March 1, 2013

ACA Highlights: How the New Law Affects Seniors and their Families

Michael A. Kirtland & Catherine A. Seal

With the re-election of Barack Obama as forty- fourth president of the United States, we now have some certainty concerning federal health- care legislation and its impact for the future. The Patient Protection and Affordable Care Act, commonly known as “Obama Care” and, for pur- poses of this article, the “Affordable Care Act” or “ACA,” was signed into law by the president on March 23, 2010, but its provisions are designed to be phased into law over a number of years.

As a result of passage of the ACA, a number of state attorneys general challenged the constitutionality of the Act, with the U.S. Supreme Court deciding in favor of consti- tutionality by a split decision. In the recent presidential election, the Republican candidate had vowed as part of the party platform to repeal the legislation, causing concern and confusion as to what future health- care policy in the United States would look like. While opponents in Congress may still seek repeal, with the reelection of President Obama and the make-up of the Congress, it is likely the law will phase into existence as planned.

Some portions of the law have already been phased in. These include some of the more popular portions of the Act. Under the new law already in effect, children can be kept on their parent’s health insurance until reaching age 26. This provision allows college students and adult children in jobs that do not provide health insurance coverage to be provided health insurance while they are in school and as they begin their careers, instead of having to go without healthcare coverage, as had often been the case in the past. As of 2010, insurance providers could no longer deny coverage to adults with preexisting conditions or to minor children with preexisting conditions. Further, the law eliminates lifetime limits on coverage. While the limits often seemed high in the abstract, given the high cost of medical treatment, it was not at all unusual for such limits to be reached, leaving individuals with chronic illness without medical coverage or any method of obtaining medical coverage, which had a drastic impact on the patients and their families’ finances and often led to bankruptcy.

To help with the high costs of medical care, the ACA provides tax incentives for employers who provide medical insurance to their employees in the form of tax deductions for the cost of medical insurance. Businesses that employ 25 or fewer people can receive a 35 percent tax credit for the cost of providing such insurance. This amount will increase to 50 percent by 2014. To claim the credit, the small business employer must pay at least 50 percent of the healthcare coverage costs. Large businesses (defined in the law as companies with 50 or more employees) may deduct insurance costs as well. For those large businesses that do not provide insurance after 2014, an assessment will be made against the company for employees who use individual tax credits to purchase their own medical insurance because their employers are not providing such insurance. Other insurance cost incentives exist for self-employed individuals. Unfortunately, the floor for itemized deduction of medical expenses will be increased in 2013 from 7.5 percent of adjusted gross income to a minimum of 10 percent. This increased floor will be waived through 2016 for individuals 65 or older.

A major feature that will help ensure virtually all of the American public is able to obtain health insurance is the creation of health insurance “exchanges” to provide a source of medical insurance coverage. These exchanges may be set up by the individual states. For for those particular states that do not have exchanges, a federal exchange is being developed. Information on insurance programs in the exchange is to be structured in such a way that a direct comparison of the various insurance policies available can be made, decreasing the fog and confusion often found in attempting to compare benefits and costs of various insurance programs. For individuals whose employers do not provide employee health insurance, and for businesses with fewer than 100 employees, these state-operated exchange programs will provide a market place for the purchase of healthcare insurance. The program will go into effect in 2014. However some states have already begun to develop such exchanges.

 

The exchange insurance offerings will include four levels of healthcare insurance coverage:

•     Bronze: Insurance covers 60% of healthcare cost, with an out-of-pocket limit of $5,950 for individuals and $11,900 for a family

•      Silver: 70% of cost; $5,950 / $11,900 out-of-pocket

•      Gold: 80% of cost; $5,950 / $11,900 out-of-pocket

•      Platinum: 90% of cost; $5,950 / $11,900 out-of-pocket

In addition, cost incentives exist for individuals who fall into a low-income category.

