The Savvy Patient's Guide to Health Care Reform

President Barack Obama's signature on the health insurance reform bill at the White House, March 23, 2010. (Photo credit: Wikipedia)

The next phase of health care reform will begin in less than a week with the opening of the health insurance exchanges.

Although political battles are escalating and technological challenges remain, the basics of the Affordable Care Act (ACA), also called 'Obamacare,' are unlikely to change. The nearly 1,000-page legislation is an arduous read - for doctors and patients alike. Here is a simplified version, broken down into five major policy parts: Part No. 1: Providing Coverage For The Uninsured The first set of provisions in the ACA addresses the approximately 48 million individuals who don't have health care insurance. It provides access through a combination of Medicaid expansion for low income individuals and a new insurance market for higher earning individuals and small businesses.

The 25 million uninsured individuals who earn less than $15,000 per year (up to $32,500 for a family of four) will be eligible for Medicaid in those states that have opted to expand their participation.

In addition, beginning Oct. 1, 2013, approximately 18 million uninsured individuals earning less than $46,000 per year (up to $94,200 for a family of four) will be eligible for federal subsidies by enrolling in state or federally run 'health insurance exchanges' (also known as insurance marketplaces). Each participating state will offer two exchanges - one for individuals and another for small-businesses to offer coverage for their employees.

Through the exchanges, individuals will be able to enroll in a variety of health insurance plans, all with standardized coverage of medical services. Each participant will be able to select from one of four 'metal' tiers.

Individuals who enroll in 'platinum plans' will have the highest premiums and will pay, on average, 90 percent of the total cost through their premium. The remaining 10 percent of the expected total cost will be paid by the individual at the point of care. Plans in the 'bronze' tier, the lowest premium option, require the individual to pay on average only 60 percent of the projected total cost through the premium. However, these individuals would assume responsibility for the remaining 40 percent through higher co-payments and deductibles.

This is similar to the choice car owners have. They can purchase an insurance policy with a larger premium and less first-dollar exposure or buy a lower-priced insurance policy with a higher deductible. Once fully implemented, the number of insured Americans is likely to increase by more than 10 percent.

Part No. 2: 'Guaranteed Issue' For All Regardless Of Health Status Prior to the ACA, individuals with pre-existing conditions often were denied coverage when purchasing health insurance on the individual market. Those who were not denied underwent extensive medical underwriting and were quoted premiums based on their health 'risk.' The ACA now bans denial of coverage based on pre-existing conditions and limits how much insurance companies can charge those who are older and sicker, compared to those who are younger and healthier.

From a medical perspective, this 'guaranteed issue' is positive since those who are most in need of health care will be able to obtain more affordable coverage in the future. From an economic perspective, the impact is less certain. If purchasing health insurance were strictly voluntary, there would likely be a rise in the average premium paid as more people with pre-existing conditions became eligible and bought insurance when they required care. The determinant of overall pricing through the exchanges will be whether the younger and healthier individuals choose to participate. This brings us to part three. Part No. 3: The 'Individual Mandate' Penalizes The Uninsured Legislators recognized that without a requirement to purchase insurance, those who are young and healthy may assume they won't need medical care and avoid buying health insurance until they become sick or get injured. This is particularly problematic in the context of 'guaranteed availability.'

Imagine being able to buy fire insurance once your home was on fire or car insurance after you've totaled the car. The cost of insurance would be very high and defeat the purpose of insurance altogether.

To avoid unbalancing the health insurance risk pool, the ACA requires nearly everyone to buy health insurance or pay a penalty. If everyone purchases coverage, this would uphold the structure of insurance. But many worry that the penalties of $95 starting in 2014 are too low to achieve the desired outcome.

This provision, termed the 'individual mandate,' was one of the most contentious provisions of the ACA. Challenged on constitutional grounds, the individual mandate was upheld by the Supreme Court in 2012. Legislators determined that the mandate constituted a tax and that the Constitution afforded the right of taxation to the federal government.

Part No. 4: Financing The Added Expense Of The ACA The bill contains several new sources of revenue to cover the expansion of coverage and associated subsidies. They include decreasing Medicare payments to doctors and hospitals and imposing new taxes on the commercially insured, medical device manufacturers, high-income individuals and the benefit-rich ' Cadillac plans.'

At this point, it is anyone's guess what the impact of the ACA legislation will be on the overall rate of increase of U.S. health care costs. On one hand, more people will have health insurance, implying that more people will use health care services. This could lead to higher expenses in the near term. On the other hand, the increased access to routine primary care and preventive services could eliminate costly emergency-room visits and lead to improved health through preventive care. This is predicted to reduce the incidence and severity of chronic diseases with their associated long-term costs.

Part No. 5: Investing In Five Innovations For The Future The provisions detailed above will have a significant impact on doctors, hospitals and patients over the next three to five years.