Affordable Care Act will Restructure Health Care Market & Improve Access and Quality of Care

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By: James Roosevelt, Jr.

On June 28, 2012, a divided United States Supreme Court upheld most of the elements of the Patient Protection and Affordable Care Act (henceforth ACA).  This decision, which was one of the most anticipated of any ruling in recent Supreme Court history, clears the way, pending the outcome of the November 2012 Congressional and Presidential elections, for the full implementation of the law.

If the ACA does run the gauntlet of legal and legislative challenges, the impact of this law will be among the most far-reaching of any in American history.  In this regard, conservative critics of the law are right: the ACA represents a dramatic federal governmental restructuring of the health care market. Outside of Massachusetts and a few other states, the ACA will result in sweeping changes to the business practices of health insurers and a significant expansion of private and public health insurance coverage. The law also creates a framework for significant reform of the way health care is organized, delivered and paid for.  Even after the Supreme Court’s unexpected and unprecedented limitation of the Medicaid expansion process, the law envisions a significant expansion in Medicaid coverage.

Nonetheless, where these same critics are wrong is that the law does not represent a federal takeover of health care.  The ACA preserves the predominant role in the health care system for private providers and insurers and affords the states significant latitude over implementing many provisions of the law.

Ironically, the residents of Massachusetts, whose own 2006 health care reform law was the model for the ACA, had the least to lose of any state from a decision by the Court declaring the law unconstitutional. The experience of Massachusetts with health insurance has been dramatically different from the rest of the country. The state’s successful health care reform law already has resulted in extending health insurance coverage to more than 98 percent of its residents.  Still, even Massachusetts stands to benefit substantially from the ACA, particularly in terms of the quality and delivery of health care but also in alleviating state costs associated with expanded access to care.

After reviewing the Court’s ruling, this article will examine the effect of the Court’s decision on different provisions of the ACA and the potential impact of the law on four dimensions of health care and the health care market, both nationally and within Massachusetts:

  • Access to care
  • Quality of care
  • Delivery of care
  • Cost of health care

The Decision

The majority decision delivered by Chief Justice John Roberts in National Federation of Independent Business v. Sebelius seemed to catch almost all observers by surprise (including a number of news outlets which initially misreported the decision). The two key decisions issued by the Court were (1) to uphold the so-called individual mandate to purchase health insurance and (2) to strike down the law’s provision making all federal funding of a state’s Medicaid program conditional on the state’s agreeing to implement the significant expansion of Medicaid coverage contained in the ACA.

The Court ruled that Congress could not require individuals to purchase health insurance on the basis of its authority under the Commerce Clause, despite the strong argument that as a consequence of the sui generis nature of the health care market, individual decisions not to purchase health insurance effectively imposed higher costs on other consumers.  However, the Court upheld the mandate as an exercise of Congress’ taxing power, asserting that since the only consequence of an individual not maintaining health insurance (“minimum essential coverage”) is making an additional payment to the Internal Revenue Service, the mandate effectively amounted to a tax.

While this aspect of the decision caught many off guard, perhaps it should not have been unanticipated; historically even Supreme Court majorities that were inclined to reign in federal power have given broader latitude to Congress under its taxing authority than under the Commerce Clause.  For instance, the Court first initially upheld major New Deal enactments on the basis of Congress’ power to tax.

However, the Court’s decision on the Medicaid expansion was a radical departure from its own precedent. The ACA enlarges the population covered by Medicaid to include adults under age 65 (those over 65 would be covered by Medicare) earning up to 133 percent of the federal poverty level.  However, the Court by a 7-2 margin found that the provision by which Congress threatened to withhold existing Medicaid funds from states which refused to accept the Medicaid expansion was “impermissibly coercive.”  Thus, “for the first time ever,” asJustice Ginsburg points out in her dissent, the Court “finds an exercise of Congress’s spendingpowerunconstitutionally coercive.” Despite Chief Justice Roberts’ sharp break with the Court’s consistently upholding Congress’ authority to condition states’ use of federal funds, the Court did not, as Justices Alito, Scalia, Kennedy and Thomas had sought, invalidate the expansion of Medicaid under the ACA. Thus, practically speaking, the expansion of Medicaid was made optional not mandatory.

