By Crystal Swann
April 5, 2010

President Barack Obama signed into law March 23 the most sweeping reform of the United States health care system in the last 50 years. Combined, the Patient Protection and Affordable Care Act (PL 111-148) and the Reconciliation Act of 2010 dedicate more than $900 billion in new federal funding over the next decade to provide as many as 32 million uninsured people with access to affordable health insurance. By 2019, 95 percent of Americans are projected to be covered, up from 85 percent today (and about 90 percent in the late 1970s).

Key provisions in the law include: an expansion of coverage through the creation of state-based exchanges or marketplaces and new federal subsidies for individuals and families purchase of insurance in those exchanges; expanded Medicaid eligibility to all individuals with incomes of up to 133 percent of poverty while specifying that in all states the federal government will cover most of the costs for all newly eligible individuals; and providing a one-time $250 rebate this year to Medicare beneficiaries who fall into a prescription drug coverage gap called the “donut hole.” Then starting in 2011, the law will create a discount of 50 percent on brand-name drugs (and increasing to 75 percent by 2020), effectively closing the “donut hole.”

The landmark health care law largely leaves existing employer-based health plans untouched. The law “grandfathers” many existing employer'sponsored plans, exempting them from a number of requirements including minimum-benefit standards and limits on how much workers must pay in out-of-pocket medical costs.

However, within six months of enactment, most individual and group plans, including those in the “grandfathered” category, must:

• Provide dependent coverage for children up to age 26;

• Remove lifetime limits on the dollar value of coverage; and

• Refrain from rescinding coverage except in cases of fraud.

The Congressional Budget Office found that the law would have little impact on premiums for employer'sponsored coverage. There remains some debate as to the laws possible impact on the cost of health insurance premiums.

Since many city retiree health plans integrate with Medicare, the provision within the law to create a temporary re-insurance program for employers providing health benefits to retirees over age 55 and not yet eligible for Medicare may provide meaningful subsidies to employee health systems, by offsetting the high costs of coverage for retirees 55-64 years of age.

Customarily, the federal government pays an average of $.57 cents on the dollar for Medicaid benefit costs. The expanded federal contributions to Medicaid mean that states will be reimbursed for the full costs of extending Medicaid eligibility to new income groups in 2014, 2015, and 2016. States will be provided a permanent federal match of 90 percent for the newly-eligible populations in 2019. For those states that already extended Medicaid benefits to childless adults, the federal contribution will phase in increases for the costs of those prior eligibility expansions.

By 2018, more than 51 percent of all health-care spending in America will be done by federal, state and local government, totaling some $2.2 trillion, according to the latest estimates released by the Centers for Medicare and Medicaid Services. Some analysts are estimating that the increased federal financing of state Medicaid spending, including the funds available in the health insurance legislation and the budget reconciliation bill, could result in a reduction in state Medicaid spending over the next decade. Relief in state Medicaid spending could translate into fewer cuts to services provided in states and cities.

However, the bill reduces funding for the Medicaid Disproportionate Share (DSH) Hospital program by $17.1 billion between FYs 2014 – 2020 and directs the Secretary to come up with a methodology for implementing these cuts. The Secretary is directed to make the cuts in a way that will be largely targeted to states that direct the lowest percentage of DSH allotments to hospitals with high volumes of uninsured and Medicaid inpatients. Low DSH states will receive a smaller percentage of reductions.

Even under the expanded Medicaid eligibility rules, many of the working poor will not be eligible for Medicaid. However, they will have access to the plans through the state exchanges, starting in 2014. There will be partial subsidies for the working poor and the moderate-income up to 400 percent of the federal poverty level. Unfortunately, many of the newly eligible may not be accustomed to health insurance and may continue to seek care in the emergency rooms and clinics.

Finally, the law invests $15 billion in prevention grants over the next ten years, and then maintains that funding by providing $2 billion each year thereafter. Seventy-five percent of current health care costs are the result of chronic disease, much of which is preventable. This funding will help communities and local health departments reduce long-term health care spending by preventing chronic disease.