Understanding the Affordable Care Act

In 2010, the Obama Administration successfully passed the Affordable Care Act (ACA). This sweeping legislation consists of two separate bills: the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. Both collectively sought to accomplish two overarching goals: increase the number of American citizens with health insurance coverage and reduce healthcare-related costs affecting both consumers and the federal government.

In 2013, one year before the ACA went into full effect, roughly 15% of the population was uninsured, and as many as 32 million U.S. residents were unable to obtain coverage for different reasons (such as pre-existing conditions). The ACA became effective January 2014; when initial nationwide enrollments are completed, roughly 95% of Americans will have health insurance coverage. The Congressional Budget Office (CBO) estimates the ACA will help reduce the national deficit by as much as $100 billion over the next decade.

This article discusses the finer points of the ACA, including the following topics:

  • Provisions of different health plans available under the ACA
  • Layout of the online marketplace (known as the ACA Healthcare Exchange) where individuals and business owners can shop for coverage
  • Instructions for applying for health insurance
  • Explanation of financial penalties for those who do not obtain coverage
  • Information about ‘coverage gaps’ as they relate to state-to-state health insurance programs
  • Important considerations for uninsured health coverage shoppers

Coverage Highlights Under the ACA

Under the ACA, health insurance carriers are required to grant the following provisions for all policyholders.

  • Young adult coverage: All men and women under the age of 26 are eligible to receive health insurance under their parents’ individual or employer-sponsored coverage plan. This rule applies to persons living in all states, regardless of whether the child is married, attending a higher-learning institution, eligible for employer-based insurance, or otherwise able to obtain coverage beyond their parents’ plans.
  • Medicaid/CHIP Expansion: One specific goal of the ACA is expansion of Medicaid and Children’s Health Insurance Program (CHIP) in order to provide coverage for millions of uninsured, low-income American families.

    The original intention of the ACA was to cover any individual under the age of 65 who earns at or below 133% of the Federal Poverty Level (FPL) through an expansion of state-sponsored Medicaid programs. For the first time, low-income individuals who do not have children were to also qualify for Medicaid. Like other uninsured individuals, low-income men and women who are eligible for Medicaid are free to browse different coverage options using the ACA Healthcare Exchange (see below).

    However, a 2012 Supreme Court ruling allows states to opt out of the Medicaid/CHIP expansion laid down in the ACA, several U.S. states have opted out while others have begun to implement the new programs. As of March 31, 2014, each of the 50 U.S. states (as well as the District of Columbia) falls into one of the three following categories:

    • States Implementing Medicaid Expansion in 2014: Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, Vermont, Washington, and West Virginia.
    • States Not Moving Forward with Medicaid Expansion: Alabama, Alaska, Florida, Georgia, Idaho, Kansas, Louisiana, Maine, Mississippi, Montana, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming.
    • States Openly Debating Medicaid Expansion: Indiana, Missouri, Pennsylvania, Utah, and Virginia.
  • Subsidized Coverage: Since health insurance mandated by the ACA might cause individuals and households to incur additional expenses beyond their means, the federal government is subsidizing individuals for health coverage if their annual income falls below a certain threshold. Consumers who earn less than 400% of the FPL (roughly $46,000 per year for individuals, and $94,000 for a four-member household) qualify for this subsidy. eHealthInsurance provides an online subsidy calculator to help web users determine the amount to which they are entitled. Please see the subsidy data table below for specific figures.
  • Consumer Protection: Policy-holders and health insurance companies have fought a long-standing battle regarding health conditions that prompt providers to drop coverage to beneficiaries. Now, under the ACA:
    • Policy-holders cannot be denied coverage due to a pre-existing condition, such as a permanent disability or chronic illness. In fact, insurance fraud is the only case in which an individual may be denied coverage. Additionally, providers cannot charge higher premiums for women or individuals facing chronic health issues.
    • Plans must include free preventive services, and insurance providers cannot impose limitations on ‘Essential Health Benefits,’ such as screenings and preventive treatments that reduce the risk of cancer and other diseases.
    • Insurance providers that spend less than 80% of premium revenue on medical services must rebate the overage to their policyholders. This is known as the ’80-20 Rule.’ In 2012, this saved consumers nearly $4 billion.
    • Group health insurance plans must kick in for all employees within a period of 90 days or less from the time he or she becomes eligible for this coverage.
  • Essential Benefits: Under the ACA, the following benefits are considered essential and must be included in all individual and group coverage plans:
    • Ambulatory patient services
    • Emergency services
    • Hospitalization
    • Maternity and newborn care
    • Mental health and substance abuse disorder services (including behavioral health treatment)
    • Prescription drugs
    • Rehabilitative and habilitative services (including certain devices)
    • Laboratory services
    • Preventive services and chronic disease management
    • Pediatric services (including dental and vision)
  • A Note on Grandfathered plans: Although the ACA is designed to regulate all health insurance plans in the United States (regardless of the structure or coverage provider), there is one notable exception to the federal ruling: grandfathered insurance plans. A grandfathered plan is classified as one of the following:
    • An individual insurance plan purchased prior to March 23, 2010 (when the ACA officially passed)
    • An employer-sponsored or group insurance plan that went into effect prior to March 23, 2010. NOTE: As of 2014, group plans must remove pre-existing condition exclusions upon renewal.