The Supreme Court & Access to Health Care

The primary purpose of the ACA is to extend health insurance coverage to a large portion of the 50 million Americans without it.  There are several aspects of the ACA that are designed to achieve that goal and, with the exception of the Medicaid expansion, the Supreme Court left all of these provisions intact.

Under the law, private insurers are prohibited from a range of all too common practices that have had the effect of restricting access to health insurance.  These practices, which have been eliminated by the ACA, include denying coverage or charging higher prices as a result of preexisting medical conditions, charging women higher premiums than men, retroactively terminating coverage for individuals who become sick, and imposing annual or lifetime caps on benefits.  In Massachusetts, we sometimes fail to appreciate the experience of many consumers in other states who have been denied or terminated from coverage or been hit with sharp premium increases. Take for example a case with which I am personally familiar of a 33-year old woman from California, who was rejected for health coverage by a well-known national insurer for an unspecified bone and joint abnormality.  As it turns out the woman, who was otherwise a picture of health with no known risk factors, had suffered a muscle pull five years earlier – or in insurance parlance a “bone and joint abnormality.”  These types of exclusionary practices are now banned.

The Supreme Court decision also leaves in place the most controversial aspect of the law: the individual mandate.  This provision was adopted to prevent people from “free riding” (not paying for insurance but still benefitting from guaranteed access to care and thus shifting costs onto other consumers) and to protect insurers and the market from consequences of “adverse selection” where individuals acquire insurance only when they get sick.  Prior state experience had shown that when states enacted reforms such as community pricing and guaranteed-issue absent an individual mandate, reform resulted, as Justice Ginsburg stated, in a “death spiral in the health insurance market” where insurers were forced to substantially raise health insurance premiums or exited the market.  It is ironic that conservatives have opposed the mandate, which was designed by the Heritage Foundation to allow health care markets to function more effectively and efficiently.

The Medicaid expansion is the cornerstone of the ACA’s goal of enhancing access to coverage and care.  It recognizes that an individual mandate alone cannot suffice when the majority of people without health insurance are unable to afford the premiums.  However, the impact of this aspect of the law has been thrown into question by the Supreme Court decision.

Prior to the ruling, the Kaiser Family Foundation had conservatively (absent aggressive federal and state enrollment campaigns) estimated that the expansion of Medicaid to all adults at or below 133 percent of FPL would increase Medicaid enrollment  by 16 million by 2019 and would result in a 45 percent reduction of uninsured adults under 133 percent of the poverty level. But those estimates were based on the assumption that all states would adopt the expansion.

Now that assumption has been thrown into question.  Several Republican-controlled states have expressed strong opposition to moving forward with any expansion.  I suspect that in the short-term this is driven largely by political grandstanding prior to the 2012 elections.  Let’s assume that the ACA survives any future legislative challenge and becomes firmly established as the law of the land; the question remains whether those same Republican governors would continue their opposition to the Medicaid expansion.

Many suspect they would not.  Although opponents of the ACA cited the burden on states that would be imposed by a Medicaid expansion, this appears to have little factual basis. The federal government will pay 100 percent of the costs for newly eligible adults between 2014 and 2016.  States will start contributing beginning in 2017, but their share would top out at 10 percent in 2020 and thereafter.  A recent study by The Urban Institute finds that in a worst-case scenario, states would in fact realize a net fiscal gain of 40.6 billion from 2014-2019 and more than 130 billion under optimistic assumption.  This gain results largely from replacing state and local spending on uncompensated care and mental health services.

