye services, or dental services. Thus, many beneficiaries purchase additional insurance to reduce their medical expenses.
  • Employer-sponsored retirement benefits are one way to supplement Medicare.
  • Medicaid is another, for those that are eligible for both programs.
  • Medigap is voluntary insurance offered by CMS in addition to Medicare Parts A and B.

Medicaid

  • Medicaid is a joint federal-state program established in 1965 to insure the poor.
  • States must cover all citizens in the groups listed below whose incomes are less than a certain level set by each state (at a minimum, 20% of the federal poverty level).
  • Children.
  • Parents with dependent children.
  • Pregnant women.
  • People with severe disabilities.
  • Seniors. This provision allows many people, called “dual eligibles,” to receive benefits from both Medicare and Medicaid.
  • Medicaid programs are also required to offer certain basic health benefits to its beneficiaries but may offer more at each state’s discretion.
  • Federal and state governments share Medicaid costs, with the federal government contributing at least 50%.

State Children's Insurance Program (S-CHIP or CHIP)

  • The purpose of CHIP is to expand the number of children eligible for government health insurance beyond those covered by Medicaid. Eligibility and benefits vary broadly from state to state.
  • Funding comes both federal and state governments. Federal contributions make up a larger proportion of the overall cost for CHIP than for Medicaid.

 

HEALTH CARE REFORM

The Patient Protection and Affordable Care Act (ACA) and the Health Care Education and Reconciliation Act (HERA) were signed into law by President Obama on March 23, 2010. These laws represent the most sweeping changes to the government’s role in the United States health care system since Medicare and Medicaid passed in 1965.

Changes for the Federal Government

  • Medicare
  • Access to care
  • Expands eligibility to cover adults under age 65 who have developed health conditions following environmental hazard exposure in an emergency declaration area. However, only certain health conditions are covered, and only for emergency declarations after June 17, 2009.
  • Covers more preventive care without co-pays and deductibles.
  • Closes the Medicare Part D “donut hole” through rebates and subsidies. Pharmaceutical companies that participate in Medicare will be required to offer discounts to beneficiaries who fall into the donut hole.
  • Pilots new delivery programs such as Accountable Care Organizations, the Patient-Centered Medical Home, and home visits by physicians and nurses to some underserved beneficiaries.
  • Reimbursement
  • Freezes payments to some facilities and providers at 2010 levels for several years, while providing bonuses to primary care providers.
  • Pilots a program, starting in 2013, to switch Medicare reimbursement from fee-for-service to bundled payments for episodes of care. An episode of care will begin three days prior to a hospital admission and last for one month after discharge.
  • Adjusts payments to hospitals and other health care facilities based on productivity and performance.
  • Increases the number of beneficiaries who pay higher premiums due to income.
  • Decreases support for Medicare Advantage plans.
  • Research and policy
  • Establishes the Center for Medicare and Medicaid Services Innovation (CMS Innovation) to design, model, and test new delivery and payment systems for federal insurance programs with the goal of decreasing cost and increasing quality.
  • Creates the Medicare Independent Payment Advisory Board (IPAB) to recommend ways to reduce per capita spending on beneficiaries. IPAB recommendations automatically become law unless Congress acts to override them. The board’s first report, initially due in January 2014, has been delayed because Medicare spending has not risen fast enough to trigger IPAB intervention.
  • New oversight
  • Develops numerous institutes and boards which focus on national quality and prevention strategies, greater coordination between institutions, comparative effectiveness research, and health care workforce research.
  • Creates the Federal Coordinated Health Care Office, which will identify dual eligibles (those eligible for both Medicare and Medicaid) and coordinate reimbursement and care between the two programs. Currently, everything is managed separately.
  • Establishes new levels of oversight to prevent fraud and abuse of Medicare, Medicaid, and CHIP. Increased fees are levied on providers, hospitals, and suppliers to fund these fraud prevention services. In 2009, 18.6 of Medicaid, 10.4% of Medicare, and 6.8% of Medicare Advantage spending was due to waste, fraud, or abuse.
  • The federal government will also provide additional money to states for Medicaid and CHIP and will subsidize some health insurance purchased through Exchanges. Requirements concerning Medicaid and CHIP have also been changed as discussed below.
  • The ACA reauthorizes the Indian Health Care Improvement Act, which expired in 2001, to insure Native Americans and to help reduce health disparities between this group and the general population.