Grandfathered policies are not required to provide coverage to individuals with pre-existing conditions, and are otherwise exempted from other ACA requirements. Providers of plans that qualify as ‘grandfathered’ must inform all beneficiaries of this status; policyholders may then opt to cancel their grandfathered plan and browse the ACA Healthcare Exchange for a new plan that covers pre-existing conditions.

Understanding the ACA Health Insurance Marketplace

In an effort to maximize enrollments and ease the process by which individuals and business owners purchase health coverage, the federal government created an online health insurance marketplace. Health insurance providers who list plans on the website pay a small fee in exchange for increased visibility in the marketplace.

It should be noted that individuals who meet any of the criteria listed above may choose to obtain additional coverage from a provider on the marketplace. They can also opt out of their existing plan in order to receive sole coverage from a marketplace insurer.

Individuals who need or would like to browse for health insurance plans listed on the marketplace must sign up for coverage within the ACA open enrollment period.

Those hoping to obtain coverage in the year 2014 were able to do so from Oct. 1, 2013 to March 31, 2014; the open enrollment period for receiving coverage in 2015 will take place from Nov. 15, 2014 to Feb. 14, 2015.

In addition to the nationwide health plan marketplace, several states have created their own coverage databases to exclusively assist state residents in procuring a health plan. The following states offer their own healthcare exchange websites; all other states rely on HealthCare.gov:

Regardless of whether a consumer uses the nationwide marketplace or a state-specific exchange, he/she is able to choose one of four individual plans, which are categorized by the rough percentage of medical costs covered by the insurer:

  • Bronze: The insurer pays 60% of medical costs, and the plan-holder pays 40%.
  • Silver: The insurer pays 70% of medical costs, and the plan-holder pays 30%.
  • Gold: The insurer pays 80% of medical costs, and the plan-holder pays 20%.
  • Platinum: The insurer pays 90% of medical costs, and the plan-holder pays 10%.

These four ‘metal plans’ adhere to a price structure that matches their coverage rates. For instance, bronze plan-holders pay the lowest premium of all four metal plans but also face higher deductibles and out-of-pocket costs. Platinum plan-holders, on the other hand, pay the highest premiums in exchange for lower deductibles. Generally speaking, bronze and silver plans are best suited for young, relatively healthy individuals who do not require frequent physician visits, while gold and platinum plans are the best option for individuals with consistent medical needs.

Applying for Coverage

As stated above, the open enrollment period for individuals seeking health coverage in 2014 ended on March 31, 2014. When the next open enrollment period kicks off in November 2014, individual coverage seekers can obtain plans by:

  • Shopping for plans and applying online
  • Calling (800) 318-2596 or TTY: (855) 889-4325 to enroll over the phone (available 24 hours a day, seven days a week)
  • Small business owners can call (800) 706-7893 or TTY: (800) 706-7915 to enroll over the phone

Regardless of the format one uses to obtain a health plan, he or she need the following materials in order to complete an application:

  • Social security number or documentation numbers (for legal immigrants)
  • Employment and earnings information (W-2 tax forms, payment invoices, etc.) for everyone in the household who requires health coverage
  • Existing health plan numbers and information currently covering anyone in the household
  • An Employer Coverage form for each employer-sponsored health plan for which anyone in the household is eligible

Subsidies and Penalties

As mentioned above, individuals and families who fall within a certain income bracket qualify for tax subsidies from the federal government. According to HealthCare.gov, subsidies are generally available to individuals and households that meet the following financial criteria:

  1 person/ household 2 people 3 people 4 people 5 people 6 people
Eligible for marketplace plan with lower premiums Earning between $11,490 and $45,960 per year Earning between $15,510 and $62,040 per year Earning between $19,530 and $78,120 per year Earning between $23,550 and $94,200 per year Earning between $27,570 and $110,280 per year Earning between $31,590 and $126,360 per year
Eligible for market-
place plan with lower premiums and lower out-of- pocket costs
Earning between $11,490 and $28,725 per year Earning between $15,510 and $38,775 per year Earning between $19,530 and $48,225 per year Earning between $23,550 and $58,775 per year Earning between $27,750 and $68,925 per year Earning between $31,590 and $78,975 per year
Eligible for Medicaid and CHIP coverage (if state is expanding Medicaid/CHIP) Earning $16,105 or less per year Earning $21,707 or less per year Earning $27,310 or less per year Earning $32,913 or less per year Earning $38,516 or less per year Earning $44,119 or less per year
Not eligible for marketplace plan savings programs (if state is not expanding Medicaid/CHIP) Earning $11,490 or less per year Earning $15,510 or less per year Earning $19,530 or less per year Earning $23,550 or less per year Earning $27,570 or less per year Earning $31,590 or less per year

Eligible individuals and families who purchase a plan through the marketplace within the open enrollment period, do not qualify for an employer-sponsored or federal health plan, meet the income criteria, and cannot be claimed as dependents may be eligible for the Premium Tax Credit.

Just as some individuals who purchase a health plan from the marketplace qualify for certain savings benefits, those who do not purchase a health plan within the open enrollment period and remain uninsured are charged a financial penalty. Penalties go into effect for individuals who remain uninsured beyond March 31, 2014.

Individuals who have not obtained insurance for 2014 receive the higher of the two following penalties:

  • A penalty of $95 per adult and $47.50 per child; this penalty is capped at $285
  • A penalty equivalent to 1% of the uninsured individual’s annual income if his/her earnings are $10,150 or higher
  • Individuals who are uninsured for three months or more of the year 2014, but not the entire year receive a penalty of 1/12 the yearly amount for each month they are uninsured (this formula will remain in effect for 2015 and 2016)

The penalty amount will rise incrementally for the next two years. Individuals who have not obtained insurance for 2015 are given the higher of the two following penalties:

  • A penalty of $325 per adult and $162.50 per child; this penalty will be capped at $975
  • A penalty equivalent to 2% of the uninsured individual’s annual income

Individuals who have not obtained health insurance for 2016 will receive the higher of the two following penalties:

  • A penalty of $695 per adult and $347.50 per child; this penalty will be capped at $2,085
  • A penalty equivalent to 2.5% of the uninsured individual’s annual income

Uninsured individuals must obtain coverage of some sort, but they are not required to obtain a plan via the marketplace and may opt to shop for policies with providers who are not listed on the exchange. Furthermore, a penalty is not given to individuals who are covered under the following plans and choose not to obtain coverage from a marketplace-based provider:

  • Individuals and their families who receive employer-sponsored coverage (regardless of whether or not the plan is ‘grandfathered’)
  • Individuals under the age of 26
  • Individuals receiving Medicare/Medicaid coverage or Families covered under CHIP
  • Unemployed individuals who are receiving COBRA-based coverage after losing their job or transitioning to a new job
  • Active military service members and their families receiving TRICARE coverage
  • Military veterans receiving coverage from the Veteran Health Care Program, VA Civilian Health and Medical Program (CHAMPVA), and/or the Spina Bifida Health Care Benefits Program
  • Former/current volunteers covered under a Peace Corps insurance plan
  • Students receiving self-funded coverage through their higher-learning institution (if the plan was established on or before Dec. 31, 2014)

Additionally, some people may apply for an exemption for health insurance. Those who receive this exemption are not required to pay the penalty fee. Exemptions may be awarded to individuals under the following circumstances:

  • The individual is uninsured for less than 3 months of a calendar year
  • The cheapest coverage option still constitutes 8% or more of the individual’s household income
  • The individual is not required to file a tax return due to low income (information about filing limits is available online)
  • The individual is an official member of a federally recognized tribal group, and/or qualifies to receive medical services through a legitimate Indian Health Services provider.
  • The individual is an official member of a recognized “health care sharing ministry” or religious sect with “objections to insurance, including Social Security and Medicare”
  • The individual is incarcerated and not currently awaiting disposition of any charges
  • The individual is not “lawfully present” in the United States

Individuals may also qualify for a “hardship exemption” if they are unable to afford health insurance due to the following temporary or semi-permanent circumstances:

  • The individual is homeless
  • The individual has been evicted or faced foreclosure within the previous 6 months
  • The individual has received a “shut-off” notice from his/her utilities provider
  • The individual filed for bankruptcy within the previous 6 months
  • The individual was recently the victim of domestic violence
  • The individual recently experienced the death of a close relative/household member
  • The individual received damage to his/her property due to a fire, flood, or other natural disaster
  • The individual has unpaid medical expenses he/she cannot afford dating back to 24 months
  • The individual has seen medical expenses rise due to a family/household member who is old, disabled, or elderly
  • The individual must claim a child as a dependent who has been denied Medicaid/CHIP coverage, and another individual must legally support the child’s medical expenses (normally stemming from a divorce settlement or custody hearing); in this case, the child will not be penalized
  • The individual is eligible to enroll in a qualified health plan, receive subsidized costs, and or receive “cost-sharing reductions” as the result of a recent eligibility appeals decision
  • The individual does not qualify for Medicaid/CHIP because his/her state has denied expansion of these programs
  • The individual’s insurance plan has been cancelled beyond his/her control, and marketplace-based plans are not affordable
  • The individual has experienced a hardship during the process of procuring health insurance

Finally, please note that certain health plans do not satisfy the requirements of the ACA. In these cases, plan-holders may be penalized even while receiving coverage:

  • Plans that exclusively cover dental and vision services
  • Non-COBRA worker’s compensation
  • Plans that exclusively cover singular medical conditions
  • Plans that exclusively offer discounts on medical services

Understanding the Coverage Gap

Historically, Medicaid has only been available to children and their parents, disabled individuals, and the elderly. Adults with no dependent children, on the other hand, did not qualify for Medicaid. Furthermore, eligibility for parents was relatively limited and varied on a state-by-state basis.

The ACA was designed to reduce the coverage gap for these individuals by providing Medicaid to all persons who fall within certain income brackets, regardless of whether or not they have children. With passage of the ACA, the “national Medicaid income eligibility level” has been set at 138% of the Federal Poverty Line (roughly $27,000 for a family of three). However, a Supreme Court ruling in 2012 allowed some states to opt out of the Medicaid expansion altogether.

In the 25 states (as well as the District of Columbia) that voted to expand Medicaid, all individuals qualify for Medicaid if their income is 138% of the FPL or lower. In the 25 states that opted not to expand Medicaid or are currently debating the issue, parents are eligible for Medicaid at variable rates in relation to the FPL (the median for all 25 is 47%), while individuals without children are not eligible for Medicaid. The sole exception to this rule is Wisconsin, which awards Medicaid coverage to childless adults whose annual income is $11,490 or below. The following table lists the 25 states that are not expanding Medicaid and the eligibility criteria for parents, courtesy of the Kaiser Family Foundation:

  % of Federal Poverty Line Annual Income
Alabama 16% $3,221
Alaska 128% $31,245
Florida 35% $6,809
Georgia 39% $7,589
Idaho 27% $5,357
Indiana 24% $4,697
Kansas 38% $7,421
Louisiana 24% $4,685
Maine 105% $20,513
Mississippi 29% $5,669
Missouri 24% $4,661
Montana 52% $10,109
Nebraska 55% $10,817
New Hampshire 75% $14,645
North Carolina 45% $8,861
Oklahoma 48% $9,377
Pennsylvania 38% $7,421
South Carolina 67% $13,085
South Dakota 54% $10,529
Tennessee 111% $21,677
Texas 19% $3,737
Utah 47% $9,113
Virginia 52% $10,121
Wisconsin 100% $19,529
Wyoming 59% $11,453

States with their names italicized offer additional coverage options for both parents and individuals whose income exceeds these limits. These include eligibility/benefits limits and enrollment caps.

Final Considerations Before Choosing a Plan

HealthCare.gov and the ACA Health Plan Marketplace are designed to ease the process of obtaining health insurance for you and your family, but consumers should still research all of their available options to determine which plan, provider, and structure best meets their medical needs. Here are three factors to seriously consider:

  • Health benefits: A health plan should enable you to visit the doctor and receive medical treatment as often as you require. without causing you to go broke. Be sure to investigate each plan to see if it imposes a limit on the amount of physician visits you’re allowed within a given year, restricts a prescribed medication you currently use, or otherwise disrupts the level of care you are accustomed to receiving.
  • Costs: Health plans with low premiums are generally cheapest on a month-to-month basis, but these plans also carry high deductibles and force beneficiaries to pay substantial out-of-pocket costs when a medical emergency occurs. Most experts agree it’s best to determine your premiums and deductibles based on your age and health status. If you don’t require a significant amount of medical care within a given year, then a low-premium plan might suit you best. If a medical emergency occurs, your out-of-pocket costs could skyrocket. On the other hand, those who require frequent doctor visits may find high-premium plans are their most cost-effective option.
  • Doctors: Many health insurance plans found on the ACA health plan marketplace adhere to a ‘physician network,’ and require plan-holders to exclusively visit doctors and specialists within this network; ‘out-of-network’ visits lead to higher out-of-pocket costs. If you have a close relationship with your physician, please ensure he/she is within your network for different plan options; otherwise, it may be wise for you to shop for a plan outside the marketplace.