Although full implementation of the coverage expansions established by the Patient Protection and Affordable Care Act (PPACA) will not begin until 2014, the upcoming year will not be without major changes in the healthcare landscape. The results of November’s election essentially ensured that PPACA will not be overturned and that enactment of its many reforms will move forward. Thus, the focus has now moved to working out details of how this massive legislation will be implemented; state and federal government agencies are hard at work to meet upcoming deadlines for compliance. This article highlights the major changes that take effect this year.
Health insurance exchanges
PPACA mandates that all states have active health insurance exchanges by Jan. 1, 2014, when the mandate for insurance coverage goes into effect. As of November 2012, 17 states and the District of Columbia are planning on designing and operating their own exchanges. Six states will operate partnership exchanges with the federal government, and 17 states will default to the federal government for their exchanges. Ten states remain undecided. The federal government has given more than $2 billion in grants to the states to plan and establish exchanges.
In March 2012, the Department of Health and Human Services (HHS) issued the final guidelines for the structure of the exchanges; HHS published updated rules for the essential health benefits (EHBs) under eligible plans on the exchanges in November 2012. EHBs encompass the following 10 statutory categories of care:
- ambulatory patient services
- emergency services
- maternity/newborn care
- mental health/substance abuse services
- prescription drugs
- rehabilitation care
- laboratory services
- preventive care/chronic illness
- pediatric care (including dental and vision services)
States will retain flexibility in determining coverage details within each of these categories based on a “benchmark” plan that each state selects. Theoretically, the benchmark plan represents a typical package of insured care in that state. Exchanges will also be required to classify their plans based on actuarial value, so that consumers will be able to easily determine the percentage deductibles they will pay under each plan.
Defining and testing these exchanges will continue in 2013.
Medicaid and Medicare changes
The full expansion of Medicaid, as laid out by PPACA and clarified by the recent Supreme Court decision, does not occur until 2014. Nevertheless, in 2013, two key Medicaid changes take effect.
First, payments to primary care physicians for Medicaid services must at least equal Medicare payments for the same services.
Second, states can earn a 1 percent increase in federal Medicaid funding if they cover all recommended immunizations and preventive services with level “A” or “B” recommendations by the U.S. Preventive Services Task Force, without requiring additional payments from enrollees. A recent Kaiser Family Foundation study found that only 14 states currently cover all of these recommended services, and only six states do so without cost-sharing.
Within Medicare, the Bundled Payments for Care Improvement initiative, introduced in 2011 under the administration of the Centers for Medicare & Medicaid Innovation (CMMI), meets the PPACA mandate for a 5-year national pilot program on payment bundling. Interested providers have submitted applications to CMMI proposing bundling pilots based on four payment models, three with retrospective bundling and one with prospective bundling. CMMI has selected the first round of pilot programs, and payments are slated to begin in late spring.
Accountable care organizations (ACOs), the other major Medicare payment experimental model, will continue to expand. In July 2012, HHS approved an additional 89 ACOs, bringing the total number to 154 nationwide. These ACOs are now providing services to nearly 2.5 million Medicare patients. Applications for new ACOs will now be taken on an annual basis.
PPACA implements several new taxes in 2013. One that will have a direct impact on orthopaedic surgery is the 2.3 percent medical device excise tax, levied on medical devices ranging from joint replacement implants to pacemakers. This tax will be based on companies’ overall sales revenues, not profits.
In the short term, the tax is negatively affecting employment at device manufacturers; for example, in November 2012 Stryker announced that it would lay off more than 1,000 employees. Long-term, medical innovation will likely suffer, as research and development budgets will be hard-hit. Once current purchasing contracts with hospitals expire and are renegotiated, the increased cost of orthopaedic implants could be passed on to consumers.
Several new taxes will affect both business and personal finances. The Medicare tax on wages increases by 0.9 percent to 3.8 percent of income greater than $200,000 for an individual or $250,000 for a married couple filing jointly. A new 3.8 percent Medicare tax on investment capital gains will also apply to these taxpayers. The form 1040 medical expense deduction threshold increases from 7.5 percent to 10 percent of income.
Contributions to tax-protected health flexible savings accounts (FSAs) are now limited to a maximum $2,500 annual contribution. FSAs are still “use it or lose it” plans, where the end-of-year balance cannot be carried forward. Although the IRS is considering amending this policy, no final rule has been announced. Health savings accounts, which couple similar tax-protected savings accounts with higher-deductible health insurance plans, remain unchanged by PPACA.
David B. Bumpass, MD, and Julie Balch Samora, MD, PhD, MPH, are the 2012–2013 AAOS Washington Health Policy Fellows.
Editor’s Note: Policy Timeout is a series on advocacy issues written by AAOS Washington Health Policy Fellows.
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