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The Road to PPACA

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The battle over whether the Patient Protection and Affordable Care Act of 2010 (PPACA) is constitutional, unconstitutional, or something more complicated is just one new attention-getting chapter in the long history of health care finance.

We prepared a history of the topic to try to give you, our readers, the background you need to come up with your own response to PPACA, Supreme Court action on PPACA, and all of the other legislative, regulatory, enforcement, medical community, corporate, scholarly, consumer and patient activity revolving around health care finance.

People have battled for many years over who should pay for health care; what, if any, obligation physicians and other health care providers have to provide free or discounted care for patients unable or unwilling to pay the full price; whether some patients are more worthy of getting free or reduced-price care than others; whether private health insurance programs are sustainable; and whether government intervention in health care markets helps matters or only makes the situation worse.

The history of this topic is about as old as history.

  • The Europeans organized voluntary “friendly societies” that could minimize underwriting risk by serving fellow community members of good character. The American colonists financed their early hospitals with funding streams almost as complicated as the funding streams going to American hospitals today.
  • For U.S. leaders of the 1800s, one key question was how much authority the U.S. Constitution gave the federal government over health care. The Germans established a universal health insurance program in the 1880s, and U.S. leaders spent decades debating whether they should follow suit. Hillary Clinton beat her head against a wall built by Harry and Louise. Barack Obama came along and passed a bill over the wall by backing a long, complicated bill that has been creating endless work for federal agencies ever since.
  • Now the Supreme Court is stirring the cauldron. Before we start our history, one important point to make is that it’s difficult to write a reasonably clear sentence about health care finance without using words that will infuriate someone.
  • For starters, many doctors hate the term “health care provider.” Another challenge is finding an even-handed term to refer to efforts to make the health care delivery or health care finance systems work better. Supporters of a change measure might refer to it as a “health reform” or “health care reform” measure. Opponents might refer to the measure with terms unfit for use on a family website.
  • At National Underwriter Life & Health, we try as much as possible to use the term “health system change,” rather than “health reform,” outside direct quotes, because of a sense that one reader’s “health reform law” is another reader’s “health system destruction law.” Calling a law a health system change law feels more neutral than calling it a health reform law or “that terrible law,” but it’s also awkward.
  • NUL began to refer to the 2010 change law as “PPACA” immediately after it became law.
  • President Obama then signed a PPACA “fixer” bill, the Health Care and Education Reconciliation Act (HCERA), and the Obama administration soon began referring to the two-bill package as the Affordable Care Act (ACA). Opponents often call the law “Obamacare.” The Associated Press calls the law “President Obama’s health care law,” even though members of Congress developed the law and Obama started out objecting to some of the provisions. At NUL we stuck with PPACA because it seemed more neutral than most of the alternatives and easier to use than others as an Internet search keyword.