Adding to the pressure will be new evidence that refutes claims of some critics who contend that Medicaid does not improve the health of recipients.  A July 2012 New England Journal of Medicine article finds that three states that substantially expanded Medicaid eligibility over the past decade experienced significant declines (6.1 percent) in mortality and increased rates of self-reported health status of “excellent” or “very good.” Further, elected leaders will likely face considerable pressure from hospitals and other providers to adopt the expansion if only to alleviate their financial burden associated with uncompensated care.

How this plays out could have a disproportionate effect on the success of the expansion, whose impact will vary considerably across states based on current levels of coverage.  In another twist of irony, it is precisely those states that are most likely to oppose expansion that have the most to gain.  For example, Alabama would realize a 53 percent reduction and Texas a 49 percent drop in uninsured adults with incomes at or less than 133 percent of FPL.

The final element of expanded access is the formation of state insurance exchanges, such as The Connector in Massachusetts, where consumers can purchase subsidized coverage that satisfies the individual mandate.   Those earning between 133 percent and 400 percent of FPL will be able to purchase insurance assisted by a sliding scale of federal subsidies.  On January 1, 2013, the Department of Health and Human Services will certify which states will be prepared to operate their own exchanges by January 1, 2014.  To date, 12 states and Washington, D.C. have enacted laws creating exchanges and nine others have such legislation pending.  We anticipate that many states are awaiting the outcome of the fall elections, but will ramp up their efforts to establish exchanges if it becomes clear that the ACA will survive. Still, it is very likely that the federal government will need to intervene and establish exchanges in several states that fail or refuse to implement the law.

The ACA was designed to provide a “continuum of coverage” from Medicaid to the Exchanges to employer-based plans.  With the Supreme Court decision, there is a possibility that gaps in coverage could emerge for individuals living in states that do not adopt the Medicaid expansion. Individuals who earn too much income to qualify for Medicaid but too little to receive subsidized coverage through the exchanges could face a new “doughnut hole” just as the old “doughnut hole” in Medicare coverage of prescription drugs is scheduled to be completely closed by the ACA by 2020. It is unclear how the federal government will respond to this situation but those individuals would at the very least be exempted from the mandate if they are unable to purchase minimum essential coverage on the open market for less than eight percent of their income.

Finally a word on Massachusetts.  It is quite possible that with less than two percent of the population remaining uninsured, we have hit the upper limits of coverage.  However, even in Massachusetts there are provisions of the ACA that should enhance access. Most notably the ACA allows children to be covered under their parents’ health insurance policies until the age of 26 and subsidizes the purchase of health insurance for people up to 400 percent of FPL versus 300 percent in Massachusetts.

Quality of Care

The Affordable Care Act contains numerous provisions designed to enhance quality of health care, which were left untouched by the Supreme Court decision.    In particular, the ACA contains measures which begin to (1) reorient the health care system towards a greater emphasis on prevention and keeping the population healthy; (2) reform the health care delivery system; and (3) focus on wellness and health outcomes.  In the long run, these provisions may be as significant as the expansion of access to health care in terms of improving the health of Americans.

The ACA implements key insurance reforms designed to improve access to preventive care,  including requiring that all insurers provide full coverage for clinical preventive services recommended by the US Preventive Services Task Force and that insurers not impose co-payments or deductibles for these services (in Massachusetts, this provision will eliminate co-payments on services such as pap smears and cholesterol tests).

Further the ACA provides up to $500 million for establishing a national public-private partnership  for a prevention and health promotion outreach and education campaign. The law also funds several demonstration projects promoting wellness programs in the workplace.

Finally, the ACA creates a Prevention and Public Health Fund, which could provide funding of up to $15 billion over the next ten years for public health initiatives, which would represent a substantial increase over the $10 billion annually the federal government currently spends on public health.

The ACA has been criticized by some public health advocates for its relatively paltry support for public health initiatives.  There is some justification for this criticism, but it often overlooks the changes the ACA initiates in the way we pay for and deliver health care, which will create market pressure for a stronger investment and emphasis on preventing and managing chronic diseases that now account for 75 percent of U.S. health care costs.