Changes for States

  • Health insurance exchanges
  • Exchanges are clearinghouses which certify and list all the health insurance plans available in a state and help people determine which ones are right for them. Exchanges assign a rating to each plan based on relative quality and price.
  • States are given the option to develop and administer their own Exchanges, or the federal government will do so if a state refuses. Either way, Exchanges must be up and running by 2014.
  • Each health insurance plan participating in the Exchange must state its specifications in plain language, such as claims payment, policies and practices, payments for out-of-network coverage, and which services have co-pays or deductibles. All plans must cover basic services such as ambulatory care, hospitalizations, prescription drugs, laboratory testing, rehabilitation services, and pediatric services and must include a variety of covered providers in both rural and urban areas.
  • Exchanges must set up certain tools to help potential beneficiaries compare different insurance plans. These include creating an easy-to-use website; using a standardized format for presenting benefit options; allocating employees or volunteers to guide potential beneficiaries through the process; and creating a calculator to determine the actual cost of a plan, taking into account individualized tax credits, deductions, and co-pays for each person.
  • Exchanges must help anyone eligible for an entitlement program to enroll in that program.
  • Grant money must be made available to community organizations for purposes of educating the public about the Exchanges.
  • Medicaid
  • The ACA originally required states to expand Medicaid eligibility to include childless adults and to cover all individuals with incomes less than 133% of the federal poverty level; states which refused to comply would lose all federal support for their Medicaid programs. However, the Supreme Court found this provision unconstitutional. States are no longer forced to expand Medicaid or lose their existing funding, but those which do increase eligibility will get 90% of the costs for newly eligible beneficiaries indefinitely covered by the federal government. (Federal support for the newly eligible starts out at 100% and gradually decreases to 90% by 2020).
  • Federal payments to states
  • As of 2013, Medicaid matching payments will increase to states in which Medicaid covers preventive services without co-pays or deductibles.
  • The federal government will increase funding for long-term care, preventive care, and testing new delivery systems. This includes providing grants for development of Medicaid programs to incentivize healthy lifestyles and piloting bundled Medicaid payments for episodes of care.
  • Hospital reimbursement
  • Hospitals will be able to employ “presumptive eligibility” and bill Medicaid appropriately. That is, if a hospital treats a patient who is eligible for Medicaid but is not enrolled, the hospital may assist the patient to enroll in Medicaid and then bill the program retroactively for his or her care.
  • Federal Medicaid payments for disproportionate share hospitals (DSH, pronounced “dish”) will be reduced to make funds available for new ACA programs. DSH payments are special payments allotted to hospitals which care for an above-average (“disproportionate”) percentage of uninsured patients. They are intended to partially reimburse such hospitals for the large amount of uncompensated care they provide. Originally, the decrease in DSH payments was to be counterbalanced by an increase in Medicaid eligibility (and thus Medicaid reimbursement) to cover many of the previously uninsured. If a state chooses not to pursue Medicaid expansion, hospitals in underserved areas may experience financial trouble.
  • The federal government will no longer provide matching payments for care related to hospital-acquired infections.
  • Other changes in payments
  • Medicaid reimbursement rates will be raised, using federal dollars, to equal Medicare rates for 2013 and 2014.
  • States must provide rebates to help lower prescription drug costs for Medicaid beneficiaries.
  • Piloting the Patient-Centered Medical Home: Medicaid beneficiaries can designate specific primary care providers as “health homes,” and the federal government will offer 90% matching payments for two years for health home-related services. This concept is heavily based on the Patient-Centered Medical Home, a physician-led care team which coordinates all of a patient’s health care needs.
  • CHIP
  • CHIP programs receive additional federal support under the ACA. The amount varies by state.
  • States are required to maintain eligibility for children in Medicaid and CHIP at pre-ACA levels until 2019. This provision is intended to prevent states from cutting coverage to children to offset the costs of insuring additional adults under Medicaid expansion.
  • The federal government will provide $50 million in grants for states to design and test alternatives to the current medical malpractice system.
     

