ITUP Guide to the Constitutional Challenges to the ACA
|March 26, 2012||Posted by Lucien Wulsin under Health Care 101, Legislation/Policy||
The ACA expands coverage to the uninsured and assures continuity of coverage for the insured in several ways:
- First it expands Medicaid to all US citizens and long time legal permanent (5+ years) residents with incomes less than 133% of the Federal Poverty Level ($14,000 for an individual);
- Second it creates the Exchange, a purchasing pool for small businesses and individuals, and it subsidizes coverage through refundable tax credits[i] to low wage small employers and individuals with incomes between 133 and 400% of FPL (i.e. $14,000 to $44,000 for an individual). The undocumented are ineligible to purchase through the Exchange; citizens and legal permanent residents are eligible to purchase;
- Third it requires all insurance companies to guarantee issue and renew their coverage for individuals and small employers, regardless of pre-existing conditions – i.e. no more pre-existing condition exclusions for any individuals or employee; and
- Fourth individual citizens and legal permanent residents are responsible to enroll in coverage through their employers or through the coverage expansions above or pay a small tax penalty, beginning at $95 a year (this is the “individual mandate”).[ii] There are exemptions for unaffordability, financial hardships and religious objections among other reasons. Young invincibles and those with financial hardships or unaffordability have an option of catastrophic coverage; for all others the minimum essential coverage is referred to as “bronze” coverage that would cover at least 60% of expected medical expenses.[iii] An individual who has less coverage than bronze, can at their option be “grandfathered” – i.e. retain their existing coverage without incurring financial penalties.
The Supreme Court is going to hear four issues about the constitutionality of the Affordable Care Act (ACA): 1) ripeness, 2) individual responsibility/mandate, 3) Medicaid expansion’s impact on the states and 4) severability. Since you are all likely to hear lots of questions, this is an effort to make these issues understandable to the interested layperson. In the background is a great deal of political “sound and fury”. The named plaintiffs include the state of Florida and the National Federation of Independent Businesses and the defendants include the Secretary of the US Department of Health and Human Services, Kathleen Sebelius.
[i] A refundable tax credit and a premium subsidy are the same thing; there is bi-partisan agreement on the concept of these refundable tax credits, which have been tried a few times by Congress with reasonably good success. The ACA credits pay for the difference between a designated percent of an individual’s income and the cost of basic coverage. That percent increases with income from 2% to 9.5% of income. The cost of basic coverage is pegged to the second lowest priced available plan that covers at least 70% of basic health costs. So there are strong incentives to carefully shop on the basis of price comparisons.
[ii] The flat dollar amount equals $95 in the first year of coverage (2014), $395 in the second year and $695 in the third year and is capped thereafter at the growth in the medical CPI (Consumer Price Index).
[iii] The typical employer plan covers 80% of expected medical costs. What does bronze mean? It means the insurer would pay 60% of expected medical expenses and the individual would pay 40%. So if the average health cost is $5,000 annually, the plan would pay $3,000 and the individual $2,000. This is achieved through copays and deductibles that an individual must pay to the doctor or hospital when receiving medical care. To prevent financial hardship and medical bankruptcies, the ACA annually caps an individual or family’s maximum out of pocket exposure (about $6,000 for an individual and $12,000 for a family) and eliminates lifetime and annual dollar benefit caps.