Delivery of Care

This brings us to changes the ACA facilitates in the health care delivery system.  Restructuring how health care is organized, delivered and paid for in this country is a monumental task, given that health care consumes nearly 20 percent of GDP.  The ACA cannot claim to restructure the health care market. However, it begins the process of moving the system towards one that better aligns cost and quality and integrates the delivery of health care.

The ACA creates a framework for the establishment of accountable care organizations (ACOs) in Medicare and establishes a shared savings program under which ACOs may earn additional payments by exceeding certain cost and quality benchmarks.  The law establishes several demonstration and pilot projects for supporting the shift away from fee-for-service payment methodologies to bundled payments (for episodes of care) and global payments (for defined populations over a given time period).  Finally, the ACA establishes a Center for Medicare and Medicaid Innovation to develop, test and disseminate innovative payment and care delivery models that emphasize care coordination and efficiency.

The ACA is subject to the criticism that it does not go far enough, fast enough in mandating these system-level changes.  However, as the experience in Massachusetts and in a number of health care systems across the country suggests, providers and payers are responding to strong market pressures to reduce costs by developing more integrated systems of care delivery and shifting to new reimbursement models. Even while the ACA was in a kind of legal suspension pending the outcome of the Supreme Court decision, the market was already adapting to the changes that the law is only beginning to set in motion.

Cost of Care

There has been no bigger myth than the claim that national health reform is a budget buster.  The best evidence for this comes from the experience of Massachusetts, which implemented its initial health reform law in 2006.  As the Massachusetts Taxpayers Foundation concluded in an April 2012 report, “Massachusetts has achieved near universal health coverage with only modest additional costs to state taxpayers.” During the five full fiscal years since it was implemented, the law has cost the state an additional $91 million a year after federal reimbursements — well within initial projections. The vast majority of the state’s increased spending has come from subsidies paid to low-income adults to cover the costs of private insurance, but that has been largely offset by decreases in state spending for uncompensated care and other supplemental payments made to safety net hospitals and Medicaid managed care plans.

Massachusetts has managed to pay for these reforms prior to the passage and implementation of the ACA, with its very generous federal subsidies. Massachusetts in fact stands to gain some $1.3 billion from 2014-2019 as a result of the increased federal support under national health reform.

And beyond direct state government costs, Massachusetts is making real gains in reducing its overall health care cost trend as it has begun to experiment with some of the innovative payment and care delivery models that are supported in the ACA. The annual rate of medical expense increase declined from 7.5 percent in 2007 to 1.5 percent in 2011.  As a result, the Massachusetts family health insurance premium declined 0.8 percent in 2010, as opposed to the national trend of a 6.5 percent increase.

The case of Massachusetts strongly supports the conclusion that the country can greatly expand access to health care without breaking the bank, and that the innovative health care quality provisions embodied in the ACA have great promise for significantly reducing the rate of growth in health care expenditures.


The Supreme Court decision removed the Constitutional threat to the ACA but ultimately left unresolved the political challenge to its very survival and complete implementation. The 2012 elections and politics in 50 state capitals will ultimately decide the fate of health care reform and whether the United States will finally join the ranks of almost every Western nation in guaranteeing full access to health care for all of its citizens.

Nonetheless, the ACA has set in motion transformative changes to the nation’s health care system that are unlikely to be reversed, including the ACA’s reforms that correct widespread abuses and inequities in the health insurance markets and the emerging shift towards new health care delivery and payment systems.  The ACA responds to two powerful currents in American society – the demand for equity in access to health care and the growing fiscal crisis brought on by unsustainable increases in the cost of health care.  The ACA’s future may remain in doubt, but no viable alternative has emerged for reconciling these two imperatives.

James Roosevelt, Jr. is president and CEO of Tufts Health Plan.