Private Health Insurance: Changes Made by
the Reconciliation Act of 2010
to Senate-Passed H.R. 3590

Hinda Chaikind
Specialist in Health Care Financing
Bernadette Fernandez
Analyst in Health Care Financing
Chris L. Peterson
Specialist in Health Care Financing
Mark Newsom
Analyst in Health Care Financing
March 19, 2010
Congressional Research Service
7-5700
www.crs.gov
R41126
CRS Report for Congress
P
repared for Members and Committees of Congress

Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Summary
On December 24, 2009, the Senate passed health reform legislation (H.R. 3590, the Patient
Protection and Affordable Care Act) that would, among other changes, make statutory changes
affecting the regulation of and payment for certain types of private health insurance.
On March 18, 2010, the House Rules Committee issued an amendment in the nature of a
substitute to H.R. 4872, the Health Care and Education Affordability Reconciliation Act of 2010
(hereafter referred to as the reconciliation bill). The reconciliation bill was written as making
amendments to H.R. 3590.
This report summarizes only the private health insurance provisions in the reconciliation bill and
their impact on Senate-passed H.R. 3590. For a description of all the private health insurance
provisions in H.R. 3590, see CRS Report R40942, Private Health Insurance Provisions in
Senate-Passed H.R. 3590, the Patient Protection and Affordable Care Act
.
Among the changes that would be made by the reconciliation bill to H.R. 3590 are the following
which, except for the first two, would apply beginning in 2014:
• extend to grandfathered plans, starting six months after enactment, the
prohibition of lifetime limits, prohibition on rescissions, limitations on excessive
waiting periods, and a requirement to provide coverage for non-dependent
children up to age 26;
• for coverage of adult dependent children prior to 2014, the requirement on
grandfathered group health plans would be limited to adult children without an
employer offer of coverage;
• make certain changes to the calculation of the penalties imposed on persons who
are not in compliance with the individual mandate;
• modify a rule regarding the exemption from the individual mandate;
• make changes to how the employer penalties would be calculated;
• include full-time equivalents in the counting of full-time employees;
• strike the employer fee based on extended waiting periods;
• for grandfathered group health plans, prohibit pre-existing condition exclusions
and restrict annual limits;
• increase premium credits and cost-sharing subsidies to certain low- and middle-
income individuals enrolled in private coverage through an exchange; and
• alter how income is counted for purposes of determining eligibility for premium
credits and cost-sharing subsidies.

Congressional Research Service

Private Health Insurance: Changes Made by Reconciliation to H.R. 3590


Contents
Overview of Report..................................................................................................................... 1
Congressional Budget Office Analysis......................................................................................... 1
Reconciliation Bill’s Changes to H.R. 3590................................................................................. 2
Immediate Individual and Group Market Reforms ................................................................. 2
Individual Mandate and Employer Requirements in 2014 ...................................................... 3
Individual Mandate ......................................................................................................... 3
Employer Requirements .................................................................................................. 4
Private Health Insurance Market Reforms Effective in 2014.................................................. 5
Premium Credits ................................................................................................................... 5
Cost-Sharing Subsidies ......................................................................................................... 6
Counting Income................................................................................................................... 8

Figures
Figure 1. Maximum Out-of-Pocket Premiums for Eligible Individuals, by Federal
Poverty Level (FPL)................................................................................................................. 7
Figure 2. Required Effect of Cost-Sharing Subsidies on Percentage of Health Care
Expenses Paid by Plan for Eligible Individuals ......................................................................... 8

Tables
Table 1. Maximum Out-of-Pocket Premium Payments Under Reconciliation Bill, If
Currently Implemented ............................................................................................................ 7

Contacts
Author Contact Information ........................................................................................................ 9

