The Impact of Health Reform: Resource Document

Terms

Adequate and affordable coverage
These concepts will be more fully defined as implementation of the ACA unfolds but generally speaking, “adequate” will describe a health plan that covers the “minimum essential health benefits” package and adheres to other established market rules. “Affordable” will describe a health plan with out-of-pocket costs and premiums that do not exceed a certain percentage of annual income.

Adverse selection
This phenomenon is defined as the tendency for higher-risk individuals to purchase insurance in greater frequency than lower-risk individuals. An insurance pool depends on having a large enough number of healthy members to keep the average costs of the plan low. If a larger than expected (or desired) number of sick members enters the pool and the costs escalate, healthy people may choose to exit and either forego insurance altogether or find a cheaper policy. As more healthy people exit the pool, average costs escalate even further for those that remain, creating a cycle that is untenable.

Affordable Care Act (ACA)
Commonly referred to as federal health reform, the Affordable Care Act came about in two separate pieces of legislation. First, the Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010. A few days later, the Health Care and Education Reconciliation Act (HCERA), which modified several provisions of the PPACA, was signed into law. The two are collectively known as the ACA.

Annual limits
Prior to the ACA, many insurers capped the amount paid out in claims for a person within a year. In 2010, the reform legislation limited annual caps to $750,000. The caps will grow to $1.25 million in September 2011, and then to $2 million in September 2012, before being completely eliminated in 2014. Similar to the prohibition on lifetime limits, the rules for annual limits also apply only to essential health benefits.

Actuarial value
Actuarial value refers to the percentage of total average costs for covered benefits that a health insurance plan will pay. For example, if a plan has an actuarial value of 70 percent, on average it will pay 70 percent of the costs of all covered benefits for a typical population. However, policy holders could be responsible for a higher or lower percentage of the total costs of covered services for the year depending on their actual health care needs and the terms of their insurance policy.

Bundled payments
Bundling is the practice of grouping payments for services instead of paying providers for individual services. For example, services for an individual over a period of time or for a particular diagnosis — such as diabetes — would be grouped and the provider of those services paid for that collection of services. Bundling can be “global,” meaning all services for a particular individual, or “episodic,” meaning all services for a particular individual related to a particular health event.

Cadillac tax
This tax, beginning in 2018, will apply to health insurance plans with rich benefits. The tax will equal 40 percent of the plan’s value that exceeds $10,200 for an individual and $27,500 for a family.

Consumer protections
In Kansas, small employers with between two and 50 employees are already protected by guaranteed issue rules (see definition below). Insurance for larger employers is governed by either state or federal law depending on the type of insurance, and consumers are fairly well protected in the large-group market.

Cost sharing
A requirement that a portion of the cost of covered services be paid by the policyholder of a health insurance plan. Deductibles, co-payments and coinsurance are examples of cost sharing. The cost-sharing limits imposed on plans offering the essential health benefits package are tied to the amounts applicable to high-deductible health plans with health savings accounts. In 2010, those amounts were $5,950 for individuals and $11,900 for families; by full implementation of the ACA in 2014, they may be slightly higher.

Cost-sharing subsidies
The federal cost-sharing subsidies will reduce out-of-pocket expenses and are tied to family income level.

Coverage tiers
Private coverage tiers in the health insurance exchanges represent different levels of covered benefits. They are determined by the plan’s actuarial value.

Dependent coverage
Prior to the ACA, some insurers in Kansas defined age 19 as the cutoff for dependent coverage, while many others used age 23. It is important to note that the ACA does not require dependent coverage; rather, it creates a new age limit for those plans that do provide dependent coverage.

Dual eligibles
A term used to describe an individual who is eligible for Medicare and for some level of Medicaid benefits. Most dual eligibles qualify for full Medicaid benefits, including nursing home services, and Medicaid pays their Medicare premiums and cost sharing. For other dual eligibles, Medicaid provides the “Medicare Savings Programs” through which enrollees receive assistance with Medicare premiums, deductibles and other cost-sharing requirements.

