The Affordable Care Act

Group Members:
Brandon Boswell- BBoswell@Radford.edu
Kim Nicola- KNicola@Radford.edu
Tyler Jasper- DJasper@Radford.edu
Coner Wendt- CWendt2@Radford.edu
Sam Ludovici- SLudovici@Radford.edu
Amber Slusser-ASlusser@Radford.edu

Class:
POSC 335-01
American Public Policy
Professor:
Dr. Shareef
December 9, 2014

The passing of the Affordable Care Act, also known as Obamacare, under President
Barack Obama in 2010 has been a controversial reform of the United States health care system.
The U.S. had been in need of health care reform for some time and the new changes brings
controversy over the policies. Health care reform is new in our country and has caused some
benefits as well as some disadvantages. The ultimate goal of the Affordable Care Act (ACA) is to
lower health insurance costs, make insurance available to more people, and to improve the
quality of health care. Included in the bill are mandates, subsidies, and other policies that are
aimed to benefit the insurer as well as the insured. The ACA is the first major change to
Americas health care system since the placement of Medicaid and Medicare in the 1960s. There
are three major changes that provide the patient and insurance companies with default options.
These three changes are the Individual Mandate, the 80/20 Rule, and the Medicare Readmissions
Rule.
An individual mandate under United States law is a requirement that certain persons are
legally compelled to purchase or obtain a good or service. The Patient Protection and Affordable
Care Act established a perfect example of an individual mandate in the health insurance industry
by requiring certain persons to obtain health coverage and maintain it throughout the year. This
new mandate took effect as of January 2014. The mandate requires that by default, each person
has minimum essential coverage in order to remain in compliance with the law. Minimum
essential coverage is the type of coverage an individual needs to have to meet the individual
responsibility requirement under the Affordable Care Act and includes the following types of
health insurance: Employer-sponsored coverage, coverage offered through the Health Insurance
Marketplace, employer plans, retiree health plans, Medicare Part A, most Medicaid coverage, the
Childrens Health Insurance Program (Chip), TRICARE, Veterans Healthcare, Peace Corp

Volunteer plan and self-funded health coverage offer to students through their respected
university. (Healthcare.gov, 2014)
Maintaining minimum essential coverage is critical because it ensures that each
individual is in compliance with the law and prevents that individual from being subject to a noncompliance fee. According to the Heritage Foundation the mandate is based on two founding
principles, the first being that healthcare protection is a responsibility of individuals and not
businesses and secondly that it assumes that it is the family that carries the chief responsibility.
Now there are certain exemptions that can be filed that abstain one from having to
possess minimum coverage. If an individual qualifies for one or more of these exemptions, they
will be exempt from the Health Care Mandate and therefore not have to maintain yearly
minimum essential coverage and avoid any penalty assessed to uninsured persons. The following
exemptions include but are not limited to religious conscious, Indian tribes, health care sharing
ministry, income below the tax return filing requirement, short coverage gap, hardship,
affordability, incarceration, and unlawfully presented in the U.S. If you do not quality for an
exemption there are other assistance options that can aid you in receiving health coverage such
as assistance from financial programs (if offered by the state).
The Healthcare mandate is one prime example of a default option where the default is the
requirement to maintain minimum essential coverage from a specified insurance type. The
alternative consequence resulting from the failure to maintain minimum essential coverage will
be a penalty fee that will be assessed to any individual without coverage on their federal income
taxes. The fee is always the greater amount of either a percentage of your yearly income or a
predetermined amount assessed by uninsured individuals ages. In 2015 the penalty fee is the
greater amount of either 2% of your annual income or $325.00 per adult 18 years or older and