Congressional Research Service

Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Overview of Report
On December 24, 2009, the Senate passed health reform legislation (the Patient Protection and
Affordable Care Act, hereafter referred to as H.R. 3590, or the Senate bill) that would, among
other changes, make statutory changes affecting the regulation of and payment for certain types of
private health insurance. On March 18, 2010, the House Rules Committee issued an amendment
in the nature of a substitute to H.R. 4872, the Health Care and Education Affordability
Reconciliation Act of 2010 (hereafter referred to as the reconciliation bill).1 If passed, this
reconciliation bill would amend H.R. 3590.
This report summarizes only the modifications in the reconciliation bill, as well as the affected
provisions in Senate-passed H.R. 3590. This report is a companion report to the one that describes
all the private health insurance provisions in H.R. 3590, CRS Report R40942, Private Health
Insurance Provisions in Senate-Passed H.R. 3590, the Patient Protection and Affordable Care
Act
.
Congressional Budget Office Analysis
On March 18, 2010, the Congressional Budget Office (CBO) and the staff of the Joint Committee
on Taxation (JCT) provided a preliminary estimate of the effect of the reconciliation bill.2
According to the CBO, the combined effect of H.R. 3590 and the changes from the reconciliation
bill would reduce federal deficits by $138 billion over the 10-year period of 2010-2019, and by
2019 would insure 95% of the non-elderly, legally present U.S. population.
In pointing out the provisions in the reconciliation bill with larger long-term fiscal impacts, the
CBO said the following:
Relative to H.R. 3590, the reconciliation proposal would make a number of changes that
would affect its longer-term impact on the budget. In particular, it would increase the
subsidies offered in the new insurance exchanges and would reduce the impact of an excise
tax on health insurance plans with premiums above certain thresholds. An important
component of the longer-term analysis is that, beginning in 2019, the reconciliation proposal
would change the annual indexing provisions so that the premium subsidies offered through
the exchanges would grow more slowly; over time, the spending on exchange subsidies
would therefore fall back toward the level under H.R. 3590 by itself.3


1 Amendment in the Nature of a Substitute to H.R. 4872, “HCEARA_001.XML,” March 18, 2010, available at
http://docs.house.gov/rules/hr4872/111_hr4872_amndsub.pdf.
2 The CBO preliminary estimate is available at http://www.cbo.gov/ftpdocs/113xx/doc11355/hr4872.pdf.
3 Id. p. 4.
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Reconciliation Bill’s Changes to H.R. 3590
Immediate Individual and Group Market Reforms
Senate-passed H.R. 3590 would implement several reforms to the individual and group markets
prior to the start-up of the health insurance exchanges required by 2014. Among the immediate
market reforms in H.R. 3590 are provisions that would do the following:
• Prohibit lifetime limits and restrict annual limits on essential health benefits by
group health plans and health insurance issuers offering group or individual
plans. Lifetime and annual limits refer to the establishment of a cap on the dollar
value of benefits for any participant or beneficiary. This prohibition would not
extend to covered benefits that are not essential health benefits under section
1302(b) of H.R. 3590 to the extent that such limits are otherwise permitted by
federal and state law. The restriction on annual limits would be further defined by
the Secretary, who would ensure that there is access to needed services available
with minimal impact on premiums.
• Generally prohibit rescissions for a group health plan and a health insurance
issuer offering group or individual health insurance coverage. A rescission
generally refers to the practice of cancelling a health insurance policy after a plan
member or policyholder has submitted medical claims. Rescissions would still be
permitted in cases where the covered individual committed fraud or made an
intentional misrepresentation of material fact as prohibited by the terms of the
plan or coverage. Any cancellation of coverage in this case would require prior
notice to the enrollee.
• Require a group health plan and a health insurance issuer offering coverage in the
group or individual markets that provides dependent coverage of children to
extend that coverage to unmarried adult children until the individual is 26 years
old. A health plan or a health insurance issuer would not be required to make
coverage available for a child of a child receiving dependent coverage.
Under the reconciliation bill,4 the prohibition of lifetime limits, prohibition on rescissions, and the
requirement to provide coverage for dependent children up to age 26 would also apply to the
grandfathered plans5 starting six months after enactment. For adult dependent coverage, the
requirement that the dependent not be married would be removed.
There are also some amendments applicable specifically for grandfathered group health plans.
The restriction on annual limits would begin six months after enactment. For coverage of
dependent children prior to 2014, the requirement would be limited to those adult children
without an employer offer of coverage.