Employers
The data sources used for these health reform materials include technical definitions such as “establishment,” which refers to a particular workplace or place where business is conducted, or “firm,” which refers to a collection of one or more establishments, all owned by the same person or entity. For the sake of simplicity, the word “employer” is used in these health reform materials. As worded in the data source, roughly 60 percent of large private Kansas “establishments” that offer health insurance self-insure “at least one plan,” versus roughly 13 percent of small private Kansas “establishments.”

For more information about how data on employers is collected, see http://meps.ahrq.gov/mepsweb/survey_comp/ic_technical_notes.shtml.

Essential community providers
These health care providers see predominately low-income, medically underserved people.

Essential health benefits
The ACA requires that certain insurance plans provide a minimum level of covered health services known as the essential health benefits. The requirements for the essential health benefits package are not yet fully defined, but they will include services such as hospitalization, outpatient care and prescription drugs.

There are about 42 benefit/provider mandates currently required in Kansas. Sources differ in their estimates for the number of provider or service mandates because the definitions used for what exactly constitutes a mandate vary. Two sources for the number and type of mandates required in Kansas are provided below:

Exemptions to the mandate
People exempt from the individual mandate’s requirement to purchase coverage include those with qualifying religious exemptions, those in a health care sharing ministry, individuals not lawfully present in the United States, incarcerated individuals, those who are without coverage for less than three months (with only one period of three months allowed in a year) or members of Indian tribes. Qualifying individuals who would otherwise be subject to the mandate, but who reside outside of the United States, as well as bona fide residents of any possession of the United States will be considered to have minimum essential coverage and therefore will not be subject to the financial penalty.

Federal contribution
The federal government will pay 100 percent of the costs of the newly eligible Medicaid enrollees when the program expands in 2014. Those payments will decrease over time as follows, and the remaining amount will be paid by the states:

2014−2016: 100%

2017: 95%

2018: 94%

2019: 93%

2020 and on: 90%

Federal high-risk pool
Officially known as the Pre-existing Condition Insurance Plan, or PCIP, the federal high-risk pool was actually set to be in place 90 days after enactment of the ACA, but was slightly delayed. The federal high-risk pool imposes cost-sharing limits for out-of-pocket expenses — $5,950 for an individual and $11,900 for a family. This out-of-pocket limit does not include the cost of premiums. The federal high-risk pool requires that a person have been without insurance for at least six months to qualify.

Federal Poverty Level (FPL)
The federal government’s working definition of poverty serves as the income standard for eligibility for public programs. Published by the Department of Health and Human Services in the form of Poverty Guidelines, the Federal Poverty Level varies by family size and is adjusted annually for inflation.

Fee-for-service
A method of paying health care providers in which the provider receives a separate payment for each service that is delivered.

Financial penalties
The financial penalty for individuals who do not secure acceptable health insurance coverage phases in as follows:

2014: The greater of $95 per household member, up to three members, or 1 percent of annual household income capped at the amount described below.

2015: The greater of $325 per household member, up to three members, or 2 percent of annual household income capped at the amount described below.

2016: The greater of $695 per household member, up to three members, or 2.5 percent of annual household income capped at the amount described below.

The penalty in a given year will be capped at the national average premium for a bronze level health plan offered through the health insurance exchanges.

Fines
If an employer of 50 or more employees does not provide any insurance coverage, and one or more employees seeks coverage through the health insurance exchanges and receives federal assistance (i.e., premium tax credits or cost-sharing subsidies), that employer will be fined $2,000 for each employee of the company. The first 30 employees will be deducted from the total number of employees when determining the amount of the fine.

For example, an employer with 75 employees would pay $2,000 x (75-30) = $90,000.