$162.50 per child. The prior amounts listed are only the fee amounts in 2015 and do not reflect
the fee amounts in future years. The fee in future years will increase taking into account
inflation. For example in 2016 the fee against uninsured adults will be $695 and $347.40 for
children. These collected fees then go back into the Healthcare system, the Marketplace, and
hospitals to subsidize costs incurred by unpaid emergency room visits.
The Affordable Care Act passed by President Barack Obama also presents another
example of a mandatory default in healthcare with the addressing of the medical loss ratio with
the 80/20 rule. In regards to health insurance companies, the medical loss ratio was originally
used to describe how much money insurers lose by actually paying out for their subscribers
medical care (Kliff, 2013). Health insurance companies would not be able to operate if they spent
100% of the premiums they receive as payment from their subscribers on their medical care.
Some portion of the money is necessary for administrative fees and for profits for the executives
within the company that incentivize the creation of the company. The problem that Obama is
attempting to address is that before the Affordable Care Act, Insurance Companies were free to
use their premiums paid to them in whichever fashion they please. Health Insurance companies
could theoretically spend as little as 10% of dues from subscribers on medical care, and could
use the remaining 90% purely for adding more money into the pockets of the executives.
Insurance companies were frequently spending as little as 50% of their premiums on their
subscribers, which President Obama saw as unfair. So the Affordable Care Act introduces the
80/20 rule in an attempt to make insurance premium cheaper for millions of Americans.
The 80/20 rule is simple: 80% of a Health Insurance companys premiums paid to them
by their subscribers must be used towards the subscribers medical care by default. The insurance
company is then free to spend the other 20% on whatever administrative fees that the company

encounters (Kliff, 2013). By default, 80% of a subscribers money is being used either directly or
indirectly to make their medical care more affordable. The mandatory aspect of this default is
that if the insurance company chooses to opt out of the 80/20 plan, than they must reimburse
their subscribers via a rebate that makes up for the difference in between how much the
subscribers paid and how much percentage of their premiums under 80% was actually used for
health care. Regardless of the path in which insurance companies choose to take, subscribers will
by default directly benefit from 80% of their premiums they pay.
With the ACA and other medical issues becoming a hot topic, it should come as no
surprise that the 80/20 rule came into effect. The 80/20 rule states that a health insurance
company must spend at least 80% of the money they have collected from paying claims. This
means that they are forced to spend 80% of all their revenue on health claims and not on
advertising and giving the executives a giant salary at the end of the quarter. If the company does
not spend at least 80% they have to give out customer rebates making up the difference.
Before 2010 many health insurance companies did not have this rule and could spend as
little as they chose leaving more space for personal profit. In some cases the number would be as
low as 60% with the other 40% going to personal salaries and other administration and profit.
This significantly helped reduce the number of people who are receiving health insurance rebates
this year from 12.1 million down to 8.5.
When it comes to the 80/20 rule there are many examples where the rule demonstrates its
value to our society. This rule, mainly showed in economic conditions, is exemplified through
the ACA and how insurers spend health insurance premiums. Both of these two examples are
similar, and provide insight of the new 80/20 rule and show how this rule is to be used. The

80/20 rule comes into play with the ACA by decreasing the growth of premium rates ("Obama
Care Insurance premiums). This rule regarding insurers requires their companies to reveal how
many premium dollars are spent on health care and profits. Insurance companies are also
required to rebate any excess premium charged if they spend less than 80% due to the 80/20 rule.
In conclusion, the default options set up by the 80/20 Rule present in President Obamas
Affordable Care Act are such that insurance companies have to use 80% of their dues from their
subscribers on their actual medical care, whether that go directly to paying physicians for their
work, or less directly such as paying for nurses hotlines (Kliff, 2013). Insurance companies can
choose to opt out of the plan, but are then forced by the aforementioned piece of legislature to
make up the difference to subscribers by paying them a rebate. It is mandatory in the fact that
either way, the insurance companies are legally compelled to ensure that 80% of subscribers
premiums actually go to what the subscribers are paying for, or else they get their money back..
For every premium dollar insurance companies used 80 cents to pay for medical activities and
claims that will better the quality of care, and because of this the Medical Loss Ratio will be
80%. When it comes to the 80/20 rule insurance companies have to disclose how funds are
being spent, and a minimum of 80% must be spend on healthcare, or consumers are given a
rebate for the difference. One of the main points of the 80/20 rule is to encourage insurance
companies to operate more efficiently and cut down on their overhead, and it is beginning to
work (Bates, 2013). This mandatory default has successfully aided in relieving millions of
Americans from substantial healthcare premiums that may not have been as beneficial to them as
they should be
With the Affordable Care Act there also came a change in Medicare readmissions
policies. The goal was to cut back on Medicare patients being readmitted to a hospital within