4 §2301
5 Per §2051 of Senate passed H.R. 3590, grandfathered plans would be defined at those individual and group plans that
an individual or family was enrolled in on the date of enactment. A group health plan that provides coverage on the
date of enactment may provide for the enrolling of new employees (and their families) in such plan.
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Individual Mandate and Employer Requirements in 2014
Individual Mandate
Under H.R. 3590, most individuals would be required to maintain minimum essential coverage
for themselves and their dependents. Minimum essential coverage includes coverage under public
programs (e.g., Children’s Health Insurance Program) and comprehensive coverage purchased
from the private health insurance market, as specified in the bill. A person who is not in
compliance with the individual mandate may be subject to a financial penalty based on either a
percentage of household income or a flat dollar amount, whichever is greater. The penalty amount
based on household income would be the product of household income multiplied by 0.5% in
2014, 1.0% in 2015, and 2% for each year thereafter. The annual flat dollar amount would be
phased in—$95 in 2014, $495 in 2015, $750 in 2016 (adjusted for inflation thereafter), assessed
for each taxpayer and any dependents. Other penalty rules would apply in the case of any
dependents under the age of 18, and a family’s penalty would be capped as specified in the bill.
No penalty would be imposed on certain individuals if they meet specified criteria. One such
individual would be a person whose household income does not exceed the federal poverty level
(FPL).
The reconciliation bill would make certain changes to the calculation of the penalties imposed on
persons who are not in compliance with the individual mandate, and would modify a rule
regarding the exemption from the individual mandate.
For the non-compliance penalty based on percentage of income, the reconciliation bill would
change the base income amount and percentages depending on the year. The base income amount
would be the amount of household income that exceeds the personal exemption amount for the
applicable tax year.6 The applicable percentages would be 1% in 2014, 2% in 2015, and 2.5% for
each year thereafter.7
For the non-compliance penalty based on a flat dollar amount, the reconciliation bill changes the
penalty amounts for 2015 and 2016: $325 and $695, respectively. This penalty would be adjusted
for inflation (based on the 2016 amount) thereafter.8
The reconciliation bill would strike the exception to the non-compliance penalty for persons with
income below the poverty line included in H.R. 3590. Instead, the reconciliation bill would
except from the non-compliance penalty individuals whose household income is less than the
personal exemption amount for the applicable tax year.9