Changes for Insurers

  • Coverage restrictions
  • Insurers can no longer deny people coverage for pre-existing conditions, end coverage when policyholders get sick (called recission), or charge higher premiums based on current or projected health status.
  • Rating risk groups can now only focus on age, geographic location, family composition, and tobacco use.
  • Annual deductibles, the amount a beneficiary must pay before insurance kicks in and pays the rest, are capped at $2000 for individuals and $4000 for families.
  • Insurers may not place annual or lifetime limits on the amount they will pay out for beneficiaries.
  • Dependents up to age 26 must be covered under their parents’ policies.
  • Insurers may not require co-pays or deductibles for preventive services.
  • The waiting period for new insurance to take effect is capped at 90 days.
  • Industry structure
  • Insurers must keep their medical loss ratios (MLRs) at 85% or more for large-group insurers and 80% for small-group insurers, or else they must provide rebates to policyholders. The MLR is the percentage of insurance premiums that the insurer spends on health care and health services for patients; the remaining percentage goes to overhead and profits.
  • Insurers must develop an appeals process and external review of health plan decisions. If a beneficiary has a complaint about an insurance plan, it may go through the internal appeals process, or the state may review the plan for compliance to law.
  • Consumer-driven insurance plans, such as flexible spending accounts (FSAs) and health saving accounts (HSAs), are de-emphasized and restricted.
  • Taxes
  • Several new taxes are levied on insurers to help fund health care reform.
  • Federal tax breaks for several types of high-cost and consumer-driver insurance plans, such as FSAs and HSAs, end.
  • Insurance plans operating in 2010 may be exempted from many of the industry changes made by the ACA as long as the plan does not reduce benefits; raise co-insurance, co-pay, or deductible charges; lower the employer contribution to insurance, or introduce or lower an annual limit on coverage. If a plan makes any of these changes, it qualifies as a “new” insurance plan and must comply with all the insurance provisions of the ACA. All plans, regardless of whether they existed in 2010, must end lifetime limits, annual limits, and recission and allow dependents up to age 26 to remain on their parents’ policies.
     

Changes for Employers

  • Small employers (<50 employees) receive tax credits if they offer insurance, and they will be allowed to purchase insurance through the Exchanges. They will also be able to apply for grants to establish employee wellness programs.
  • Large employers (51-200 employees) are required to offer health insurance and are fined if they don’t. Employers that do offer insurance may be penalized if premiums cost more than 8% of any full-time employee’s income.
  • Very large employers (>200 employees) must automatically enroll employees in the company’s health insurance plan, though employees may opt out.
  • All employers may offer certain rewards to their employees for participating in wellness programs and meeting health benchmarks.
  • Employers who have been receiving tax deductions on Medicare Part D drug subsidy payments for their retirees will no longer receive such deductions, as the federal government will be providing its own subsidies to close the donut hole.
  • The Early Retiree Reinsurance Program helps employers continue to offer health insurance to retired employees over age 55 who aren’t yet eligible for Medicare by reimbursing 80% of claims between $15,000 and $90,000. This program will last until 2014, after which point the beneficiaries can seek insurance through the Exchanges.
     

Changes for Individuals

  • The ACA offers expanded access to health insurance for everyone except undocumented immigrants. In fact, the ACA’s individual mandate states that people who don’t have some form of health insurance will be fined. Fines start out at $95 or 1% of income, whichever is greater, in 2014 and will rise each year until becoming $695 or 2.5% of income in 2016. Thereafter, the fine will increase with cost of living adjustments. The individual mandate was upheld as constitutional by the Supreme Court.
  • Who will not have to purchase insurance?
  • People with financial hardship. These people will be covered under existing entitlement programs or may receive subsidies to participate in the Exchanges.
  • People with religious objections.
  • Native Americans. Native Americans will receive care through the newly reauthorized Indian Health Services.
  • Those who are uninsured for three months or less.
  • Those who are incarcerated. Prisoners will continue to receive care from within the correctional system.
  • Tax changes
  • The Medicare payroll tax rate will increase by 0.9% on incomes above $200,000 for individuals or $250,000 for married couples. There will also be a 3.8% tax on unearned incomes (i.e., interest and stocks) for these groups to help finance various parts of healthcare reform.
  • Beginning in 2013, individuals will only be able to deduct out-of-pocket medical expenses from their taxes if these expenses are higher than 10% of income. The pre-ACA cutoff for such expenses was 7.5% of income, and individuals aged 65 or older may deduct at this level until 2016.
  • The Pre-Existing Condition Insurance Program, which began in 2010, insures individuals who have pre-existing conditions and have been uninsured for at least six months. This program aims to provide some coverage for people with pre-existing conditions until the Exchanges can be created and the various changes to the insurance industry can take effect.
     