If an employer provides some coverage, but the coverage does not meet adequacy or affordability guidelines and an employee seeks coverage in the exchanges and receives federal assistance, the fine is the lesser of $3,000 per person receiving federal assistance (rather than per the total number of employees) or $2,000 per each person in the company, minus the first 30 employees. For example, an employer of 75 with 5 employees receiving federal assistance would pay $3,000 x 5 = $15,000.

Guaranteed issue
Under the guaranteed issue requirement, an insurer must offer a health insurance policy to any individual or group.

Health insurance exchanges
A purchasing arrangement through which small employers and individuals purchase private health insurance. States and the federal government will establish standards for what benefits must be covered, how much insurers can charge and other rules insurers must follow in order to participate in the insurance exchange market. Individuals and small employers will select their coverage from among the private insurers offering coverage within this organized arrangement.

Kansas Health Policy Authority
The Kansas Health Policy Authority, which is now named the Division of Health Care Finance, became part of KDHE on July 1, 2011, as a result of a merger achieved through Executive Reorganization Order No. 38. The state Medicaid and CHIP programs are housed in this division.

Lifetime limits
Prior to the ACA, many insurers capped the amount paid out in claims over a person’s lifetime at $1 million or $2 million. The ACA eliminates this lifetime cap on health insurance policies but only for those services defined as “essential health benefits.” An elective cosmetic surgery, for example, would likely not fall within the ambit of the lifetime limit rule.

Medicaid
Kansas jointly administers and funds the Medicaid program with the federal government. It is essentially a public health insurance program for low-income and disabled individuals who meet specific eligibility criteria.

Medicare
Elderly (age 65 and above) and disabled Kansans receive health insurance through the federal Medicare program.

Modified Adjusted Gross Income (MAGI)
The ACA will require all states to use a Modified Adjusted Gross Income (MAGI) calculation to determine eligibility for medical assistance programs. Previously, income calculations used to determine eligibility varied from state to state. MAGI will be used to determine eligibility for federal premium credits, cost-sharing subsidies, CHIP and most Medicaid programs. For more information, see the Kaiser Family Foundation’s June 2011 issue brief.

Pre-existing condition
A person who has an illness or health problem before buying a health insurance policy has a pre-existing condition. Historically, some insurance policies could be written to exclude coverage for pre-existing conditions, or an insurance policy could be denied on the basis of a pre-existing condition. Certain individual market plans are grandfathered from the pre-existing condition rule imposed by the ACA.

Premium assistance
State payments that help offset the cost of premiums for a Medicaid-eligible beneficiary enrolled in private health insurance coverage.

Premium tax credits
The premium tax credits are based on family income, such that the total amount paid for annual insurance premiums will not exceed a defined percentage of annual family income. The maximum percentage of annual income paid in premiums is related to income level as follows:

Less than 133% FPL: 2% of income

133% to 150% FPL: 3−4% of income

150% to 200% FPL: 4−6.3% of income

200% to 250% FPL: 6.3−8.05% of income

250% to 300% FPL: 8.05−9.5% of income

300% to 400% FPL: 9.5% of income

Preventive services
The group of preventive services to be covered under the ACA was developed by the U.S. Preventive Services Task Force with input from provider groups such as the American Academy of Pediatrics. The federal health reform website, www.healthcare.gov, provides a list of the included preventive services.

Qualified health plan (QHP)
Health plans that meet ACA requirements such as provider network adequacy, clinical quality measures, patient experience ratings and use of uniform enrollment forms receive this designation. A qualified health plan also must provide coverage for the essential health benefits package and agree to charge the same premium rate inside and outside the exchange. Every plan offered in the exchange must be a QHP.

Quality improvement strategies
These payment-structure strategies provide increased reimbursement or other incentives for activities that improve health outcomes, prevent hospital readmissions, improve patient safety, reduce medical errors, encourage wellness and health promotion, or reduce health and health care disparities. Examples include case management, care coordination, medication and care compliance, discharge planning and best clinical practices.