6 For instance, for tax years 2007, 2008, 2009 and 2010, the personal exemption amounts are $3,400, $3,500, $3,650
and $3,650, respectively.
7 §1002(a)(1)
8 §1002(a)(2)
9 §1002(b)
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Employer Requirements
Under H.R. 3590, all employers with more than 50 full-time employees (defined as employees
working on average at least 30 hours per week and excluding seasonal workers) who did not
provide coverage could be required to pay a penalty for certain employees, as well as employers
who did provide access to coverage but fail to meet certain requirements. For applicable
employers who (1) did not offer coverage and (2) had a full-time employee receive a premium
credit for enrollment in an exchange plan, such employers would be assessed a penalty equal to
the number of full-time employees times 1/12 of $750, for any applicable month in 2014. After
that year, the applicable payment amount would be indexed. For applicable employers who did
offer coverage but had a full-time employee decline that coverage and instead receive a premium
credit for enrollment in an exchange plan,10 such employers would be assessed an annual penalty
equal to $3,000 ($250 per month) for each such employee in 2014. The penalty amounts would be
indexed after 2014. The total annual penalty for an employer who did offer coverage would be
limited to the total number of the firm’s full-time employees times $750 ($62.50 per month). In
addition, a fee would be imposed on applicable large employers that required extended waiting
periods (over 60 days) before employees could enroll in a minimum essential coverage under an
employer-sponsored plan.
The reconciliation bill would make changes to how the employer penalties would be calculated,
creating more similarity in penalties among employer who do offer coverage and those that do
not offer coverage. The reconciliation bill also would include full-time equivalents in the
counting of full-time employees, and strike the employer fee based on extended waiting periods.
Solely for calculating either (1) the penalty for an employer who does not offer coverage with at
least one full-time employee who received a premium credit, or (2) the overall limit on the total
penalty imposed on an employer who offers coverage with at least one full-time employee who
received a premium credit, the number of full-time employees would be reduced by 30 under the
reconciliation bill.11 This reduction would apply only once under (1) or (2) for persons who are
treated as 1 employer under the federal tax code.12
Under the reconciliation bill, the monthly employer penalty in 2014 for an applicable employer
who does not offer coverage with at least one full-time employee who received a premium credit
would be the product of the number of full-time employees (minus 30 as described above) times
1/12 of $2,000. The monthly penalty in 2014 for an applicable employer who offers coverage
with at least one full-time employee who received a premium credit would be the product of the
number of full-time employees who received such credits times 1/12 of $3,000. Moreover, the
reconciliation bill would limit the total penalty imposed on such an employer. The monthly
penalty limit for 2014 would be calculated by multiplying the number of full-time employees


10 An individual eligible for, but not enrolled in, an employer-sponsored plan could still be eligible for premium credits
if the employee’s contribution to premiums exceeded 9.5% of income, or if the plan’s payments cover less than 60% of
total allowed costs.
11 For example, say an employer has 60 full-time employees. When calculating the penalty applicable in either scenario
(1) or (2), the number of full-time employees you would use would be 30 (60 minus 30).
12 §1003(a)
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

(minus 30 as described above) times 1/12 of $2,000. The dollar amounts described in this section
would be indexed after 2014.13
For the purpose of deciding whether an employer is an “applicable large employer” and
potentially be subject to a penalty, the reconciliation bill would include full-time equivalents
(FTEs) in the calculation of full-time employees. The FTE calculation would be the quotient of
aggregate hours worked by part-time employees (i.e., individuals working less than 30 hours per
week) for a month divided by 120.14
The reconciliation bill would eliminate the fee imposed on employers who have extended waiting
periods.15
Private Health Insurance Market Reforms Effective in 2014
In addition to the more immediate individual and group market reforms previously discussed,
H.R. 3590 would apply new federal health insurance standards to group health plans, and the
individual, small group, and large group markets (depending on the standard), effective January 1,
2014. Among the market reforms in H.R. 3590 are provisions that would do the following:
• Prohibit group health plans and issuers in the individual and group markets from
excluding coverage for preexisting health conditions. A “pre-existing health
condition” is a medical condition that was present before the date of enrollment
for health coverage, whether or not any medical advice, diagnosis, care, or
treatment was recommended or received before such date.
• Prohibit group health plans and issuers in the individual and group markets from
imposing a waiting period greater than 90 days. A “waiting period” refers to the
time period that must pass before an individual is eligible to use health benefits.
Under the reconciliation bill,16 the limitations on excessive waiting periods would apply to all
grandfathered plans. Thus, the grandfather exemption would be removed. The prohibition relating
to preexisting conditions would be amended to apply to grandfathered group health plans.
Premium Credits
Under Senate-passed H.R. 3590, some individuals enrolled in private health insurance through an
exchange (beginning in 2014) would be eligible for premium credits, based on income. The
premium credits would be in the form of advanceable, refundable tax credits. Qualifying
individuals at or below 133% federal poverty level (FPL) would pay no more than 2% of income
toward premiums (although citizens in this income range would be eligible for Medicaid, rather
than premium credits for exchange coverage). Currently, for a family of three in the 48


