Appendix A

Supply/Demand Summary of the Patient Protection and Affordable Care Act

What follows is a bulletized summary of President Obama’s Patient Protection and Affordable Care Act presented in a new way: The demand-side and supply-side provisions of the Act are clearly differentiated. This information strengthens the conclusions reached in the main text. This summary is included for the sake of completeness since few people know what the new Act consists of, or how it impacts demand versus supply for health-care services.

Demand Side

The Henry J. Kaiser Family Foundation recently published a helpful summary of those aspects of the new Act related to expanding insurance coverage. According to Kaiser, the Act will:

• Require most U.S. citizens and legal residents to have health insurance.
• Create state-based American Health Benefit Exchanges through which individuals can purchase coverage, with premium and cost-sharing credits available to individuals/families with incomes between 133 and 400 percent of the federal poverty level (the poverty level was $18,310 for a family of three in 2009) and create separate Exchanges through which small businesses can purchase coverage.
• Require employers to pay penalties for employees who receive tax credits for health insurance through an Exchange, with exceptions for small employers.
• Impose new regulations on health plans in the Exchanges and in the individual and small group markets.
• Expand Medicaid to 133 percent of the federal poverty level.

Additionally, to fully understand the demand side, it is helpful to summarize the three most controversial aspects of the legislation—namely (1) strict insurance mandates for individuals, (2) employer health-care insurance requirements, and (3) cost-containment provisions.1

1. Individual Mandates: To avoid the politically unpalatable concept of universal coverage through a single-payer system, the new Act instead requires all individuals (with limited exceptions) to buy insurance or face income tax penalties. In particular, the Act requires U.S. citizens and legal residents to have qualifying health coverage. Those without coverage pay a tax penalty of the greater of 2.5 percent of household income or $695 per year up to a maximum of three times that amount ($2,085) per family.

2. Employer Requirements: Perhaps no aspect of the new Act has garnered as much attention as its provisions requiring employers to provide insurance for its employees. In particular, the new legislature would:

• Assess employers with 50 or more employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees from the assessment.
• Exempt employers with fewer than 50 employees from any of these penalties.
• Require employers that offer coverage to their employees to provide a free-choice voucher to employees with incomes less than 400 percent of federal poverty level whose share of the premium exceeds 8 percent but is less than 9.8 percent of their income and who choose to enroll in a plan in the Exchange. The voucher amount is equal to what the employer would have paid to provide coverage to the employee under the employer’s plan and will be used to offset the premium costs for the plan in which the employee is enrolled. Employers providing free-choice vouchers will not be subject to penalties for employees that receive premium credits in the Exchange.

3. Cost-Containment Provisions: The Act’s provisions to “contain costs” focus on the following:

• Simplifying health insurance administration by adopting a single set of operating rules for eligibility verification and claims status.
• Improving Medicare cost containment by:
  • Restructuring payments to Medicare Advantage (MA) plans.
  • Modifying the rebate system.
  • Reducing annual market basket updates for inpatient hospital care.
  • Establishing an Independent Payment Advisory Board to submit legislative proposals containing recommendations to reduce the per capita rate of growth in Medicare spending.
• Amending Medicaid by:
  • Increasing the Medicaid drug rebate percentage for approved drugs.
  • Reducing aggregate Medicaid DSH allotments.
  • Providing incentives for states to improve efficiency.
• Authorizing the Food and Drug Administration to approve generic versions of biologic drugs and grant biologics manufacturers 12 years of exclusive use before generics can be developed.
• Reducing waste, fraud, and abuse in public programs by:
  • Allowing provider screening.
  • Enhancing oversight periods for new providers and suppliers.
  • Developing a database to capture and share data across federal and state programs.
  • Increasing penalties for submitting false claims.

Supply Side

Let’s now discuss how the new Patient Protection and Affordable Care Act, and changes made to the law by subsequent legislation, addresses the supply side of the equation. Broadly speaking, the supply-side provisions in the Act are intended to:

• Improve access by increasing the supply of needed health workers, particularly primary care practitioners.
• Increase efficiency and effectiveness by encouraging systems redesign.
• Improve the quality of care through improved education and training.
• Establish an infrastructure to collect and disseminate better data and information to inform public and private decision-making around the supply, education and training, and use of health workers.

The new Act includes several important provisions related to expanding the health workforce. In the following summary, I will highlight the Act’s specific provisions that: (1) improve health system performance and quality and (2) strengthen and grow the health-care workforce.

1. Improve Health System Performance: The new Act includes several quality enhancement provisions, including:

• Supporting comparative effectiveness research by establishing a nonprofit Patient-Centered Outcomes Research Institute to identify research priorities and conducting research that compares the clinical effectiveness of medical treatments.
• Awarding five-year demonstration grants to states to develop, implement, and evaluate alternatives to current tort litigations.
• Increasing Medicaid payments in fee-for-service and managed care for primary care services provided by primary care doctors (family medicine, general internal medicine, or pediatric medicine).
• Developing a national quality improvement strategy that includes priorities to improve the delivery of health-care services, patient health outcomes, and population health.
• Requiring enhanced collection and reporting of data on race, ethnicity, sex, primary language, disability status, and for underserved rural and frontier populations.

2. Strengthen the Health-Care Workforce: The new Act includes several provisions to enhance and grow the health-care workforce, including:

• Establishing a multistakeholder Workforce Advisory Committee to develop a national workforce strategy.
• Increasing the number of Graduate Medical Education (GME) training positions by:
  • Redistributing currently unused slots, with priority given to primary care and general surgery and to states with the lowest physician-to-population ratios.
  • Increasing flexibility in laws and regulations that govern GME funding to promote training in outpatient settings.
  • Ensuring the availability of residency programs in rural and underserved areas.
• Establishing Teaching Health Centers, defined as community-based, ambulatory patient care centers, including federally qualified health centers and other federally funded health centers that are eligible for payments for the expenses associated with operating primary-care residency programs.
• Increasing workforce supply and support training of health professionals through:
  • Providing scholarships and loans.
  • Supporting primary-care training and capacity building.
  • Offering state grants to providers in medically underserved areas.
  • Training and recruiting providers to serve in rural areas.
  • Establishing a public health workforce loan repayment program.
  • Providing medical residents with training in preventive medicine and public health.
  • Promoting training of a diverse workforce.
  • Advancing cultural competence training of health-care professionals.
• Addressing the projected shortage of nurses and retention of nurses by:
  • Increasing the capacity for education, supporting training programs, providing loan repayment and retention grants, and creating a career ladder to nursing.
  • Providing grants for up to three years to employ and provide training to family nurse practitioners who provide primary care in federally qualified health centers and nurse-managed health clinics.

1. Please note that, while there is much detail in the Act regarding the expansion of public programs, tax changes related to health insurance, health insurance exchanges, and changes to private insurance, I do not review such matters in this document as they have little bearing on our main arguments.