March 25‚ 2010

Health Care Reform
Implementation Timeline

This advisory provides a timeline of many of the key changes that will take place from now through 2020 as a result of the Patient Protection and Affordable Care Act (Pub. Law. No. 111-148) and the Health Care and Education Reconciliation Act (H.R. 4872). Over 2000 pages in length, they authorize health insurance reforms that will take effect over the next decade and that will have far-reaching implications for individuals and businesses. Highlights of the Acts include a prohibition against denial of coverage based on a pre-existing condition, a mandate for most legal residents to obtain health insurance, the creation of Insurance Exchanges, expansion of Medicaid eligibility, coverage under family policies for children up to the age of 26, and prohibitions on lifetime and annual limits by insurers.

Upon enactment:

• Elimination of Fraud and Waste. Enhanced oversight and enforcement measures to eliminate fraud and waste in the health care system (many provisions are effective upon enactment).
• Non-Profit Hospital Requirements. Establishment of new requirements for non-profit hospitals, including periodic community needs assessments.
• Consumer Assistance. Assistance to states in establishing offices of health insurance consumer assistance or health insurance ombudsman programs to assist individuals with the filing of complaints and appeals, enrollment in a health plan, and eventually with resolving tax credit eligibility problems.
• Comparative Clinical Effectiveness Research. Establishment of a private, non-profit institute to identify national priorities and to provide for research to compare the clinical effectiveness of health treatments and strategies.

90 days after enactment:

• Assistance for Pre-Existing Conditions. $5 billion in immediate federal support for a new program to provide affordable coverage to uninsured Americans with pre-existing conditions until new Insurance Exchanges are operational in 2014.
• Early Retiree Coverage. Immediate access to reinsurance for employer health plans providing coverage for early retirees, to protect coverage and reduce premiums for employers and retirees.
• High-Risk Pool. Creation of a temporary, national high-risk pool to provide immediate access to health coverage for individuals with pre-existing medical conditions.

6 months after enactment:

• Coverage for Pre-Existing Conditions (Children). Prohibition on denial of coverage to children with pre-existing conditions, in all employer plans and new plans in the individual market. (The provision will apply to adults as of 2014.)
• PCP and Ob-Gyn Choice. Choice of any participating primary care physician for plan members in all new insurance plans, prohibition on insurers requiring prior authorization for women to see obstetrician-gynecologists, and guaranteed access to emergency care.
• Coverage for Children up to Age 26. Requirement for insurers to permit children to stay on family policies until age 26. Applies to all plans in the individual market, new employer plans, and existing employer plans if a young adult is not eligible for employer coverage.
• Prevention and Wellness Requirements. Requirement for prevention and wellness benefits coverage by all new plans, and exemption from deductibles and other cost-sharing requirements in public and private insurance coverage.
• Lifetime Limits Prohibition. Prohibition on the imposition of lifetime limits on benefits under all health insurance plans.
• Annual Limits Restrictions. Authority for the Secretary of Health and Human Services (HHS) to define tight restrictions on insurance plans’ use of annual limits, in all group plans and all new individual plans. (Use of annual limits will be banned entirely in 2014, when the Insurance Exchanges are operational.)
• Prohibition on Discrimination. Prohibition on new group health plans from establishing any eligibility rules for health care coverage that have the effect of discriminating in favor of higher-wage employees.
• Appeals Process. Requirement for all new health plans to implement an effective process for appeals of coverage determinations and claims, and for states to provide an external appeals process to ensure an independent review.
• Prohibition on Rescission. Prohibition on rescission of existing policies by health insurance companies when a person gets sick.

