After decades of unsuccessful attempts by previous administrations, both Democratic and Republican, President Obama signed the most comprehensive health-care reform legislation in United States’ history on 23 March 2010. This historic reform will provide health insurance coverage to an estimated 30 million individuals who currently lack it and will introduce a series of measures to slow future increases in national health-care expenditures.

Comprised of over 2,000 pages, the law introduces significant changes to the regulation of the health insurance market, the promotion of preventive health care, the establishment of the nation’s first long-term care insurance programme and a major investment by the federal Government in measuring the effectiveness of medical treatments and pharmaceutical products. In view of the complexity of the legislation, implementation will be in phases, with some measures effective immediately while others will be in place by 2019.

Cutting costs

One major motivator for health-care reform is to cut the spiralling costs. The United States has gone from a surplus budget position to deficits of USD 13 trillion dollars in the past 10 years. Citizen fears of increased national debt resulting from health-care reform were stoked by political adversaries, significantly contributing to the difficulties in passing the legislation. However, the Congressional Budget Office, the nonpartisan government entity which calculates projected costs of legislation, estimates that the bill will cut the deficit by more than USD 1 trillion over 20 years.

One source of savings expected from Medicare is a shift from payment to doctors for each service or treatment provided, to what’s called “bundling”, or payment for treating, for example, high blood pressure comprehensively. Payment for quality outcomes, taxing generous employer-based plans, and increasing competition among private plans through the state exchanges (see below) are merely some examples of vehicles to cut costs for individuals, employers, and the nation overall.

The politics of health-care reform

The adoption by Congress of the landmark legislation followed a year of intensive negotiations between the US House of Representatives and the Senate, as well as a vigorous national debate in which all the major stakeholders – doctors, hospitals, health-insurance companies, drug manufacturers, etc. – made their views known through the media. Health-care experts point out that a major difference between the Obama health reform efforts and those of President Clinton, which ended in failure in 1994, was the position taken by employer and business representatives. In contrast with the near total opposition to the Clinton reform plan, employer and business interests worked actively to promote their own health-care reform alternatives, alarmed by the ever-increasing health-care expenditures in the United States, which currently amount to 16 per cent of GDP, the highest rate among the OECD countries. American business’s competitiveness was being stifled, and health-care costs were a critical hurdle that could now be crossed.

Republican and Democrat lawmakers were both leading and reacting to their voters’ views. Democrats holding control over the White House, Senate, and House of Representatives attempted to lead public opinion and tackle as many elements to reform as possible. However, a backlash which Republicans seized on occurred as the global economic crisis, high joblessness, and wars in Iraq and Afghanistan lead to high budget deficits. Among a number of controversial elements in the legislation were two that Democrats, including the President, fought hard to include: 1) a “public option”, the option for those under age 65 to buy Medicare coverage if no other insurance option was available, and 2) make insurance coverage mandatory for all Americans. Conservatives who believe in small government stoked fears that reform would lead to higher deficits, higher taxes, government funded abortions and increased “government involvement” in health care. “Socialism” had arrived on the shores of the United States.

Republicans, however, found that key moderate Democrats in the House and Senate shared concern over the mounting budget deficit. In a compromise among Democrats themselves, the public option was dropped to gain support from moderate Democrats, much to the vocal opposition of other Democrat legislators.

In spite of the active participation of all the major stakeholders in the health-care reform negotiations, a bipartisan consensus was not reached in Congress: the reform legislation passed in a 219-212 vote. All 178 Republicans opposed it, along with 34 Democrats.

Expansion of health-insurance coverage

A primary objective of the new law is to cover the uninsured population. Beginning in 2014, all individuals will be required to have health insurance, except those who have religious or other allowable objections. Those who do not have coverage will be required to pay a yearly financial penalty of either USD 695 per person or 2.5 per cent of household income, whichever is greater.

The Medicaid programme, which provides means-tested health-care benefits to low-income individuals will be expanded to include all individuals younger than age 65 with incomes up to 133 per cent of the federal poverty level. This Medicaid expansion, estimated to bring into coverage about 16 million persons, will create a universal eligibility threshold across the states and will eliminate the limitation of the programme that previously prohibited adults without dependant children from enrolling in the programme (as under previous Medicaid regulations, undocumented immigrants will not be eligible for this expanded coverage). Individuals with incomes above 133 per cent of the poverty level who do not have access to employer-sponsored insurance will obtain coverage through the newly-created state health insurance exchanges.