thirty days of being released. There are far too many patients returning that could have been
helped with further care in the hospital and with better follow-up care after being released. This
policy attempts to encourage hospitals to treat patients properly the first time they are admitted
and punishes those hospitals that fail to do so (Schoch, 2013). If a hospital readmits patients
within the thirty days after being released, Medicare can withhold up to one percent of the
money it would usually reimburse to the hospital. This default ensures that hospitals either
follow the new rule for readmitting patients or they pay for their failure to comply. This policy
will help hospitals update their care and ensure that patients are receiving the best care possible
during their stay.
The Heritage Foundation states that the mandate placed on households would definitely
force those with the means to obtain health insurance to pay into it and in effect no longer be
considered free riders. Yet what about low-income families who simply do not hold the means
to purchase health insurance for themselves and their families, let alone maintain health coverage
throughout the year? Subsidies, a benefit (typically cash payment, tax reduction or credit)
provided by the government to applicable individuals or groups, can be awarded to individuals
and families but only if they sign up for Health Care Marketplace and nowhere else. The
subsidies, in the form of tax credits, help to lower the monthly premium cost of the insurance
plan and also lower out-of-pocket expenses and make it possible for a person and their family to
keep insurance coverage.
The 80/20 Rule is forcing health insurance companies to provide more medical attention
and to pay for more medical aspects such as visiting your doctor. It can also help reduce the
overall price of health care in the near future. It is one of the White Houses biggest weapons to

help gain support for Obama care and they know it. With the general public happy about this new
rule; most people forget to look at the negative effects it may hold.
Nurses and other medical providers may not be in favor of the new 80/20 rule
considering they fall in the 80% area. What this means is that since health insurance companies
now have to provide at least 80% of their overall paying claims, it may affect how much money
they are receiving from investors. Since insurers now know that they have to spend at least a set
number of dollars and do not have the same freedom that they once had they may not be as likely
to invest. This can lead to the insurance company having fewer funds and therefore giving out
less health insurance since the 80% will be a lower number.
When it comes to how insurers spend health insurance, the 80/20 rule requires insurance
companies to reveal the amount of premium dollar they are spending on health care and profits.
With the utilization of this rule consumers can better understand how insurers spend premium
dollars, and because of this they are better informed when it comes to purchasing health
insurance. Recently the 80/20 rule has become more important because consumers and small
employers will have access to state based competitive Health insurances Marketplaces (The
80/20 Rule, 2013). This will allow individuals and small business to use this information to
compare the value of health insurance plans. Since this rule is so important some insurers have
modified their business practices in order to improve value to their consumers for premium
dollars.
The default options set up by the 80/20 Rule present in the ACA are such that insurance
companies have to use 80% of their dues from their subscribers on their actual medical care,
whether they go directly to paying physicians for their work, or less directly such as paying for

nurses hotlines (Kliff, 2013). Insurance companies can choose to opt out of the plan, but are then
forced by the aforementioned piece of legislature to make up the difference to subscribers by
paying them a rebate. It is mandatory in the fact that either way, the insurance companies are
legally compelled to ensure that 80% of subscribers premiums actually go to what the
subscribers are paying for, or else they get their money back. This mandatory default has
successfully aided in relieving millions of Americans from substantial healthcare premiums that
may not have been as beneficial to them as they should be.
The Medicare Readmissions Rule is forcing hospitals to change the way they conduct
their release of patients. They are now rethinking how they conduct patient care and many are
extending follow-up reviews for patients. Some hospitals are applying for grants from the
Centers for Medicare and Medicaid Services (CMS) to help fund their new strategies to prevent
unnecessary readmissions. The money can be used for a social worker to meet with patients in
hospitals and at home after discharge to make assessments and to follow up with patients
(Schoch, 2013). Other solutions to cut back on readmission rates include nurses calling to ensure
patients are contacting their primary care physicians and taking their medications and risk
assessments that looks at the patients living situations, medications, and other issues that are
known to be risk factors for hospital readmissions (Schoch, 2013).
The healthcare system under the Patient Protect and Affordable Care Act is a more
inclusive plan that prior health care coverage systems for many reasons. For one, no individual
can be denied health coverage due to a preexisting or genetic condition. Each individual has the
right to appeal any health care decision. With the enactment of the Affordable Health Care Act,
young adults up to the age of 26 can remain under their parents insurance coverage, this has
been beneficial to so many young adults many of who are still in college and are bringing in little