2010:

• Training Professionals. New investment in training programs to increase the number of primary care doctors, nurses, and public health professionals.
• Consumer Website. Creation of a new website to provide information on and facilitate informed consumer choice of insurance options (no later than July 1, 2010).
• Health Policy Interagency Council. Creation of an interagency council to promote health policies at the federal level, and establishment of a prevention and public health investment fund to provide an expanded and sustained national investment in prevention and public health programs (no later than July 1, 2010).
• Medicare Expansion. Extended Medicare payment protections for small rural hospitals.
• Medicaid Expansion. Allowance for states to provide Medicaid coverage to parents and childless adults up to 133% of the Federal Poverty Level (FPL) and an increase in the Federal Medical Assistance Percentage match for Medicaid (effective April 1, 2010).
• Medicare Part D Rebate. $250 rebate check for Medicare beneficiaries for the Medicare Part D coverage gap, known as the “donut hole.”
• Small Business Tax Credit. Tax credits for small businesses to make employer coverage more affordable—up to 35% of premiums—are immediately available to firms that choose to offer coverage.¹ (When Insurance Exchanges are operational in subsequent years, tax credits will be up to 50% of premiums).
• Community Health Centers. $11 billion investment over five years in Community Health Centers to provide funding needed to expand access to health care in communities where it is most needed.
• Adoption Tax Credit. Increase in adoption tax credit and adoption assistance exclusion by $1000. The credit is refundable and is extended through 2011 (for tax years after December 31, 2009).
• Investment Credit. Two-year temporary credit to encourage investments in new therapies to prevent, diagnose, and treat acute and chronic diseases, subject to an overall cap of $1 billion (for qualifying investments made in 2009 and 2010).
• Loan Repayment Exclusion. Exclusion from gross income for any payments made under any state loan repayment or loan forgiveness program, to provide for increased availability of health care services in underserved or health professional shortage areas (for amounts received by an individual after December 31, 2008).
• Tribal Health Benefits Exclusion. Exclusion from gross income for the value of specified Indian tribal health benefits (for coverage provided after enactment).
• National Commission to Advise Government. Establishment of an independent national commission to provide comprehensive, nonbiased information and recommendations to Congress and the Administration for aligning federal health care workforce resources with national needs (effective no later than September 30, 2010).
• Expansion of Loan Programs. Expansion and improvement of low-interest student loan programs, scholarships, and loan repayments for health students and professionals.
• Medical Loss Ratio Requirements. Requirement for non-profit BlueCross BlueShield organizations to have a medical loss ratio of 85% or higher to qualify for special tax benefits provided to them under IRC Section 833, including the deduction for 25% of claim and expenses and the 100% deduction for unearned premium reserves (for tax years after December 31, 2009).
• Medical Loss Ratio Reporting. Requirement for health plans to report medical loss ratios.
• Tax on Tanning Services. 10% tax on amounts paid for indoor tanning services (for services on or after July 1, 2010).
• Medical Liability Protections. Extension of medical liability protections under the Federal Tort Claims Act to officers, governing board members, employees, and contractors of free clinics.

¹ The full credit is available to firms with 10 or fewer employees with average annual wages of $25,000. Firms with up to 25 employees and average annual wages of up to $50,000 are also eligible for the credit.

2011:

• Medicare Part D Discount. 50% discount on brand name drugs purchased in the donut hole for Medicare beneficiaries.
• Medicare Preventative Services. Free, annual wellness visit and waiver of all cost-sharing for preventative services for Medicare beneficiaries.
• Insurer Disclosure and Spending Requirements. Establishment of public disclosure requirements and standards for insurance overhead, to ensure that public enrollees get value for their premium dollars. Also a requirement for individual and small group market plans to spend 80% of premium dollars on clinical services and quality activities, and for large group market plans to spend 85% of premium dollars on the same. Rebates provided to policyholders by health insurance plans that do not meet these thresholds. (For all plans, including grandfathered plans, with the exception of self-insured plans.)
• Fraud and Abuse Control Account. Increase in funding for the Health Care Fraud and Abuse Control Fund by $250 million over 10 years, with $10 million boosts each year for fiscal years 2011 through 2020.
• Voluntary Payroll Deductions. Creation of a long-term insurance program, to be financed by voluntary payroll deductions, to provide benefits to adults who become disabled.
• State Tobacco Cessation Services. State Medicaid programs must cover tobacco cessation services for pregnant women.
• Funding for National Health Service Corps PCPs. Expanded funding for scholarships and loan repayments for primary care practitioners working in underserved areas participating in the National Health Service Corps.
• Quality Improvement Funding. Additional resources provided to HHS to develop a national quality strategy and to support quality measure development and endorsement for the Medicare, Medicaid, and CHIP quality improvement programs.
• Bonus for Medicare Doctors. 10% Medicare bonus payment for primary care physicians and general surgeons.
• Center for Medicare and Medicaid Innovation. Establishment of a Center for Medicare and Medicaid Innovation to test innovative payment and service delivery models to reduce health care costs and enhance the quality of care.
• Community Care Transitions Program. Establishment of the Community Care Transitions Program to provide transition services to high-risk Medicare beneficiaries.
• Medicare Advantage Benchmarks Freeze. Freezing of 2011 Medicare Advantage payment benchmarks at 2010 levels. Continued reductions of Medicare Advantage Benchmarks in subsequent years, relative to current levels. Variation of benchmarks from 95% of Medicare spending in high-cost areas, to 115% of spending in low-cost areas, with higher benchmarks for high-quality plans. Phase-in of changes over three, five, or seven years, depending on the level of payment reductions.
• Graduate Medical Education Policy. Establishment of a Graduate Medical Education policy, allowing unused training spots to be redistributed for purposes of increasing primary care training at other sites (effective July 1, 2011).
• Graduate Medical Education Expansion. Increased access to primary care through adjustments to the Medicare Graduate Medical Education program. Primary care and nurse training programs are also expanded to increase the size of the workforce (effective July 2011).
• Community First Choice Option. Creation of the Community First Choice Option, which allows states to offer home- and community-based services to disabled individuals, rather than institutional care (effective October 1, 2011).
• Employer Disclosure Requirement. Requirement for employers to disclose the value of the benefit provided under each employee’s health insurance plan on the employee’s Form W-2 (for tax years after December 31, 2010).
• “Qualified Medical Expense” Definition. Standardization of the definition of qualified medical expenses for HSAs, FSAs, and HRAs to that used for itemized deductions. Amounts paid for over-the-counter medicine with a prescription will still be included in the definition (for tax years after December 31, 2010).
• Increase in Early Withdrawal Taxes. Increase from 10% to 20% for the additional tax for HSA withdrawals prior to age 65 that are not used for qualified medical expenses. Also, an increase from 15% to 20% for the additional tax for Archer MSA withdrawals not used for qualified medical expenses (for tax years after December 31, 2010).
• Small Business Cafeteria Plan. Creation of a Simple Cafeteria Plan to provide a vehicle for small businesses to provide tax-free benefits to their employees. Also exemption for employers who make pension plan nondiscrimination requirements applicable to highly compensated and key employees under cafeteria plan for employees (for tax years after December 31, 2010).
• Annual Pharmaceutical Manufacturing Fee. Imposition of an annual, non-deductible fee on the pharmaceutical manufacturing industry allocated according to market share and not applying to companies with sales of branded pharmaceuticals of $5 million or less (for tax years after December 31, 2010).
• Prohibition on Owning-Physician Referrals. Prohibition on physicians from self-referring to hospitals in which they have an ownership interest (with a limited exception for grandfathered physicians who own hospitals that treat the highest percentage of Medicaid patients in their county).
• DME Supplier Enhanced Oversight. Authorization of 90-day period to withhold payment and conduct enhanced oversight in cases where the Secretary of HHS identifies a significant risk of fraud among DME suppliers.
• Alternative Liability Reform Funding. Authorization of federal funding for state demonstration programs to evaluate alternative liability reform models, for a five-year period.

2012:

• Physician Payment Reforms. Implementation of physician payment reforms that enhance payment for primary care services and that encourage physicians to join together to form “accountable care organizations” to gain efficiencies and improve quality.
• Hospital Value-Based Purchasing Program. Establishment of a hospital value-based purchasing program to incentivize enhanced quality outcomes for acute care hospitals. Also, requirement that the Secretary of HHS submit a plan to Congress on how to move home health and nursing home providers into a value-based purchasing payment system.
• Hospital Readmission Tracking and Penalties. Requirement that the Centers for Medicare & Medicaid Services track hospital readmission rates for certain high-cost conditions, and implementation of a payment penalty for hospitals with the highest readmission rates.