Health Care Finance Unplugged

  • No one knows how the first medicine men (and women) billed the first patients. Maybe those patients paid for care with polished shells entirely out of their own leather pouches, or with promises to turn over a portion of the berries they gathered over the next few months.
  • Historians tell us that the civilizations with written records that we know how to read have been struggling with health care finance since they developed health care.
  • The Egyptians had a body of government-paid physicians operating 11 centuries before the birth of Christ, according to a history of medicine that Von Friedlander published in the Westminster Review.
  • Friedlander says the ancient Egyptian physicians seem to have received payments from at least some of their patients in addition to payments from the government.
  • In place of hospitals, the Egyptians had temples that, in some cases, would try to persuade the gods to help the sick. In Egypt, religion was a government institution. The pharaohs financed the temples and other public institutions with requirements that residents provide free labor, portions of their herds and crops, and other “in-kind taxes.”
  • The Egyptians and the Babylonians also used an early, low-tech version of medical information crowdsourcing: They had the caregivers of people who were seriously ill set the patients out on the street. Passersby were supposed to look the patients over and tell the caregivers whether they recalled any treatments helping patients with similar conditions on other occasions, Minnie Goodnow wrote in a history of nursing published in 1916.
  • The Greeks seem to have tried a number of different approaches to health care finance. In some places and times, the Greeks managed the need for catastrophic care by requiring families to set patients who seemed likely to die outside the city walls.
  • But Friedlander says that Athens had government-paid physicians 500 years before the birth of Christ, and that the Roman empire required every city to have a minimum ratio of government-paid physicians to residents.
  • In Rome, doctors seem to have applied a sliding-rate scale, with some patients getting free or cheap care and the wealthy paying exorbitant rates.
  • Pliny the Elder complained in the fifth volume of his Natural History of doctors who made “rapacious bargains” with their patients while the patients’ fate was “trembling in the balance.” He said Emperor Claudius exiled a physician, Alcon, to Gaul, for charging too much for care.
  • As the Roman Catholic Church grew and became an official part of medieval European societies, Catholic institutions set up hospitals financed with a combination of government money, church money, private contributions and patient fees.
  • In the middle ages, many Europeans formed voluntary, exclusive “friendly societies” that served, in effect, as nonprofit clubs that provided medical insurance.
  • The struggle over health care finance continued in the New World.
  • Communities set up “friendly societies,” or mutual aid societies, early on, and they organized some of the first hospitals and clinics in the 1700s.
  • In Pennsylvania, for example, the Pennsylvania Provincial Assembly provided the appropriations needed to set up the Pennsylvania Hospital in Philadelphia in 1751.
  • Over the next few decades, the assembly supplemented the hospital’s sources of revenue by awarding it unclaimed shares of prize money, tax payments that came in late, unclaimed dividends on bankrupts’ estates, and penalties on illegal exports of bad boards and timber, according to Thomas George Morto’s history of the Pennsylvania Hospital.
  • The hospital also received funding from private sources, such as gifts of land and money from the Penn family; proceeds from the exhibition of a painting, Christ Healing the Sick; and proceeds from Noah Webster’s lectures on the English language, Morto says.
  • In the 1750s, some people passed their Sundays by going to hospitals and looking at people who were mentally ill. The Pennsylvania Hospital began raising revenue in 1767 by charging visitors who wanted to look at mentally ill patients an admission fee of 4 pence.
  • The physicians could charge fees, but Morton says the hospital staff decided in 1783 that the physicians could not impose fees on patients who were in the almshouse.
  • In 1808, Thomas Jefferson said he had turned over some of the buildings acquired from the French in connection with the Louisiana purchase to operators of hospitals, according to a copy of a message to Congress collected by Gerhard Peters and John T. Woolley for The American Presidency Project at the University of California at Santa Barbara.
  • In 1854, the U.S. Congress sent Franklin Pierce a bill calling for the country to give states public lands they could use “for the benefit of indigent insane persons.” Pierce vetoed the bill, according to a copy of a veto message collected by Peters and Woolley.
  • In the veto message, Pierce said he had deep sympathies for the intentions of the lawmakers who drafted the bill.
  • But “it cannot be questioned that if Congress has power to make provision for the indigent insane without the limits of [the District of Columbia], it has the same power to provide for the indigent who are not insane, and thus to transfer to the federal government the charge of all the poor in all the states,” Pierce says in the veto message. “It has the same power to provide hospitals and other local establishments for the care and cure of every species of human infirmity, and thus to assume all that duty of either public philanthropy, or public necessity to the dependent, the orphan, the sick, or the needy which is now discharged by the states themselves or by corporate institutions or private endowments existing under the legislation of the states.”
  • Pierce said Congress would have no answer when asked why it was not taking care of every other type of human infirmity.
  • “The question presented, therefore, clearly is upon the constitutionality and propriety of the federal government assuming to enter into a novel and vast field of legislation, namely, that of providing for the care and support of all those among the people of the United States who by any form of calamity become fit objects of public philanthropy,” Pierce said.
  • Pierce said he could not find any authority in the Constitution for “making the federal government the great almoner of public charity throughout the United States.”
  • Pierce argued in a later veto message that the Constitution does not authorize the government to build hospitals or engage in other general-purpose public works projects, such as the construction or repair of turnpikes and bridges.