Many of the features implemented between 2010 and 2013 had a positive impact on health care for seniors. The ACA eliminated the so-called “donut hole” of prescription drug coverage which caused seniors with significant drug costs to pay out-of-pocket for prescription drugs and provided a one-time payment of $250.00 to such seniors to aid in the cost of drug coverage. The law has also provided seniors with wellness checkups, with the cost covered by medical insurance. Such wellness checkups have often been found to save costs in the long run because of the preventative nature of such care. Similar preventative programs providing mammograms and colonoscopies have also been included in the ACA. These programs are designed to reduce the occurrence of breast and prostate cancer, which are more common in older persons. Other no-cost-to-the-patient screenings provided under Medicare now include cholesterol and diabetes screening, as well as cervical and colorectal cancer screenings. While opponents of the ACA argue against the costs of such screening programs, studies have shown that the overall costs of medical care are reduced by such procedures. Similar cost reductions have been found through wellness visits, which are now provided to seniors enrolled in Medicare Part B (which pays for outpatient medical costs, typically doctor visits). Individuals over 65 who are enrolled in Medicare Part B will now receive an annual wellness visit without charge to them. Additional wellness programs are being developed for Medicare and Medicaid recipients for behavioral modification programs to assist people with obesity and smoking issues.

For younger Americans, the law requires medical insurance programs to provide for a list of basic immunization shots without cost to the patient. Small businesses will be provided tax incentives if they reward employees for participating in wellness programs. These employee rewards may come in the form of reduced premiums, reduced copays, or additional covered medical procedures.

Much confusion surrounded the provision of Medicare to Americans 65 and older as a result of the presidential election. Nothing in the ACA eliminates Medicare benefits to current beneficiaries. In fact, the ACA provides reductions in costs for prescription drugs under Medicare Part D by reducing patient copays over time and by requiring manufacturers to provide a 50 percent discount for seniors purchasing generic drugs while caught in the “donut hole” and a 25 percent reduction in costs for brand name prescriptions. The Act provides Medicare incentives for doctors practicing in areas with shortages of physicians by providing a 10 percent increase in payment for services to doctors in those areas and by providing additional payments to hospitals in rural and economically disadvantaged areas.

Traditional Medicare is the plan used by 75 percent of seniors, and this program remains essentially the same, although care providers will see a slight decrease in the rate at which growth in payments will continue. For the remaining 25 percent of seniors, Medicare Advantage, an HMO style program, is the primary medical insurance provider. This program’s cost will be reduced significantly by eliminating the nearly $1,000 per person paid per year by the federal government to insurance companies over and above amounts paid to traditional Medicare. The cost savings will, however, likely result in a decrease in benefits provided under Medicare Advantage. However, there will be no reduction in benefits guaranteed under Medicare. Additional cost savings to the government will come from making Medicare annual copays higher for individuals with greater incomes, starting at $85,000 for an individual and $170,000 for married couples. According to the Congressional Budget Office, such changes in payment rates, from individuals and to insurance companies, will significantly extend Medicare solvency.

To aid in dealing with the costs of long-term care and the quality of that care, the ACA makes a number of modifications to existing law. The ACA extends the so-called “Medicaid Money Follows the Person” program. Under this program, Medicaid dollars used for an individual in a nursing home may continue to be used for that individual’s benefit if the person transitions out of the nursing home and back into a non-institutional setting, typically his or her own home, through Medicaid’s Home and Community Based Services (HCBS) programs. Experience has shown that the use of the HCBS program results in fewer persons needing long-term institutional care in a nursing home, and, because HCBS services in the community are less expensive than nursing home costs, it also results in the saving of considerable amounts of money. The ACA extends the “Money Follows the Person” program until 2016 to demonstrate its cost effectiveness. To support Medicaid patients transitioning out of nursing homes, the ACA provides for family caregiver education and training on an ongoing, annual basis.

Both anecdotal and research-based studies have found that providing quality home care for dementia patients is an ongoing challenge. Pay levels for home healthcare providers are often low, and these individuals often lack the basic knowledge and skills to give quality home care to dementia patients. Therefore, this ACA training includes, not only basic caregiving skills, but also training in the psychological and behavioral impact of dementia. The Act requires that training programs be developed to certify home healthcare providers (typically nurse’s aides and other home healthcare individuals) in the area of dementia care to increase the quality of home health care provided to dementia patients living at home or in the community and also to reduce overall costs.