2013:

• FSA Cap. $2500 cap on health FSA contributions, indexed by the Consumer Price Index (CPI) for subsequent years.
• Medicaid Incentives. Creation of incentives for state Medicaid programs to cover evidence-based preventive services with no cost-sharing.
• Electronic Exchange Standards. Requirement to adopt and implement uniform standards and business rules for the electronic exchange of health information.
• Payment Bundling Pilot Program. Establishment of a national pilot program on payment bundling to encourage providers to achieve savings for Medicare through collaboration and coordination of patient care.
• Medicare Rates for Medicaid Physicians. Requirement for states to pay Medicaid primary care physicians the same rate Medicare pays; the federal government will fully fund any additional state costs.
• Employer Deduction Elimination. Elimination of the deduction for subsidies for employers who maintain prescription drug plans for their Medicare Part D eligible retirees.
• Itemized Deduction Claims. Increase in income threshold for claiming itemized deductions for medical expenses from 7.5% to 10%. Individuals over 65 can claim itemized deductions at 7.5% of adjusted gross income through 2016.
• Hospital Insurance Tax Rate Increase. Increase in hospital insurance tax rate by 0.9% for wages over $200,000 for an individual ($250,000 for married couples filing jointly). Also, an expansion of the tax to include a 3.8% tax on net investment income in the same salary range.
• Medical Device Excise Tax. Establishment of a 2.3% excise tax on the first sale for use of a medical device. Eye glasses, contact lenses, hearing aids, and any devices generally purchased by the public at retail for individual use are all exempt from the tax.
• Executive Compensation Limits. Limitation on deductibility of executive compensation for insurers that have at least 25% of their gross premium income from health business derived from health insurance plans that meet the minimum creditable coverage requirements. The deduction is limited to $500,000 per year and applies to all officers, employees, directors, and other workers or service providers performing services for or on behalf of a covered health insurance provider, after 2009.
• Insurance Plan Annual Fee. Annual fee imposed on insured and self-insured plans to fund the Patient-Centered Outcomes Research Trust Fund.
• Physician Performance Information. Public reporting of physician performance information.
• Manufacturers’ and GPOs’ Transparency Reports (“Sunshine” Provisions). Reporting requirement for covered drug, device, biological, or medical supply manufacturers about certain transfers of value to physicians and teaching hospitals; such manufacturers and select group purchasing organizations (GPOs) must begin reports of ownership and investment interests held by physicians or their immediate family members.

2014:

• Federal Medicaid Matching and Expansion. 100% federal matching for state Medicaid funding (2014, 2015, 2016), and increase in Medicaid eligibility to 133% of FPL for all non-elderly individuals.
• Funding to Reduce Costs for Childless Adults. Additional federal funding to reduce the cost of covering non-pregnant childless adults for early expansion states (through 2018).
• Insurance Exchanges. Requirement for states to establish American Health Benefit Exchanges to facilitate the purchase of qualified health plans, for the individual and small group markets. Ability for qualified individuals (those who are not incarcerated and who are lawfully residing in the state) to enroll in a qualified health plan through a state Insurance Exchange.
• Coverage for Pre-Existing Conditions. Prohibition on discriminatory practices by insurance companies, based on an individual’s health status–insurers can no longer exclude coverage for treatments based on pre-existing health conditions (the 2010 related prohibition for children is now universal). Also, limits on the ability of insurance companies to charge higher rates due to health status, gender, or other factors. Premiums can vary only on age (no more than 3:1), geography, family size, and tobacco use.
• Annual Limits Prohibition. Prohibition on insurers from imposing annual limits on benefits in all employer plans and new plans in the individual market.
• Clinical Trial Protections. Prohibition on insurers dropping coverage because an individual chose to participate in a clinical trial and on denying coverage for routine care the insurer would otherwise provide, just because an individual is enrolled in a clinical trial. Applies to all clinical trials that treat cancer and/or other life-threatening diseases.
• Multi-State Plan. Choice of coverage through a multi-state plan, available nationwide, and offered by private insurers under the supervision of the Office of Personnel Management.
• Premium Tax Credits. Premium tax credits available through the Insurance Exchanges. Credits are available to those with incomes above Medicaid eligibility and below 400% of FPL, who are not eligible for or offered other acceptable coverage.
• Insurance Exchange Plan Option. Ability for workers who qualify for an affordability exemption to the individual responsibility policy but do not qualify for tax credits to take their employer contribution and join an Insurance Exchange plan.
• Individual Coverage Requirements and Penalties. Requirement for most individuals to obtain acceptable health insurance coverage or pay a penalty of $95 in 2014, $325 for 2015, and $695 for 2016 (or up to 2.5% of income in 2016), up to a cap of the national bronze plan premium. No penalty if affordable coverage is not available to an individual.
• Fee for Employers Not Offering Coverage. Requirement for employers with 50 or more employees who do not offer coverage to pay $2000 annually for each full-time employee over the first 30 as long as one employee receives a tax credit. Also, requirement for employers who offer coverage but whose employees receive tax credits to pay $3000 for each worker receiving a tax credit up to an aggregate cap of $2000 per full-time employee.
• Small Business Tax Credit. Second phase of small business tax credit for qualified small employers.
• Value-Based Purchasing Reporting and Testing. Implementation of quality measure reporting programs by the Secretary of HHS for certain providers, and also pilot testing of value-based purchasing for each of these providers in subsequent years.
• Health Insurance Sector Annual Fee. Imposition of an annual, non-deductible fee on the health insurance sector allocated across the industry according to market share. This requirement does not apply to companies whose net premiums are $25 million or less.
• Essential Health Benefits Requirement. Requirement for all qualified health benefit plans (except grandfathered ones) to offer at least the essential health benefits package.

2015:

• Value-Based Payment Program. Creation of a value-based payment program for physicians enrolled in the Medicare program to promote increased quality of care for Medicare beneficiaries.
• Independent Payment Advisory Board. Establishment of an Independent Payment Advisory Board to develop and submit proposals to Congress and the private sector aimed at extending the solvency of Medicare, lowering health care costs, improving health outcomes for patients, providing quality and efficiency, and expanding access to evidence-based care.

2016:

• Interstate Health Choice Compacts. Establishment of Interstate Health Choice Compacts, which subject insurers to the consumer protection laws of the purchaser’s state, even if the qualified health plans are offered in all participating states.

2017:

• Federal Medicaid Matching. 95% federal matching for state Medicaid funding (2017 only).
• Large Employer Participation in Exchanges. Permission for states to allow large employers to offer coverage to their employees through the exchanges.

2018:

• Federal Medicaid Matching. 94% federal matching for state Medicaid funding (2018 only).
• High-Cost Health Care Excise Tax. Excise tax on high-cost health care plans–40% on insurance companies and plan administrators for any plan that is above the threshold of $10,200 for self-only coverage and $27,500 for family plans. The tax would apply to the amount of the premium in excess of the threshold.

2019:

• Federal Medicaid Matching. 94% federal matching for state Medicaid funding (2019 only).
• Childless Adult Coverage Uniformity. Same cost for all states for covering non-pregnant childless adults.
• Indexing of Premium Subsidies. Adjustment of indexing of premium subsidies if premiums are growing faster than CPI.

2020:

• Medicare Part D Elimination of Coverage Gap. Elimination of Medicare Part D donut hole for generic and brand drugs.
• Federal Medicaid Matching. 90% federal matching for state Medicaid funding (2020 and all subsequent years).
• Indexing of High Premium Tax Thresholds. Re-indexing of thresholds for the high premium tax to the general rate of inflation.

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Alden J. Bianchi
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Senior Vice President of
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Karen S. Lovitch
Practice Leader,
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Jeremy Rabinovitz
Senior Executive Vice President of Government Relations‚
ML Strategies
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Stephen M. Weiner
Chair, Health Law Practice
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