to no income. Another improvement to the Affordable Health Care Act was the provisions made
to womens health. The reforms made to health care laws include many more benefits,
protections, securities to insurers than ever before. Not only are there more safeguards in place
for the insurers but there is also the advantageous effect on the free riders phenomenon who once
received medical benefits without having to pay any costs which in effect burdens the tax payers
with having to make up for any unpaid costs. That will no longer be under the Affordable Health
Care Act.
The 80/20 Rule has many possibilities to help the public and create better health care options
for the country as a whole. With health insurance forced to spend more money on medical issues
for their client it allows them to receive better care that they may of previously not of had in
order to save the company money. That will no longer be an issue since the company will have to
reimburse their clients if 80% of it is not spent. This new health care reform can be seen in
several different aspects of the business world.
With any change there are positives and negatives and the 80/20 Rule is no exception.
Positives are shown in the reduction of rebates going from 12.1 million down to 8.5 million, and
how the rule has the possibility to reduce the price of health care in the near future. In the long
run, this would be something very important to our nation. The positives outweigh the negatives
which are a good thing. One of the main negatives is that nurses may not be in favor of this rule
since they are in the 80%. This new rule is very important because healthcare is something we as
citizens want to have in our favor and with this new 80/20 rule healthcare has changed.
There are also negative factors in the Medicare Readmissions Rule and until the system is
tweaked to suit the needs of the people and those affected settle in to the new rules there will be a

need for adjustment. Some argue this policy has negatives that can hurt low-income areas. There
are issues like physician shortages that prevent outpatient care and thus cause higher readmission
rates (Schoch, 2013). This policy puts hospitals that serve low-income patients at risk of not
receiving full Medicare reimbursements (Schoch, 2013). There is some support for the policy by
Walter Ray, a director of physician operations, who claims they are forcing a higher
collaboration and cooperation between inpatient and outpatient providing better care for the
patient overall (Schoch, 2013). The country is moving in the right direction by reforming the
health care system and the hospitals and insurance companies must work together to provide the
best care for patients.
Our research of the Affordable Care Act has enabled our group to reach a series of
conclusions about the act itself as well as the role of default options in the health care system.
Firstly is that the default option of everyone having to pay for health insurance, whether they
individually desire it or not, has benefitted our society. It has lowered the general cost of
premiums across the country, because the option of opting out of the default is costly it in itself.
The next conclusion that can be drawn is that the 80/20 rule is aiming to improve the quality and
efficacy of health care by providing the mandatory default of insurers using 80% of their
premiums on health care-related fees. The incentive for insurers to abide by the mandatory
default is such that either way, the consumers are going to receive their moneys worth out of
their premiums, even if that means that the government will compel them to compensate the
subscribers through rebates. This overall has helped to improve the overall image of the health
care insurance market as well, due to the nature of disclosure of how their funds are being spent.
We also concluded that the individual mandate created by the Heritage Foundation has
successfully addressed the free-rider issue in the health care system. Lastly, the conclusion that

we derived in regards to the Medicare readmissions aspect of the Affordable Care Act is that the
use of the mandatory default has improved the quality of health care that patients can expect to
receive. The hospital is incentivized to treat the patient appropriately and accurately during their
visit, because by default, funds could be withheld from the hospital if the patient has to come
back for something that the doctors should have diagnosed and addressed originally. By default,
doctors are expected to fully address any health concerns or problems that Medicare patients
have the first time that the patient comes to the hospital. Opting out of this default could be
considered costly, as the government can refuse to compensate the hospital a small but
significant amount of money. Overall, default options are an extremely effective tool when
implemented correctly for the execution of public policy, and are proven as such by the
effectiveness of the defaults in the medicine provided by the Affordable Care Act.

Works Cited
Obama Care insurance premiums. (n.d.). Retrieved from http://obamacarefacts.com/obamacarehealth-insurance-premiums/
Bates, V. (2013, October 31). Patient Protections under the ACA: The 80/20 Rule. Retrieved
from http://accretivehealth.com/patient-protections-under-the-aca-the-8020-rule/
The 80/20 Rule: How Insurers Spend Your Health Insurance Premiums. (2013, February 15).
Retrieved from https://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-report-02-152013.pdf
Chcf Center For Health Reporting AND Rachel Cook, D. S. (2013, May 18). Medicare rule
change to cost local hospitals. Bakersfield Californian, The (CA).
Kliff, S. (2013, July 28). The Obamacare Provision That Terrifies Insurers. Retrieved from The
Washington Post: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/18/theobamacare-provision-that-terrifies-insurers/

Butler,S.M.AssuringaffordableHealthCarePlansforAllAmericans.TheHeritage
Foundation.Washington:TheHeritageFoundation.
Healthcare.gov.(2014,128).Thefeeyoupayifyoudon'thavehealthcoverage.
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