Germany Makes Waves

  • The German empire influenced policymakers throughout the world, including the United States, by implementing a sickness-related income protection program Jan. 1, 1891, and a sickness program that paid for people to get care through local “clubs” in 1893.
  • Benjamin Harrison’s Labor Department sent a long report on German compulsory social insurance programs to the Senate on Feb. 14, 1893.
  • Many Americans admired the German experiments with social insurance. Others viewed the programs as frightening examples of socialism run amok.
  • In 1912, Theodore Roosevelt’s Progressive Party included a worker sickness insurance proposal in its campaign platform.
  • In February 1915, C.D. Babcock, secretary of the Insurance Economics Society, warned in an article published in National Underwriter that readers must confront a proposal for compulsory health insurance that “came upon us full-flowered and unheralded out of the depths of that mysterious vacuum from which college professors, socialists and all the vast horde of unassorted and unclassified dreamers derive their mezzo-tints of the millennium.”
  • Babcock noted that a compulsory health insurance constitutional amendment would be on the November ballot in California, and that compulsory health insurance bills were likely to come up in the legislatures of Massachusetts, Maryland, New Jersey and New York.
  • Most of the proponents “have had no practical knowledge of, or experience with, the burdens of the business man, the hardships and difficulties of the laborer, or the problems of the practitioner of medicine,” Babcock wrote.
  • Babcock argued that existing compulsory sickness insurance programs in Great Britain and Germany had done nothing to reduce poverty, mortality or the duration of sickness in those countries.
  • “On the other hand,” Babcock said, “we know that the compulsory system has demoralized medical practice in every country in which it has been placed in operation.”
  • In 1920, James Lynch of the New York State Industrial Commission called for creating a “universal health insurance” program that would pay for medical care and maternity care. Lynch recommended that workers pay half the cost of the health insurance program and that employers pay the other half.
  • Franklin Roosevelt is known for creating big social welfare programs, but he did not call for creating a large, federal public health insurance program. Instead, he recommended beefing up national preventive care programs and providing more support for state and local health departments.
  • Harry Truman did promote a broad federal health insurance program.
  • On Nov. 19, 1945, soon after World War II, Truman told Congress he was backing the Wagner-Murray-Dingell universal health insurance bill.
  • In 1946, Truman said the country should create a compulsory prepaid health care program that would be part of the social insurance system.
  • “This is not socialized medicine,” Truman said. “Everyone who carries fire insurance knows how the law of averages is made to work so as to spread the risk, and to benefit the insured who actually suffers the loss. If instead of the costs of sickness being paid only by those who get sick, all the people—sick and well—were required to pay premiums into an insurance fund, the pool of funds thus created would enable all who do fall sick to be adequately served without overburdening anyone.”
  • Truman said the country was already using taxpayer money to provide free medical care for people with very low income, or no income.
  • “Tax-supported, free medical care for needy persons, however, is insufficient in most of our cities and in nearly all of our rural areas,” Truman said. “This deficiency cannot be met by private charity or the kindness of individual physicians.”
  • The American Medical Association (AMA), Chicago, spent years fighting the government health insurance program proposals of the 1940s.
  • In 1946, the Arkansas Medical Society reported in its journal that the AMA was responding to fears of government involvement in health care by asking its public relations council to develop a health program based on local prepaid medical plans that would be run by local medical societies.
  • In 1945, Lyndon Johnson maneuvered the bill that created Medicare through Congress.


The Age of HIPAA

  • Health maintenance organizations (HMOs) temporarily calmed fears about rising health care costs by successfully holding down the price of care. HMOs then faced a backlash when patients argued that HMOs were skimping on obviously necessary care. Group medical practices rebelled when they discovered that the “capitated,” flat-fee-per-patient contracts they had negotiated with the HMOs were bankrupting them.
  • Bill Clinton tried, and failed, to get a universal health insurance system package developed by a panel led by his wife, Hillary Clinton, through Congress in the early 1990s.
  • Chip Kahn and the Health Insurance Association of America, Washington — one of the groups that merged to form today’s America’s Health Insurance Plans, Washington — commissioned the production of television commercials featuring Harry and Louise, characters who told the American people that the Clinton proposal would be too complicated. Harry and Louise also talked about the possibility that “Clinton care” could hurt the quality of care that most insured people were getting from their physicians.
  • The American people listened. Congress killed the Clinton health care plan.
  • In June 1996, Karen Ignagni, president of the American Association of Health Plans (AAHP), Washington — the group that later merged with HIAA — told attendees at an AAHP annual meeting in New Orleans, as a giant Palmetto bug skittered across the floor in the front of the conventional hall podium, that managed care companies should work as hard at responding to criticisms with merit as they did at correcting inaccurate perceptions.
  • Ignagni told AAHP member plans that a new storm of bad publicity was coming. She asked them to show consumers they cared about patients by adopting an AAHP Philosophy of Care. The philosophy called on plans to offer information about plan operations, timely access to care, a choice of highly qualified physicians, and decision-making processes that included patients and families as well as physicians.
  • “This indeed is our code of ethics,” Ignani said. “Consumers want to hear this from us. Unless we take this seriously, I think other people will continue to define us.”
  • Later that summer, Congress enacted the Health Insurance Portability and Accountability Act (HIPAA).
  • HIPAA created the regulatory system that now governs health information privacy and health data security. It also tried to reduce “job lock,” by requiring a group health plan to take a new employee who arrived with “creditable coverage” without imposing preexisting condition exclusions.
  • Another HIPAA provision requires states to make some kind of individual coverage available to individuals who lose access to group health coverage. HIPAA does not set any requirements for how much the individual coverage must cost.
  • Health insurers later fought off many attempts by lawmakers to build on HIPAA, such as efforts to limit the rates health insurers could charge individuals who are guaranteed access to coverage by HIPAA.
  • Congress passed several sequels to HIPAA while President Bush was in office. Bush blocked them. He rejected a “patients’ bill of rights” bill, for example, because he objected to the lack of a cap on malpractice suit awards.