Other Changes

  • More taxes
  • 10% tax on indoor tanning.
  • New taxes on medical device companies and pharmaceutical companies.
  • Not-for-profit hospitals must conduct community needs assessments and develop plans for financial assistance to the needy or face a $50,000 annual tax.
  • Restaurants with more than 20 locations must post caloric content on their menus and make information about saturated fats, sodium, and cholesterol available on request.
  • Emphasizing primary care
  • Medicare provides bonus payments for primary care services, at least for a few years.
  • The ACA redistributes unfilled residency positions in specialty fields (surgical internships, etc.) to residencies in primary care. It also creates funding for “teaching health centers,” the ambulatory equivalent of teaching hospitals, and allows primary care residencies to be based there.
  • More money is allotted for Federally-Qualified Health Centers (clinics which receive federal funding to provide comprehensive primary care, dental, and behavioral health services and employ a sliding fee scale based on patients’ incomes) and the National Health Service Corps.
  • There is additional financial support for training low-income individuals who wish to enter the primary care workforce.
  • The ACA expands the federal 340(b) Drug Discount Program to include safety net hospitals. This program requires pharmaceutical manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices.
  • A shorter FDA approval pathway is established for biosimilars, which are the generic version of biologics. This abbreviated pathway will be similar to the one for generic versions of chemical drugs.
  • New sunshine laws: the ACA requires disclosure of financial relationships between health entities, such as between hospitals and distributors of medical devices. Any gift, sponsorship, or ongoing financial relationship must be made available to the general public.
     

 

