October 2011, Vol 7

Message From An Actuary
Diane Luedtke, FSA

This edition of The Actuarial View reviews the ongoing evolution of the Affordable Care Act (ACA). Much has been accomplished, yet many significant issues are unresolved. Chief among them is the fate of the individual mandate. Contrary to initial sentiments, many experts now believe that repeal of the individual mandate will not doom the rest of the ACA. However, eliminating the mandate would necessitate dealing with adverse selection issues associated with guaranteed issue and preexisting conditions requirements. Otherwise, individual premiums could spiral out of control. Health care reform is a lengthy process and there will be some detours along the way. Yet, even if this happens, the law can survive.


Tim Luedtke, FSA, MAAA, CFA
Principal & Consulting Actuary

Diane Luedtke, FSA, CLU
Principal & Consulting Actuary

Health Care Reform, an Unfolding Drama

Diane Luedtke, FSA

Health care reform is an unfolding drama. ACA changes are slated to span eight years (2010 - 2018) and two national elections. The 2,400 page Affordable Care Act is generating many more thousands of pages of rules and guidance to implement the legislation. Many provisions are already operational; others have faced delays, repeal and legislative challenges. Even now, one and a half years after passage of the ACA, It is too soon to tell how closely the final framework will resemble the program originally envisioned. Yet, it is clear that the stage is set for some dramatic changes.

Yesterday the Washington Post declared that the Affordable Care Act (ACA) suffered its first major casualty with the cancelation of the Community Living Assistance Services and Support (CLASS) program1. In February of this year the Congressional Budget Office projected implementation of the CLASS Act would reduce federal deficits by $86 billion over the next ten years. Upon further analysis, it has now been determined that the CLASS Act is not fiscally sound and cannot be implemented. As stated by Health and Human Services Secretary Kathleen Sibelius in an October 14, 2011 report to Congress: "I do not see a viable path forward for CLASS implementation at this time."

Health care reform is changing rapidly. While elimination of the CLASS program is major, it is just one in a series of changes being made to the ACA. Many other provisions are encountering implementation delays or outright repeal. For example:

  • REPEALED - Expanded Form 1099 reporting requirements: employers will not be required to issue a Form 1099 for payments over $600 to entities with whom they do business.
  • DELAYED - W-2 reporting postponed from 2011 until 2012: employers must report the value of employer-provided health coverage beginning with Forms W-2 issued to employees in January 2013 (for 2012).
  • DELAYED - Nondiscrimination requirements for fully insured plans:the ACA requires fully-insured plans to meet Section 105(h) nondiscrimination requirements, previously only used for self-insured plans. However, enforcement is delayed until further guidance is released. The requirements do not apply to grandfathered plans.
  • DELAYED - Internal Claims and Appeals requirements: the enforcement of certain requirements for internal claims and appeals have been postponed.
  • REPEALED - Free choice voucher requirements: these requirements, which were scheduled to take effect in 2014 with the Exchanges, would have compelled employers to provide certain lower income employees who opt out of employer-sponsored coverage with a "free choice voucher" which could be used to purchase health coverage through an Exchange.

State health insurance exchanges, a centerpiece of the legislation, are required to demonstrate complete readiness by January 1, 2013 and be operational by January 1, 2014. Proposed exchange rules were just released in July 2011, with a comment period extending through October. While some states have made good progress, most are not on track to meet the deadlines. If states are not ready, the federal government will step in to establish exchanges for them. However, with so many states lagging behind, will the federal government be willing, or able, to step in? Or, can we simply expect further delays?

Yet another key component of ACA is being threatened. Twenty-six states, all controlled by Republicans, are challenging the Affordable Care Act. The central challenge is the constitutionality of the individual mandate, with states arguing that the federal government cannot require individuals to purchase health insurance. The ultimate determination will likely be made by the Supreme Court, with a possible decision next summer in the midst of a presidential campaign.

Watch closely. It promises to be a good show.

1 Obama's embattled health overhaul suffers first major casualty: long-term care program

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