How PPACA Came to be

  • In 2008, the three most successful Democratic presidential primary challengers – Barack Obama, Hillary Clinton and John Edwards – each agreed that they would support a “universal health insurance” bill.
  • Hillary Clinton gradually convinced Obama that, to be successful and sustainable, a universal health insurance bill would have to include a provision requiring most individuals to own a minimum level of health coverage. Otherwise, Clinton said, healthy people would avoid buying health coverage, coverage costs would rise, and the health insurance system could face an endless cycle of escalating prices and dwindling enrollment.
  • Soon after Obama took office in January 2009, he asked Congress to develop a universal health insurance proposal. The Democrats had what appeared to be a “filibuster proof” majority in the Senate, and one of the Obama administration’s main tactical concerns was to keep Democrats who were more liberal than he was from killing the bill by defecting.
  • Several House and Senate committees developed their own drafts. Some Democratic leaders let the Republicans participate and shape their drafts; others shut out Republicans.
  • When Sen. Edward Kennedy, D-Mass., died Aug. 25, 2009, the Obama administration and congressional Democratic leaders like Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., suddenly faced a new struggle to hold on to Democratic support.
  • Late in the process, Reid and others developed a combined version of the bill, H.R. 3962, that was 1,990 pages long.
  • Bill supporters ended up accepting a proposal backed by Sen. Max Baucus, D-Mont., to add a provision that would create a new type of nonprofit, member-owned cooperative health plan that would be started with billions of dollars in loans from the federal government.
  • Health insurers fought unsuccessfully to eliminate the Community Living Assistance Services and Support (CLASS) Act, a voluntary long-term care (LTC) benefits program provision, noting that even Obama administration actuaries questioned whether the program could be sustainable.
  • Health insurers also fought unsuccessful efforts to eliminate minimum medical loss ratio (MLR) requirements and to ward off limits on their ability to charge older consumers higher rates
  • Sen. Jim Bunning, R-Ky., paved the way for PPACA to get to the Senate floor by not voting on a measure that could have prevented the Democrats from getting the bill to the Senate floor.
  • The Senate started the final round of debate on H.R. 3590 – the final version of the main PPACA bill – on Dec. 23, then continued debating the bill well into the wee hours of Christmas Eve. The Senate voted 60-39 to give final approval to the bill at 7:16 a.m. Dec. 24.
  • Congress sent Obama a PPACA “fixer bill” – H.R. 4872  – in March 2010.