Rating factors
Health insurers use these factors to set prices for premiums and other health plan expenses. Depending on the type of insurance, rates can be based on the health status of plan participants, as well as age, gender and other factors.

Rescission
The practice of cancelling an insurance policy, even if premiums and other amounts have been paid, because a medical condition develops. In some cases, the cancellation is based on a beneficiary’s failure to disclose medical issues at the time of enrollment in the insurance plan. Under the ACA, rescissions will only be allowed for fraudulent or intentional misrepresentation of facts.

Small and large employers/groups
Some of the ACA provisions explicitly define which employers are subject to which rules and regulations. The requirement that employers provide affordable and adequate coverage or face potential fines, for example, applies only to employers of 50 or more employees. For purposes of the health insurance exchange, the ACA defines "small employer" as one employing fewer than 100 employees, though states are permitted to limit exchanges to employers of 50 or fewer until 2016. For purposes of other ACA rules, such as the Medical Loss Ratio provision, it has not yet been determined whether a small employer or small group will be defined as one employing fewer than 50 people or one employing fewer than 100.

Spread the cost
A primary concept in insurance is “risk spreading,” which is to pool together people in a group so that the relatively low medical costs of most group members can offset the relatively high medical costs of a few group members. This is why large employers are more likely than small employers to self-insure; they have a larger pool of workers, theoretically containing a greater number of low-cost group members. However, the decision to self-insure depends on other factors including the availability of “reinsurance” and the average health status of the group of workers.

State high-risk pool
Run by the Kansas Health Insurance Association, the state high-risk pool offers coverage to people with pre-existing conditions who have been denied coverage or for some reason are unable to purchase coverage in the private market. The state high-risk pool was created by the Kansas Legislature in 1992.

Sufficient choice of providers
Final rules are still under development but ultimately will ensure that people have adequate access to health care providers. This may include requirements for proximity to enrollees, accessibility of care without unreasonable delays and other measures.

Tax credits
To qualify for a tax credit, a small business must employ fewer than 25 employees, have an average annual salary of less than $50,000 and contribute roughly 50 percent of the cost of its employees’ health insurance coverage. The tax credit, against the general business tax (for tax-exempt organizations the credit will be in the form of a reduced withholding), is initially up to 35 percent of the employer’s premium costs (up to 25 percent of the premium costs for nonprofit organizations). Beginning in 2014, tax credits will only be given for coverage purchased through the health insurance exchanges, and the credit will expand to up to 50 percent of the employer’s premium costs (up to 35 percent for nonprofit organizations).

Underinsured
Individuals are considered underinsured when their health insurance coverage does not adequately address their health care needs, a situation that often results in financial strain, medical debt or postponing needed care due to cost.

Value-based purchasing
In the context of health care delivery, value-based purchasing uses payment incentives, greater transparency and standardized measurements of patient outcomes to reward quality of care rather than quantity of care.

Wrap-around benefits
When a state provides premium assistance payments to beneficiaries enrolled in private health insurance coverage, it must ensure that the beneficiary’s coverage is equivalent to what he or she would receive if enrolled in a traditional Medicaid plan. These “wrap-around benefits” supplement the private insurance plan if it offers fewer benefits than the corresponding Medicaid plan.

Other Resources

KHI Health Reform Brief #1: The Impact of Health Reform on Health Insurance Coverage in Kansas

KHI Health Reform Brief #2: The Impact of Health Reform on Insurance Benefits and Mandates in Kansas

KHI Health Reform Brief #3: A Health Insurance Exchange in Kansas? Decisions and Deadlines Ahead for State Leaders

KHI Health Reform Brief #4: Affordable Care Act’s Expansion of Medicaid Expected to Boost Kansas Enrollment

KHI Health Reform Brief #5: Medicare Changes Include Care Coordination and Prescription Drug Costs

KHI Health Reform Brief #6: What the Affordable Care Act Could Mean for Kansas Employers and Health Insurance

This page was last updated on April 24, 2012.