13 §1003(b)
14 §1003(c)
15 §1003(d)
16 §2301
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

contiguous states, 133% FPL is $24,352, and 400% FPL is $73,240.17 Premium credits would be
available to individuals up to 400% FPL.
Compared to H.R. 3590, the reconciliation bill makes the premium credits in 2014 somewhat
more generous for individuals between 133% FPL and 200% FPL and between 250% FPL and
400% FPL, as illustrated in Figure 1 and Table 1.18
For years after 2014, both H.R. 3590 and the reconciliation bill would increase the percentage of
income eligible individuals would be required to pay toward premiums (i.e., reducing premium
credits) based on how much premium growth exceeded income growth. However, after 2018, if
the premium and cost-sharing subsidies exceeded 0.504% of gross domestic product (GDP) for
the preceding year, then the required percentage of income paid toward premiums would also be
increased by how much premium growth exceeded overall inflation19 for the preceding year.20
In addition to the Senate bill’s requirements and limitations when reconciling taxpayers’ advanced
premium tax credits to levels ultimately reported on their actual tax returns, the reconciliation bill
requires exchanges to provide to the Secretary of Health and Human Services the following: each
enrollee’s level and length of exchange coverage; the premium for the plan (excluding the
premium and cost-sharing subsidies); the advanced payments for premium and cost-sharing
subsidies; the name, address, and taxpayer ID number of each individual covered; “any
information provided to the Exchange, including any change of circumstances, necessary to
determine eligibility for, and the amount of, such credit”; and any “other similar information
necessary to carry out this subsection and determine whether a taxpayer has received excess
advance payments.”21
Cost-Sharing Subsidies
Even when individuals have health insurance, they may be unable to afford the cost-sharing
(deductibles and copayments) required to obtain health care. Thus, under the Senate and
reconciliation bills, those eligible for premium credits would also be eligible for cost-sharing
subsidies for silver22 plans sold through an exchange. The cost-sharing subsidies are provided to
insurers so that their plans pay for a certain percentage of covered health care expenses. As
illustrated in Figure 2, compared to the Senate bill, the reconciliation bill increases the cost-
sharing subsidies for those up to 250% FPL, to cover a higher percentage of expenses.23 However,
these amounts are still less than those in House-passed H.R. 3962.


17 CRS computation based on “Annual Update of the HHS Poverty Guidelines,” 74 Federal Register 4200, January 23,
2009, http://aspe.hhs.gov/poverty/09fedreg.pdf. Per P.L. 111-118, the 2009 FPLs will be in effect until at least March
1, 2010. The FPL in Hawaii and Alaska is set at a higher income than for the 48 contiguous states.
18 §1001(a)(1)(A) and §1001(a)(2) of the reconciliation bill.
19 As measured by the Consumer Price Index.
20 §1001(a)(2) of the reconciliation bill.
21 §1004(c) of the reconciliation bill.
22 Silver plans are those in one of four cost-sharing tiers established in exchanges (the other tiers being bronze, gold and
platinum). Of the four tiers, silver plans would have the second highest enrollee cost-sharing.
23 §1001(b) of the reconciliation bill.
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Table 1. Maximum Out-of-Pocket Premium Payments
Under Reconciliation Bill, If Currently Implemented
for the 48 contiguous states and the District of Columbia
Federal
Maximum
Maximum Annual Premium (current), by Family Size
Poverty
Premium as a %
Line (FPL)
of Income (2014)
1 2 3 4
100% 2.0% $217
$291 $366 $441
133.00% 2.0% $288 $388 $487 $587
133.01% 3.0% $487 $656 $824 $992
150% 4.0% $650
$874
$1,099
$1,323
200% 6.3% $1,365
$1,836
$2,307
$2,778
250% 8.05% $2,180
$2,932
$3,685
$4,438
300% 9.5% $3,087
$4,152
$5,218
$6,284
350% 9.5% $3,601
$4,845
$6,088
$7,332
400% 9.5% $4,115
$5,537
$6,958
$8,379
Source: CRS computation based on “Annual Update of the HHS Poverty Guidelines,” 74 Federal Register 4200,
January 23, 2009, http://aspe.hhs.gov/poverty/09fedreg.pdf, and the “reconciliation bill” (i.e., Amendment in the
Nature of a Substitute to H.R. 4872, “HCEARA_001.XML,” March 18, 2010), for the second least expensive
silver plan available to eligible individuals. Per P.L. 111-144, the 2009 FPLs will be in effect until at least March 31,
2010. If individuals choose more expensive plans, they would be responsible for additional premiums.
Figure 1. Maximum Out-of-Pocket Premiums for Eligible Individuals,
by Federal Poverty Level (FPL)
12%
11%
10%
s 9%
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8%
m
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i
o
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H.R. 3962: Passed by
axi
4%
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House
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H.R. 3590: Passed by
3%
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Senate
Reconciliation
2%
1%
0%
100%
150%
200%
250%
300%
350%
400%
Federal Poverty Level