COMMON HEALTH POLICY ACRONYMS

  • ACA: The Patient Protection and Affordable Care Act. Passed in 2010 and otherwise known as federal health care reform.
  • ACGME: Accreditation Council for Graduate Medical Education. An independent agency which accredits all M.D. residency and fellowship programs. It also writes rules and regulations that all programs must follow, such as work hour limits.
  • AOA: American Osteopathic Association. Accredits D.O. residencies and fellowships.
  • CHIP: State Children’s Insurance Program. Federal-state partnership to expand the number of children eligible for government health insurance beyond those covered by Medicaid.
  • CMS: Center for Medicare and Medicaid Services. Runs Medicare and the federal portion of Medicaid.
  • CON: Certificate of Need. A law on the books in some states which requires a potential health care facility to prove to the government that there is a need for its services before it is built.
  • DME: Direct GME funding. Money paid to a hospital from Medicare which directly supports residency training (paying resident salaries, teaching physicians’ salaries, accreditation fees, etc.).
  • DRG: Diagnosis-Related Group. A classification scheme developed by Medicare to related the types of patients a hospital treats to the costs incurred by that hospital. Medicare provides prospective payments to hospitals based on what DRG a patient falls into; reimbursement for treating essentially the same illness can vary widely based on what DRG the patient falls into.
  • DSH: Disproportionate Share Hospital. Federal Medicaid payments made to hospitals which provide a larger-than-average amount of uncompensated care, intended to help these hospitals balance their books so they can continue to serve the uninsured. The ACA significantly reduces these payments; the plan was for the loss in DSH payments to be compensated for by an increase in Medicaid payments for beneficiaries newly eligible under expansion. Since the Supreme Court made Medicaid expansion optional, however, some safety net hospitals could soon face financial problems.
  • Dual eligibles: not really an abbreviation, but it means people who are eligible for both Medicare and Medicaid.
  • EMTALA: Emergency Medical Treatment and Active Labor Act. A federal law which requires any hospital which participates in Medicare to evaluate every patient who presents to the ED for an emergency medical condition and stabilize such a condition if it is found, regardless of the patient’s ability to pay.
  • FQHC: Federally-Qualified Health Center. A clinic which receives federal funding to provide comprehensive primary care, dental, and behavioral health services. FQHCs are open to all patients, insured or uninsured, and employ sliding fee scales for payments based on patients’ incomes.
  • GME: Graduate Medical Education. Residency and fellowship programs.
  • HERA: Health Care Education and Reconciliation Act. Federal health care reform is really made of two laws, the ACA and HERA. There is a little bit of health care reform in HERA, but most of it is in the ACA, which is why this law gets all the attention.
  • HPSA: Health Professional Shortage Area. Refers to an area of the United States designated by the federal government as not having enough primary care providers, mental health services, or dental services. Find out where they are here.
  • HRSA: Health Resources and Services Administration. A division of the federal Department of Health and Human Services which aims to improve access to health services for people who are uninsured, isolated, or medically vulnerable.
  • IME: Indirect GME funding. Money paid to a hospital from Medicare for things which make the hospital a great place for residents to train, such as increased care costs related to treating more complex patients, standby capacity in burn and trauma centers, etc.
  • IPAB: Independent Payment Advisory Board. An independent board established by the ACA and tasked with recommending ways to reduce per capita Medicare spending. The controversial part is, IPAB recommendations automatically become law unless Congress acts to override them.
  • MLR: Medical Loss Ratio. The percentage of its premiums that an insurer must spend on health care services for its beneficiaries. The ACA set the MLR at 85% for large-group insurers and 80% for small-group insurers (the remaining 15-20% goes to profits and overhead).
  • NHSC: National Health Service Corps. A federal program which offers some educational loan repayment to physicians who spend a few years working in medically underserved areas (inner cities, rural areas, etc.).
  • PPACA: same as the ACA.
  • RVU: Relative Value Unit. How Medicare calculates reimbursement for various practitioner services. RVUs are based on the work of the practitioner, expense to the practice, and the cost of malpractice insurance. As you can imagine this system rewards procedure-drive specialties much more than primary care specialties.
  • S-CHIP: same as CHIP.
  • SGR: Sustainable Growth Rate. A formula used by Medicare, intended to determine how payments to physicians should be adjusted to control costs. The SGR was meant to correct for inflation and ensure that the yearly increase in spending per beneficiary does not exceed the growth in GDP. However, the reality is that medical costs have risen much faster than growth in GDP, and providing reimbursement at SGR-predicted rates would result in huge pay cuts for physicians. Congress has instead been passing a series of laws over the last eleven years to bypass using the SGR, but it is loath to completely repeal it because of the perceived multi-billion-dollar cost.
     

 

FURTHER READING

  • Health Affairs (journal). This is the premier journal of health service research and policy commentary. It’s printed monthly, so check back often for new information.
  • The Health Care Blog. This blog includes submissions from physicians, economists, PhDs, and pundits on a huge range of topics across the political spectrum. As with Health Affairs, we recommend reading periodically to stay informed and up to date.
  • Kaiser Family Foundation Health Reform Source. A huge resource with all kinds of explanations and details on various parts of the ACA.
  • Mama Might Be Better Off Dead by Laurie Kaye Abraham. The author followed a poor Chicago family with a host of medical financial problems for a year in 1989. Though some of the obstacles presented are now outdated (and more will be after 2014), a surprising number are still relevant. It gives an excellent view into what it’s like to be sick and on Medicaid.
  • Medicare Payments for Graduate Medical Education: What Every Medical Student, Resident, and Advisor Needs to Know. Published by the Association of American Medical Colleges (AAMC), this document provides a detailed explanation of how residency is paid for and why that is important.
  • Patient Protection and Affordable Care Act (full text of the law). For those that want to know beyond a shadow of a doubt exactly what is in the ACA. A light, 974-page beach read.
  • The Social Transformation of Medicine and Remedy and Reaction by Paul Starr. The first is a history book which describes how health care in America was shaped from colonial times until today (today being 1980, when this book was published). Although it is twenty years old, this book is still the definitive text on the subject. The second book was written in 2011 and details the history of health care reform in America.
  • The Uninsured: A Primer. Updated annually by the Kaiser Family Foundation, this resource provides a through overview of issues and statistics concerning the nation’s uninsured.
     

 

Compiled by Elizabeth Davlantes, M.D.

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