Congress passed the Affordable Care Act (ACA) – also known as Obamacare – on March 23, 2010 to lower health care costs by making sure more people have access to health care coverage, to improve the quality of medical care, and to regulate the health insurance industry.
Many individuals have sounded an alarm about the increased cost of health care coverage under the new law. But it’s essentially a mixed bag. According to Jonathon Cohn, senior editor for the New Republic, the people who had issues under the old system – those with lower incomes and preexisting conditions, for example – typically benefit under the new one.
And though it’s been the law of the land for around a decade, there are still a lot of questions about how the ACA affects individuals, employers, and health care providers. If you’re currently enrolled or planning to enroll, or if you just want more information on how the ACA affects your employer-sponsored health plan, there are some important facts you should know.
What Does the ACA Do?
The ACA imposes many mandates, regulations, taxes and tax breaks, and subsidies on health insurance companies. For example, some regulations prevent health insurance companies from denying coverage to anyone with a preexisting condition. And the Affordable Care Act mandates that all non-grandfathered major health insurance plans sold after January of 2014 must be ACA-compliant plans. There are also mandates that require large employers to provide health insurance to full-time employees.
But that’s only part of what the ACA does. In total, it introduced more than 1,000 provisions. Among other things, the ACA:
- Expanded rights, benefits, and protections regarding health care and health insurance
- Established the Health Insurance Marketplace, where you can purchase health insurance during open enrollment
- Expanded Medicaid to all adults earning 133% or less of the official poverty levels in participating states
- Improved Medicare for seniors and people with long-term disabilities
- Expanded coverage to millions of employees through their employers, and prohibited employers from requiring employees to wait more than 90 days before they are eligible for health insurance
- Extended the age parents’ insurance plans can cover their dependants to the age of 25 years old or younger
- Prohibited health insurance providers from placing a lifetime monetary limit on essential benefits or hospital stays on new policies
- Established subsidies to help reduce the cost of health care for low-income families.
Some people are eligible for a subsidy, determined by both family size and household income, to help pay for the cost of premiums. Of the 8 million Americans who purchased health care insurance through the marketplace during 2016 enrollment, 85% received a tax subsidy, according to the U.S. Department of Health & Human Services ASPE Issue Brief.
That’s important because it means most people qualify. And since subsidies probably affect you and your family, you need to know a few key facts.
- A subsidy is a tax credit. That means when you sign up for insurance on the marketplace, you have two options. You can pay the full price for coverage each month and get a tax credit when you file that year’s tax return, offsetting how much you owe. Or you can use the subsidy each month to make your premiums lower now.
- Premium subsidies don’t apply to supplemental coverage, like accident supplements or adult dental and vision plans. However, if you spend more than 10% of your adjusted gross income on dental, vision, or medical expenses, you can use Schedule A to deduct these expenses if you itemize.
- If you’re an average subsidy-eligible enrollee, most of your premiums will be covered.
- Due to plan changes in each area, subsidy amounts fluctuate from one year to the next.
There are two types of subsidies, cost-sharing and premium tax credits. Subsidies are not available to those enrolled in employer-based plans, so only those with insurance through the marketplace qualify.
Premium Tax Credits
If you meet the requirements to receive a premium tax credit and enroll on a federal or state marketplace, your premium tax credit will lower the cost of your health insurance premium. For instance, instead of paying $400 per month for coverage, your premium tax credit might reduce your monthly payment to $200.
Premium tax credits do not have a fixed value. The dollar amount of the credit you receive varies depending on things like your household size and annual income. The lower your income, the higher your discount.
The premium tax credit is available to people earning an annual income between 100% and 400% of the federal poverty level based on household size.
Cost-sharing subsidies make health insurance more affordable by reducing the cost of out-of-pocket expenses for people who buy a silver plan on the marketplace. These out-of-pocket expenses include deductibles, coinsurance, or copays. It’s important to note that cost-sharing subsidies only apply to those out-of-pocket costs that qualify as in-network services covered by your plan.
Your income, family size, and whether or not you’re enrolled in a silver plan all determine whether you qualify for a cost-sharing subsidy. Policyholders earning between 100% and 250% of the federal poverty level qualify. Because of the 250% federal poverty level cap, far fewer people qualify for cost-sharing subsidies.
If you’re eligible for cost-saving subsidies based on your income, your silver plan automatically includes them.
ACA-mandated benefits cover the cost of treating certain health conditions, some dependents (like those placed for adoption), and care from certain health care providers. Either the federal or the state government can mandate health care benefits. Between the state and federal mandates, there are a substantial number of them.
Two of the most well-known mandates are the individual mandate and the employer mandate.
The Individual Mandate Penalty
One of the most contested provisions of the ACA was the so-called individual mandate penalty, which required nearly everyone in the U.S. to have health insurance or pay a penalty on their taxes.
Before the ACA, insurance companies protected themselves by denying coverage to individuals at risk for high spending, charging older and sicker people higher premiums and not covering many benefits the ACA now mandates coverage for. The individual mandate’s purpose was to spread out the high cost of premiums over a broader base, therefore reducing the cost of premiums overall.
However, the tax bill that passed in 2017 included a repeal of the individual mandate penalty. Beginning in 2019, individuals no longer pay a federal penalty if they don’t have health insurance.