Source: CRS analysis.
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

Figure 2. Required Effect of Cost-Sharing Subsidies on Percentage
of Health Care Expenses Paid by Plan for Eligible Individuals
100%
H.R. 3962: Passed by House
94%
87%
H.R. 3590: Passed by Senate
90%
Reconciliation
80%
73%
70%
70%
70%
70%
e
u

60%
l val
ia

50%
ar
tu

40%
c
A

30%
20%
10%
0%
Up to 150%
151% -
201% -
251% -
301% -
351% -
200%
250%
300%
350%
400%
Federal Poverty Level

Counting Income
Under Senate-passed H.R. 3590, Modified Gross Income (MGI) would be used for determining
eligibility for premium and cost-sharing credits,24 as well as for Medicaid25 and CHIP,26 beginning
in 2014. MGI was defined as gross income decreased by trade and business deductions, losses
from sale of property, and alimony payments, but including tax-exempt interest and income
earned in the territories and by U.S. citizens or residents living abroad.27
The reconciliation bill would use a different definition and term, Modified Adjusted Gross
Income (MAGI) and apply it to the premium and cost-sharing credits and well as to Medicaid and
CHIP.28 MAGI is defined as the Internal Revenue Code’s Adjusted Gross Income (AGI), which
reflects a number of deductions, including trade and business deductions, losses from sale of


24 New IRC §36B(d)(2) in §1401 of H.R. 3590.
25 New §1902(e)(14)(G) of the Social Security Act, created by §2002(a) of H.R. 3590.
26 New §2102(b)(1)(B)(v) of the Social Security Act, created by §2101(d) of H.R. 3590.
27 Medicaid enrollees who would otherwise lose coverage because of the change in income-counting would be able to
maintain eligibility (i.e., grandfather provision appears in the new §1902(e)(14)(D)(v) of the Social Security Act,
created by §2002(a) of H.R. 3590).
28 Subsections (a) and (b) of §1004 of the reconciliation bill.
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Private Health Insurance: Changes Made by Reconciliation to H.R. 3590

property, and alimony payments, increased by tax-exempt interest and income earned by U.S.
citizens or residents living abroad.
Implementation Funding
The reconciliation bill would establish a Health Insurance Reform Implementation Fund within
the Department of Health and Human Services (HHS) for federal administrative expenses for
carrying out the legislation. The reconciliation bill appropriates $1 billion to the fund.29


Author Contact Information

Hinda Chaikind
Chris L. Peterson
Specialist in Health Care Financing
Specialist in Health Care Financing
hchaikind@crs.loc.gov, 7-7569
cpeterson@crs.loc.gov, 7-4681
Bernadette Fernandez
Mark Newsom
Analyst in Health Care Financing
Analyst in Health Care Financing
bfernandez@crs.loc.gov, 7-0322
mnewsom@crs.loc.gov, 7-1686




29 §1005 of the reconciliation bill.)
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