With respect to all forms of care for seniors, the ACA seeks to encourage innovation and new thinking. The Act directs the establishment of an Innovation Center within the Centers for Medicare and Medicaid Services (CMS) to develop new payment processes and other cost reduction programs, including demonstration and test programs. The Department of Health and Human Services (HHS) is directed to develop quality care indicators for dementia and other diseases for which there are currently no quality care indicators. The new Innovation Center is also directed to develop methods for coordinating dementia care with the medical care often necessary for dementia patients as a result of the other, ongoing medical issues that are so prevalent in dementia patients.

For dementia patients who cannot transition out of the nursing home setting, the ACA requires nursing homes to provide staff training in dementia management. To assist families in selecting a nursing home for their loved one, the Act requires the establishment of a website with comparative information on nursing homes. This is an expansion of the information on nursing homes currently available on the HHS website, www.medicare.gov/nursinghome compare. Many, if not most, families find dealing with dementia issues overwhelming when first confronted with a dementia diagnosis for a family member. Expansion of the highly acclaimed “nursinghomecompare” website could prove to be an extraordinarily useful benefit to family members in this situation. These portions of the ACA also provide for criminal background checks for individuals working in facilities with dementia patients to reduce the instances of abuse and exploitation of individuals with dementia and increase the quality of care they receive. These provisions are to go into effect in 2013. The annual wellness visit requirements already in effect include the obligation to provide a cognitive impairment detection test. This test should increase the rate of early-stage dementia diagnosis, thereby allowing earlier treatment and, hopefully, a slowing of the progress of the disease.

A significant amount of publicity concerning the Affordable Care Act involved discussion of the so-called “mandate” to have health insurance. Peeling aside the political rhetoric, this provision, was upheld as constitutional by the Supreme Court, which stated that the mandate and its associated penalty provisions were constitutional under the federal government’s taxing authority. Under the taxing provisions, an individual who does not have health insurance when the provision goes into full effect in 2016 will be required to pay a $695 tax times the number of uninsured members of the taxpayer’s family. This amount is capped at $2,085.00, equivalent to three uninsured family members, or 2.5 percent of the family income. The tax penalty will be phased in with a maximum tax of $95 or one percent of income in 2014, and $295 or two percent of income in 2015. There are a number of exemption categories, including American Indians and families whose income falls below the amount required to file a federal income tax return. For those under age 65, this latter amount was $9,500 for the 2011 tax year for a single person and $19,000 for a married couple. Also exempt are persons for whom the cost of the lowest cost health coverage plan available would exceed eight percent of the individual’s income, persons who were without healthcare coverage for less than three months, incarcerated persons, and people who qualify for hardship or religious exemptions.

If a large employer (50 or more employees) does not offer healthcare coverage, then the business will be subject to a tax of $2,000 for each employee. Businesses with more than 200 employees must automatically enroll their employees in the healthcare coverage plan of the business, though employees may opt out of the employer health plan. Thus, employees who are, for example, spouses of military service members and who receive military healthcare benefits, would not be required to also be enrolled in their employers’ healthcare plans.

The Congressional Budget Office estimates that, when fully implemented, 33 million Americans currently without healthcare insurance will have healthcare coverage under the ACA. For the poorest Americans, Medicaid will be expanded to cover all persons under 65 years of age with family incomes of less than 133 percent of a poverty-level income (approximately $29,000 for a family of four), and the premiums for the required healthcare coverage will be capped if the family income is below 400 percent of the federal poverty level. (The exact amount is determined on a sliding scale, and it depends on actual income.)

While the new law is anticipated to cost approximately $1 trillion over the next 10 years, it is also estimated that there will be cost savings because of the additional health benefits to virtually all Americans, as well as a reduction in anticipated Medicare costs. Universal health insurance, which has been proposed in some form for nearly half a century, is now upon us.

 

About the Authors

Michael A. Kirtland (mak@kirtlandseal.com), JD, LLM, and CELA, and Catherine A. Seal (cas@kirtlandseal. com), JD, LLM, and CELA, are partners in the Colorado Springs firm of Kirtland & Seal LLC. They specialize in elder law and trusts and estates. Both are active in the ABA’s Senior Lawyer Division and Section of Real Property, Trust and Estate Law.