Sweeping Changes to the Nation's Health Care System: Unpacking the Patient Protection and Affordable Care Act

The passage of the Patient Protection and Affordable Care Act (PPACA) on March 30, 2010, marks a significant shift in the nation's health care system. President Obama's signature legislation brings with it a slew of new regulations, restrictions, and fundamental changes to the insurance industry. As the regulatory framework and rules for the insurance industry begin to take shape, it becomes clear that the industry will look significantly different than it did before. The PPACA guarantees that those with pre-existing conditions will have the ability to purchase insurance coverage, with a high-risk insurance pool being established to provide coverage for those with pre-existing conditions. Insurers will be prohibited from denying coverage to children under 19 years of age, based on pre-existing conditions, and will be banned from rescinding existing policies, except in cases of fraud or intentional misrepresentation of a material fact.

The PPACA also introduces a medical loss ratio mandate, requiring health insurance issuers in the large group market to have a medical loss ratio of at least 85 percent, while those in the small group or individual market must have a ratio of 80 percent. Insurers that do not meet the required ratio must rebate excess revenue to their enrollees. As the industry navigates these changes, concerns arise over the potential sanctions that can be levied against carriers found to have discouraged individuals from remaining enrolled in their health coverage. Further, the $5 billion dedicated to the high-risk pool may not be sufficient to last until 2014, with states like Florida having shut down enrollment in similar high-risk pools due to insufficient funds.

Key Takeaways:

• The PPACA guarantees that those with pre-existing conditions will have the ability to purchase insurance coverage through the establishment of a high-risk insurance pool.
• Insurers will be prohibited from denying coverage to children under 19 years of age, based on pre-existing conditions.
• A medical loss ratio mandate will require health insurance issuers to have a medical loss ratio of at least 85 percent in the large group market, while those in the small group or individual market must have a ratio of 80 percent.
• Insurers that do not meet the required ratio must rebate excess revenue to their enrollees.
• The $5 billion dedicated to the high-risk pool may not be sufficient to last until 2014, with states like Florida having shut down enrollment in similar high-risk pools due to insufficient funds.
• Insurers may face sanctions for discouraging individuals from remaining enrolled in their health coverage.
• The PPACA's implementation could lead to an influx of high-risk patients being required to be covered by insurance, while restricting the industry's ability to reduce those risks and determine how to use the premiums received.

Statistics:

• 65 percent: the actuarial value of coverage offered under the high-risk pool must have.
• $5,950: the out-of-pocket limit for an individual under the high-risk pool.
• $11,900: the out-of-pocket limit for a family under the high-risk pool.
• 100 percent: the maximum premium that can be charged under the high-risk pool.
• 4 to 1: the maximum age rating that can be used under the high-risk pool.
• 85 percent: the minimum medical loss ratio required for health insurance issuers in the large group market.
• 80 percent: the minimum medical loss ratio required for health insurance issuers in the small group or individual market.

Sources:

• Foley & Lardner - Continuing Coverage and Analysis of Health Care Reform
• U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius' letter to state governors and insurance commissioners
• Senate Commerce Committee analysis of the current average medical loss ratio for for-profit health insurance companies
• PPACA - Patient Protection and Affordable Care Act