Breaking down the Affordable Care Act: Changes to Private Insurance

healthcareThe Patient Protection and Affordable Care Act, commonly referred to as the ACA, PPACA or Obamacare, is the single largest attempt at health care reform since the introduction of Medicaid and Medicare in 1964. Some of the main goals of the ACA are to provide comprehensive, affordable coverage to the estimated 84 million Americans in the US that are either uninsured or have poor health coverage, as well as to make it easier for individuals to obtain and keep private insurance. Because having effective health coverage is a positive indicator for overall good health, the ACA attempts to extend coverage to these individuals with the goal of improving the health of the American population.

In this series of articles, we intend to provide an understandable, unbiased breakdown of some of the most important and relevant parts of the ACA for the Washington University community. We’ll address the changes that affect insurance policies, changes to Medicaid, and the much-discussed employer and individual mandates. These are just a few aspects of the 2000-page law, but this will give you a good working knowledge of the law’s philosophy, execution and relevance to you.

This article attempts to break down the most important changes to what every insurance plan must cover, new rules and regulations that insurance companies must follow, and how the law specifically affects young adults.

Insurers cannot impose annual or lifetime spending limits

Before the Affordable Care Act became law, an insurance company could impose limits on the amount they would pay doctors who accepted your plan. This could be enforced as an annual limit or as a limit for the lifetime of the plan.  For most people with health insurance, this was not a major concern; about 80 percent of plans had a lifetime cap of over $2 million. However, patients with chronic diseases were running through this limit, especially patients who required organ transplants, which often have a separate cap. Milliman, Inc puts the total cost of a kidney transplant at $260,000, so an individual whose plan had a $250,000 transplant-specific limit would be paying at minimum $10,000 out of pocket. Transplants are usually a last resort, so by then, patients have often already paid tens of thousands of dollars to manage their disease. Medical bankruptcy is the top cause of bankruptcy in the United States, and by eliminating all annual and lifetime spending limits (which took effect January 1, 2014), the Affordable Care Act gives individuals with insurance peace of mind, knowing that they are more than an accidental fall or a bad gene away from falling into medical bankruptcy.

Insurers cannot drop policyholders when they get sick

Before the current healthcare reform, insurance companies could drop you from their policy after (really, because) you got sick. So after seeing that you had contracted some illness or been diagnosed with a chronic condition and after realizing that they would have to reimburse your doctors for greater dollar amounts, an insurer could cancel your plan. The average medical bills for someone in this position totaled to over $20,000. This is part of a recurring theme of health insurance before healthcare reform: the more coverage you needed, the less you received. The ACA also prevents what the law calls “frivolous cancellations.” An insurer could previously cancel your plan if they found a mistake on your insurance application, even if that mistake was insignificant under your previous plan.  They could then proceed to ask you to pay them back for the money they spent on your medical care. The ACA mandates an end to these cancellations.

Pre-existing Conditions:

The ACA changed to the ways insurance companies can choose to whom to provide insurance. In the old health care system, insurance companies had the right to refuse to insure you if you had a condition or disease prior to applying for the new plan. The Affordable Care Act makes it illegal for insurance companies to deny you coverage if you have a pre-existing condition, meaning that patients will now be able to safely switch plans or find a new plan even when undergoing treatment. One notable exception to this rule is ”grandfathered” plans. These are plans that were bought individually before the PPACA went into effect, and they are not required to switch their policy concerning pre-existing conditions.

Young adults can stay on their parents’ plans until age 26

Young adults are key players in healthcare reform. However, they represent an enigma. Due to a more stretched budget compared to established adults, as well as a perceived invincibility complex, many young adults do not see the need for health insurance. They see it as a luxury they would have trouble affording and one they do not need, given the usual health conditions of a young adult. The double-edged sword of the invincibility complex is that, while most young adults are in good health and might not need insurance, good health is important to insurance risk pools to keep rates low. Insurance would be incredibly expensive if the only people covered were older individuals who needed significant medical services. This makes it even more important to have a pool of healthy people that pay insurance. That way, the average person on the plan is expected to incur fewer medical costs, which saves money for the insurance companies, who, in turn, can lower rates for everyone.

10 Essential Benefits:

The ACA makes sweeping changes to the basic requirements of all plans that will be offered on the newly established insurance exchanges and in certain marketplaces. These baseline requirements are established with 10 Essential Benefits that every new plan must cover. These include ambulatory services, mental health and substance abuse services, rehabilitative services, and maternity and newborn care, among others. Notably, these Essential Health Benefits also include full coverage for federally approved contraceptive methods. Some groups are philosophically opposed to this so-called “contraceptive mandate” and are calling it a violation of the Religious Freedom Restoration Act of 1993 (RFRA), which says that the government cannot interfere in a person’s normal exercise of religion. This is currently being debated on a national stage in the U.S. Supreme Court in the case of Hobby Lobby v Sebelius. This ongoing and highly controversial case will decide whether for-profit companies can claim a violation of religion freedom and use the RFRA to gain exemption from covering their employees’ contraception.

Medical Loss Ratio Fixed at 85 Percent

One of the major goals of the Affordable Care Act is to reduce unnecessary spending by health insurance companies. A novel approach implemented by the ACA is to mandate a fixed Medical Loss Ratio for these companies. In a typical health insurance company, part of any money earned from an enrollee (someone on the health plan) goes toward running the insurance company itself. Some of these expenses include administrative costs, overhead, marketing budget or profits. The rest of the revenue funds healthcare or quality improvement of healthcare. From this division of spending, we get the Medical Loss Ratio (MLR). The MLR is simply the raw amount of money that the insurance company spends on healthcare services for its enrollees and their dependents divided by the total revenue generated by health plan premiums. Under the ACA, the government sets minimum MLR’s (calculated as ratios, but more easily understood when expressed as percentages) that health insurance companies must meet. For insurers with at least 51 employees, the MLR must be 85 percent, and for smaller insurers with 50 or fewer employees, the MLR must be 80 percent. Why the difference based on size, you might ask? Larger insurance companies have more people paying premiums every month which gives them larger pools of money to pull from to pay for care.  This means that proportionally more of every dollar earned should be spent on healthcare.  In theory, this reduces the cost of insurance for the average person, which falls in line with the overarching goal of making health insurance more affordable.

The Affordable Care Act is one of the most complicated bills passed recently. Some of this complication is due to the way that our healthcare system has developed in the US. It has grown organically around our country’s needs, and it sometimes meets them in very inefficient or convoluted ways, especially compared to other countries that have much more unified systems. In some ways, the Affordable Care Act is our government attempting to unify the many disparate elements into a more cohesive whole.

In the coming articles, we will examine other hot button topics and try to help our readers understand some of the broader impacts of the ACA.



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'Breaking down the Affordable Care Act: Changes to Private Insurance' has 1 comment

  1. April 28, 2014 @ 12:35 pm David Wess

    Former Governor Howard Dean of Vermont campaigned for Medicare for all as a simple universal healthcare option. Unfortunately that idea was rejected by insurance companies in favor of this much more complex solution (ACA). Also US admin costs are roughly double the costs of other nations universal healthcare systems.
    Our private insurance system is fundamentally flawed in providing healthcare cheaply because it requires marketing and profits to be successful. Not so with universal healthcare.
    GR8 article. Thanks Alex

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