Implementing PPACA

  • Since President Obama signed PPACA into law March 23, 2010, federal agencies, state regulatory agencies and groups such as the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., have been developing rulemaking notices, white papers, regulations, batches of guidance helping the public interpret regulations, procedures, forms, bid documents, and the other documents, processes and programs needed to implement the law.
  • One provision that’s already taken effect, the minimum MLR provision, requires health insurers to spend at least 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts or else send rebates to customers.
  • Health insurers are getting ready to report on their initial rebate obligations.
  • PPACA also calls for health insurers to develop a new system of health insurance exchanges, or Web-based health insurance supermarkets, that would help individuals and small groups use federal tax subsidies to buy coverage. Some states already have active exchange creation organizations that are seeking bidders for exchange construction contracts. Other states have refused to have anything to do with PPACA and, if PPACA works as drafters expect, will end up relying on the federal government to provide exchange services for their residents.
  • The Employee Benefit Research Institute (EBRI), Washington, reports that there is evidence that one PPACA provision – a provision requiring employers that offer dependent coverage to make the coverage available to dependents up to age 26 – is succeeding at expanding the percentage of young adults who have health coverage.
  • The U.S. Government Accountability Office says another PPACA provision – the provision creating the federal Pre-existing Condition Insurance Plan (PCIP) risk pool program for consumers with health problems – has worked less well than hoped. PPACA requires insurers to sell coverage on a guaranteed-issue basis, without using most types of personal health information in pricing, starting in 2014. Congress created PCIP as a temporary solution for consumers who were willing and able to pay for private coverage, unable to qualify for Medicaid or Medicare, and unable to qualify for conventional, individually underwritten commercial health coverage.
  • PCIP enrollment has been much lower than program creators had predicted. The consumers who are enrolled end up generating an average of about $30,000 in medical bills each per year, in part because Congress saddled the program with restrictions that made the program unappealing to typical people with health problems, officials said.
  • To avoid having PCIP crowd out private coverage, Congress required that PCIP enrollees be consumers who had been uninsured for at least 6 months, and it required that the rates be comparable to the rates that ordinary consumers pay for conventional individual coverage. Few people with serious health problems can afford to be completely uninsured for 12 months, and the premiums turned out to be too high for many uninsurable people who have health problems, officials said.
  • PCIP managers had said they would pay brokers a $100 enrollment assistance fee to drum up interest in the program. Brokers reported that collecting the fee was difficult, and program managers eventually canceled the assistance fee offer.
  • The Internal Revenue Service (IRS), an arm of the U.S. Treasury Department, and the Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, have been working with the Center for Consumer Information and Insurance Oversight (CCIIO), an arm of the U.S. Department of Health and Human Services (HHS), to develop many PPACA regulations.
  • Implementation leaders include HHS Secretary Kathleen Sebelius, a former Kansas insurance commissioner, former Kansas governor and former president of the NAIC, and CCIIO officials like Steve Larsen, the CCIIO director.
  • EBSA and the IRS have faced questions from Republicans in Congress about the amount of time and effort they’ve put into implementing PPACA.
  • The IRS, for example, already is implementing a requirement that employers report how much they are spending on health benefits on employees’ W-2 forms.
  • HHS is in the middle of a heated battle over whether new minimum preventive services benefits requirements imposed by PPACA should require employers that oppose contraception to cover birth control products and services.
  • At least two PPACA provisions appear to be dead.
  • In April 2011, Obama signed H.R. 4, a bill eliminating a provision that could have greatly expanded the need for small businesses to send out 1099 forms.
  • In October 2011, Obama administration officials said they would suspend efforts to implement the PPACA CLASS Act provisions because they did not believe the version of the program required by PPACA would be actuarially sound. House Republicans have talked about coming up with an alternative to the act but have not yet introduced a new LTC bill.


Can Congress Require Consumers to Buy Insurance?

  • The U.S. Supreme Court heard oral arguments on several sets of legal challenges to PPACA in March.
  • One controversial provision of PPACA would require most individuals to own health coverage or else pay a penalty.
  • Many plaintiffs have sued to challenge the individual mandate provision, arguing that the mandate goes beyond the intent of the Commerce Clause of the U.S. Constitution — a clause that permits Congress to regulate commerce — in a way that is unconstitutional.
  • U.S. District Judge Roger Vinson, a judge in Pensacola, Fla., gave the question media vitamins by asking during oral arguments whether the government had any more right to require citizens to buy health insurance than it does to require them to buy broccoli.
  • Plaintiffs also have been challenging the constitutionality of a provision that could require states to expand their Medicaid programs to maximize federal funding and a provision that could require many employers to provide health coverage.
  • Other questions include whether any, some or most of PPACA can remain in force if the court invalidates the individual mandate provision and whether federal law will let plaintiffs challenge PPACA penalty provisions before the act takes effect.
  • Observers have pointed out that even a ruling that appears decisive on paper may not be the end of the story. More challenges to the constitutionality of PPACA are moving through the federal courts, and the outcome of the November general elections could affect the atmosphere in Congress and attitudes toward PPACA at federal agencies.


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