But some states have or are considering an individual mandate that requires you to have health coverage or pay a penalty on your state taxes.
The states that currently require individuals to purchase health insurance include:
- District of Columbia
- New Jersey
States that are considering implementing an individual mandate include:
- Rhode Island
The Employer Mandate
Unlike the individual mandate penalty, the employer mandate penalties remain in effect. The mandate requires employers with 50 or more full-time employees to offer qualifying health care coverage to employees or face penalties.
Qualifying health plans must offer:
- Minimum Essential Coverage. Also sometimes called “qualifying health coverage,” minimum essential coverage is any insurance plan that meets the ACA’s minimum requirements. Qualifying plans include Medicare, Medicaid, CHIP, marketplace plans, and employer-sponsored plans.
- Minimum Value. The plan must pay at least 60% of the costs of benefits.
- Affordable Coverage. An employee’s required contribution can’t exceed 9.86% of the employee’s household income.
Additionally, by the end of each year, employers must prove they offered the right insurance to the right employees at the right time, documenting their compliance with the IRS. If they fail to do so, they must pay penalties to the IRS.
Large employers also face stiff penalties if they fail to offer any coverage to their employees. There are also penalties if they fail to offer coverage that provides minimum essential coverage to at least 95% of their full-time workers or if their plans fail to meet the standard for affordability and quality.
Who Benefits From the ACA
According to the Centers for Disease Control and Prevention, there are millions of Americans without access to health insurance through their employer who have chosen not to purchase or cannot afford private coverage. Likewise, the Centers for Medicare and Medicaid Services notes that without the legal protections for preexisting conditions provided by the ACA, 1 in 2 Americans would be at risk of coverage denial on the open market. These consumers gain the most from the ACA and the health insurance marketplace.
The Health Insurance Marketplace
The marketplace was established to help people compare and enroll in affordable health care insurance, but it’s important to understand how it works.
The health insurance marketplace:
- Allows you to enroll in a plan of your choice regardless of your current health
- Provides coverage if you don’t have access through your employer
- Informs you of the subsidies or government programs you qualify for
- Helps you understand the benefits and limitations of available insurance plans
- Offers only insurance plans that meet minimum requirements for reasonable coverage
- Simplifies the enrollment process for insurance plans by allowing people to fill out only one application to gain access to multiple plan options
- Helps you compare the real costs of insurance plans, including copays and deductibles, so you can make an informed health insurance decision
Applying for Coverage
Signing up for health care on the marketplace is relatively easy. But there are a few things to have on hand before starting the process:
- Your projected income for the coming year
- Social Security numbers
- Employer and income information (pay stubs, W-2 forms, or wage and tax statements)
- Current policy numbers for other health insurance plans
Who Can Apply
If your employer doesn’t offer health insurance, you’re self-employed or unemployed, or you work part-time without benefits, you’re a good candidate for marketplace coverage. But anyone can sign up for marketplace health insurance so long as they meet the following eligibility requirements:
- They live in the United States.
- They are a U.S. citizen, a U.S. national, or they are legally present in the U.S.
- They are not incarcerated.
Note that anyone who meets these criteria can purchase insurance through the marketplace. But if you have access to qualifying health insurance through your employer, you may not be eligible for subsidies. If you think your employer doesn’t provide qualifying health coverage, and you qualify for a subsidy, you and your employer may be required to submit documentation to the marketplace.
Where & How to Apply
The application process is simple and straightforward, and there are several ways to apply:
- Go to the federal marketplace at HealthCare.gov or use your state’s insurance marketplace to sign up for private insurance, apply for Medicaid or CHIP, or get access to subsidies.
- Enroll through a trusted Web broker who works with your state’s marketplace.
- Visit and sign up on your state’s marketplace website.
- Get in-person help by visiting LocalHelp.HealthCare.gov.
- Call the marketplace helpline, which is open 24/7, at 1-800-318-2596.
- Mail in a paper application.
The required information and supporting documents are the same regardless of how you apply.
By the way, If you’ve applied for a 2020 plan and you want to change it, you can do so before the Dec. 15 deadline. Your new policy will take effect on Jan. 1, 2020.
Generally speaking, the way the health insurance marketplace works remains the same across state lines. However, the enrollment process varies by state. States either have their own health insurance marketplace – which they might call “an exchange” – or the federal government runs it for them. Some states have even partnered with another state or the federal government.
No matter how your state set up its exchange, the main marketplace website will help you find it.
In general, health insurance is there for the unexpected, unpredictable, uncontrollable health problems we all eventually have.
But expensive monthly premiums and out-of-pocket costs make many people question whether they really need health care coverage. This is especially true if you’re young and healthy, if you rarely visit a doctor, or if things are a bit tight financially. But if you have an accident, a serious illness, or an ongoing health issue, costs for health care add up very quickly.
Don’t wait until you’re on your way to the urgent care clinic or emergency room to realize you need to log into the marketplace and buy a plan. Buying coverage today can save you money tomorrow.
And because the health insurance marketplace is designed to offer coverage to the millions of Americans who are uninsured or underinsured, you probably qualify for a subsidy.
How have you benefited from the health insurance marketplace?