States will be required to create health insurance exchanges where individuals can purchase insurance and where small employers can contract for plans to cover their employees. To the disappointment of many health-care reform advocates, the state-run health insurance exchanges will not be required to offer a public plan to compete with the privately managed health insurance plans. However, health insurance plans in the exchange will be required to offer benefits that meet a minimum set of standards. Insurers will be required to offer four levels of coverage that vary based on contributions, out-of-pocket expenditures and the range of benefits provided by the plan. The four tiers will offer essential health benefits, and range in reimbursement levels of between 60 to 90 per cent of the cost of other care provided.

The Federal Government will provide contribution subsidies to families with incomes between 100 and 400 per cent of the federal poverty threshold. Workers already benefitting from health insurance coverage through an employer-sponsored plan will not however be eligible for the contribution subsidies unless the employer plan does not meet specified standards to be established by regulation. Moreover, the law states explicitly that federal contribution subsidies cannot be used to purchase coverage for abortion. This federal ban on the funding of any coverage of abortion developed into a major point of discord and threatened for a time the passage of the proposed legislation by Congress.

New regulation of the private insurance market

The refusal of coverage by private insurance companies because of “pre-existing medical conditions” will no longer be legal. New regulations will prevent health insurers from denying coverage to people for any reason, including their health status, and from charging individuals more based on their current or past health status and gender. Health insurers will be prohibited from imposing lifetime limits on coverage and will be prohibited from terminating coverage, except in cases of fraud. Young adults will be allowed to remain on their parent’s health insurance until age 26, which addresses the coverage gap that often occurred when young adults finished attending school, but had not yet found employment.

Another important innovation is to require health insurance plans to report the proportion of contribution dollars spent on clinical and quality services and to provide a rebate to the consumer if the amount of care and services covered by the insurance plan is less than 80 to 85 per cent of the contribution rate. The law will also set up a process for reviewing proposed increases in health insurance plan contributions. If proposed increases in contributions are found not to be justified, the plan will be excluded from participation in the state-run health insurance exchanges. The Government will establish a Website to help citizens to identify and choose among health coverage options. Health insurance plans will be required to follow standards developed by the Government for the presentation of information on plan benefits and coverage.

Additional innovations: “Work in progress”

In view of the political and fiscal complexity of the health-care reform legislation, it is hardly surprising that a number of significant innovations have yet to be fully aired in public discussions. A leading example of such a significant innovation is the CLASS Act, which establishes a national voluntary insurance programme for purchasing long-term care community living assistance services. Following a five-year implementation period, the programme will provide a cash benefit to individuals with functional limitations, initially estimated to be about USD 50 per day, to purchase non-medical services and supports necessary to maintain living in the community. The programme will be financed from voluntary payroll deductions: all working adults will be automatically enrolled in the programme unless they choose to opt-out. The United States has thus taken the first step towards the establishment of a national long-term care insurance system.

Another area of important change will occur in the area of preventive health. A National Prevention, Health Promotion and Public Health Council will be established to coordinate all federal wellness activities. The Council will be responsible for developing a national strategy to improve the nation’s health. Coverage of preventive health, without patient cost-sharing, will be expanded in both Medicaid and Medicare. Qualified privately-managed health insurance plans will be required to provide a range of preventive health-care benefits without cost-sharing by the patient. Employers will be eligible for cash grants and technical assistance to establish wellness programmes for their employees. All chain restaurants and food sold from vending machines will disclose the nutritional content of each item listed for sale. Finally, a Patient-Centered Outcomes Research Institute will be established to identify research priorities and conduct research that compares the clinical effectiveness of medical treatments, including preventive care. The Institute will be overseen by an appointed multi-stakeholder Board of Governors, which will issue guidelines and recommendations regarding different treatment alternatives. The proposal to create such a research institute drew considerable criticism from certain quarters of the medical community who viewed it as a potential threat to patients’ and doctors’ freedom of choice regarding treatment procedures. The legislation, however, explicitly rejects this criticism and limits the role of the research institute to that of an advisory body.

How will it be financed?

The initial legislation provides new government funding to both the federal and state governments to set up the health insurance exchanges and to put in place the mandates on individuals and employers that will come into force. Additional revenues to fund the reform will come in part from new taxes on households with income over USD 250,000 per year and from taxes on employees who benefit from “Cadillac” insurance coverage from their employer (plans considered to provide over-generous coverage will be subject to this new tax which may exceed 40 per cent of the contribution rate). Funding of the reform will also come from projected savings in the Medicaid and Medicare programmes over the course of the next decade. The long-range financing objective is however to achieve real savings in the health-care delivery system by reducing inefficiencies in the health insurance market and in the health-care delivery system itself.

Text by Ladan Manteghi, an expert on the global over-50 market, income security, health, and retirement, and the former President of the AARP Global Network.