In June of 2012, the U.S. Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (PPACA). The Court’s decision set the stage for significant changes in our health care system wherein an estimated 30 million Americans are expected to gain coverage through Medicaid, health care exchanges and employer-sponsored coverage. While these three coverage options are interrelated, the establishment and management of the exchanges pose the most significant challenges for states.
The health care exchanges will be government-organized marketplaces designed to help qualifying individuals and employer groups buy health insurance in a way that, in theory, permits easy comparison of available plan options based on price, benefits and quality. The law currently gives states the option to establish one or more state or regional exchanges, partner with the federal government to run the exchange or merge with another state’s exchange. If a state chooses not to create an exchange, the federal government will establish one in that particular state.
Applications for approval of a state-based exchange were due December 14, 2012, and applications to participate in a state partnership exchange are due February 15, 2013. To date, 24 states have submitted applications or letters of intent to run part or all of their health insurance marketplaces. Of these, 18 states have been conditionally approved to operate state-based exchanges and two states have been conditionally approved to operate a state partnership exchange. This lack of interest on the part of so many states is just one indication that the switch to a new health care exchange system will be a painful one, adding an additional layer of regulation and administration to an already-complex process.
Given that the open enrollment period for the exchanges begins on October 1, 2013, states are facing immediate challenges in implementing the exchanges. For example, states will now be required to oversee risk pools, develop their own effective rate review programs, establish open enrollment periods, certify qualified health plans and define “essential community providers.” Millions of Americans who were previously uninsured could be flooded with enrollment applications, thereby putting pressure on states to aid consumers in selecting coverage and determining subsidy eligibility.
Additionally, states will have to build an adequate IT platform, which is no small feat given the myriad laws affecting health information sharing, privacy and fraud and abuse.
States like Georgia, which to date have opted not to participate in the state-sponsored exchanges, still face enormous challenges as they will be mandated by law to develop an exchange through the federal government in time to enroll individuals by January 1, 2014. Although health care exchanges are expected to be up and running within the year, there are still many questions that remain unanswered. How will these exchanges be funded? Who will ultimately run them? Will quality of care be affected? And will they significantly expand health coverage for working Americans?
One thing is certain: the health care exchange system will affect a wide range of businesses, from employers to medical care providers. Because healthcare is such a complex industry with high costs associated with providing quality health care, this new system could have a crippling effect on non-profit “safety net” hospitals which already operate on razor thin profit margins.
For example, many non-profit hospitals rely on significant funding from the state and federal governments for treating the uninsured and underinsured. These funding sources will diminish as the exchanges become active because analysts believe the revenue expected from having more individuals insured will be less than the revenue hospitals receive under the current programs. However, this dollar-for-dollar tradeoff may not become reality, and hospitals will be forced to cover the shortfall with whatever funds are available, if any.
In addition, the cost of providing such high level care continues to climb and will outpace the hoped-for revenue gains. Therefore, hospitals will continue to struggle with a mandate to treat more patients and provide high quality care with fewer resources.
What changes can we expect to see in the coming years? First and foremost, the law mandates that companies with 50 or more full-time employees which do not provide adequate health insurance must pay a penalty if employees get tax credits to buy their own insurance. In addition, large employers that do not offer coverage must pay $2,000 per full-time employee, beyond their first 30 workers. In addition, payroll taxes will go up. Employers will be required to pay higher FICA and FUTA withholding taxes to fund the new system. Plus, state taxes could increase by as much as two percent to offset the cost of the new healthcare system. As is the case with Medicaid, health care providers will likely experience significantly delayed payments for services rendered.
Over the next year, employers will face important decisions about whether to provide group health coverage or to obtain coverage through a health care exchange. The differences in coverage eligibility, benefits, cost of coverage, administration and employer choice will vary greatly from state to state.
For guidance regarding how your business should prepare for future health care exchange mandates, seek the counsel of a healthcare attorney specializing in employee benefits.