The Patient Protection and Affordable Care Act (PPACA), sometimes nicknamed 'Obamacare' and often referred to simply as the Affordable Care Act (ACA), is a collection of laws enacted by President Barack Obama to make affordable health insurance available to everyone. The two most striking aspects are the state-funded health insurance exchanges, where consumers can comparison shop for insurance, and the individual insurance mandate, which requires individuals to purchase health insurance or face tax penalties. The ACA is responsible for other changes, including prohibiting insurance companies from denying coverage to people with existing medical conditions.
What's Changed Under the Affordable Care Act?
Many changes have been made under the Affordable Care Act, but those listed below are among the most important for consumers:
- Insurance companies can no longer deny applicants on the basis of preexisting conditions.
- Insurers cannot impose a lifetime dollar limit on insurance coverage.
- Insurers cannot charge women more than men for insurance.
- Insurance companies must put 85% of their premiums back into improving the healthcare plans.
- All insurance companies must offer free preventative care.
- Young adults can stay on their parents' insurance plan until age 26.
- Medicaid is expanded to provide coverage to more low-income families.
- Small businesses can obtain a tax credit to offset the cost of offering insurance to employees.
- Individuals with certain income levels can receive tax subsidies to help cover the cost of insurance.
Because most of these changes result in a higher operating cost for insurance companies, the law also mandates that all individuals have health insurance. This increases the pool of insureds and helps to manage risk across insurance companies, thus allowing insurers to collect enough in premiums to offset the cost of their claims. This insurance mandate also prevents people from purchasing health insurance only when they're sick and foregoing coverage when healthy.
The insurance mandate is one of the most controversial aspects of the law, and it has faced significant resistance. The mandate was upheld as constitutionally valid, however, and went into effect in 2014. By law, individuals now must carry health insurance. The mandate can be satisfied by purchasing an individual policy, enrolling in employer-provided insurance or using Medicaid, Medicare, COBRA or any other similar coverage.
If you choose not to carry health insurance, you will pay a penalty to the government. This penalty is collected with your income taxes. During 2014, the penalty is low: up to $95 per adult or $47.50 per child, or 1% of a family's income, whichever is higher. The penalty will increase over time, however, and by 2016 an adult may have to pay as much as $695 or $2,085 per family. This penalty is still generally lower than the cost of health insurance, so some people may choose to pay the penalty.
Low-income individuals can be exempt from the individual mandate if health insurance is unaffordable. If insurance would cost more than 8% of an individual's income, he is exempt from the mandate. This applies predominately to people who would otherwise have been covered by Medicaid but whose state did not support changes to expand Medicaid coverage.
People with gaps in coverage of up to three months are also exempt from the mandate; coverage gaps longer than this will be subject to a prorated penalty.
Aside from the individual mandate, the Affordable Care Act also includes an employer mandate. This law requires all businesses with more than 50 full-time-equivalent (FTE) employees to provide health insurance to their workers or face a penalty of $2,000 per uninsured employee.
The mandate was intended to go into effect in 2014, but it has been pushed back until 2015. It received substantial resistance from businesses, despite the fact that the law affects only around 4% of all companies in the country and less than 1% of small businesses.
How to Use the Healthcare Exchange
One of the main goals of the Affordable Care Act was to make private health insurance accessible to all individuals. Previously, people who were self-employed or otherwise unable to obtain coverage through their employers had an especially difficult time buying affordable healthcare. With the introduction of the state-run health exchanges, shopping for and affording insurance has become easier.
Healthcare.gov is the federal portal for healthcare exchanges, but if your state has its own exchange you can obtain insurance by going directly to the state's portal instead of Healthcare.gov. View a comprehensive list of health insurance exchanges by state to help guide you in the right direction to buy coverage.
The health insurance exchange does not directly sell health insurance. Instead, it compares policies within your price range and facilitates contact with the insurance company of your choice. Think of it as the insurance equivalent of Priceline or Travelocity; you input some basic information and can compare the policies that best match your needs.
- After making a free account on the exchange website (federal or state-specific), you will be asked a few questions about your income and family size. If you are eligible for a healthcare subsidy, that information will be given to you at this time.
- You will then be able to choose from all available policies within your price range. You can organize search results by plan type, for example limiting your choice only to a health maintenance organization (HMO) or point of service (POS) plan, or you can sort by out-of-pocket costs.
- Once you've settled on a plan, you will need to provide any additional relevant information to secure the policy, and the policy provider will follow up with you to activate coverage.
To make shopping for health insurance simpler, all policies listed in the exchange are divided into tiers: Bronze, Silver, Gold and Platinum. Policies are sorted into tiers based on the average amount an insured is likely to pay out of pocket for essential healthcare. Lower-tier plans will have lower monthly premiums but higher out-of-pocket costs. At the highest tier, your deductible, coinsurance, copayments and other out-of-pocket costs will be minimized. Regardless of the plan type, the federal out-of-pocket limit is capped at $6,350 for an individual or $12,700 for a family policy.
In addition to policies that fall into one of the tiers, certain individuals can also choose to purchase catastrophic health insurance, which covers major medical expenses associated with serious accidents or illnesses. Catastrophic policies are limited to people who are young and healthy (under the age of 30) or those with a hardship exemption who cannot afford standard insurance. In addition to coverage for catastrophes, catastrophic policies allow for three primary care visits per year and basic preventative services, like mammograms.
The exact amount you pay for health insurance will depend upon several factors:
- Whether you buy a policy through the exchange or are provided with coverage through an employer
- The size of your family
- Whether you are a tobacco user
- Your income
- The state you live in
- Whether any other insurance is available to you
These questions will be asked when you apply for insurance through the exchange, and they will be used to generate your coverage options. To get an idea of what you can expect to pay, you can use the calculator published by The Kaiser Foundation. Using this calculator, it's estimated that an individual would pay around $2,535 per year, or $211 per month, before any subsidies were applied. A family of four, meanwhile, would pay $8,290 per year, or $690 per month, before subsidies were applied.
Are You Eligible for a Healthcare Subsidy?
The basic cost of health insurance is the same regardless of the applicant's income. The final cost of premiums, however, will vary depending on how much of a subsidy the individual might qualify for. Healthcare subsidies are funded by the government and are applied directly to your premiums. In other words, the government pays its share first, and you're billed for the difference. Subsidies are available to people with incomes of up to 400% of the national poverty level.
In practical numbers, this means that a family of four on a $50,000 annual income, or 212% of the poverty level, would receive up to $4,925 in subsidies. The same family with an income of $100,000, or 425% of the poverty level, would receive no subsidy. You can check whether you qualify for a subsidy using Kaiser's calculator above.
Bear in mind that healthcare subsidies may not be available to all people, even if your income falls within the right levels. If you qualify for health insurance through an employer, you may or may not qualify for a subsidy. In general, people who receive healthcare through their employers will only qualify for a government subsidy if the employer-based insurance costs more than 9.5% of their total income. In other words, employer-based health insurance can be significantly more expensive depending on what policy an employer chooses to provide to its workers.
Solutions for Low-Income Families
Aside from the healthcare subsidy, low-income individuals and families have a few options for covering the cost of healthcare:
- The ACA led to many states expanding Medicaid coverage. Now, in most states, people under the age of 65 with incomes below 133% of the federal poverty level can obtain Medicaid.
- Pregnant women and infants can obtain Medicaid with incomes under 200% of federal poverty level.
- Children's Health Insurance Program (CHIP) is available to children under the age of 18 and provides greater healthcare benefits than Medicaid alone.
- Program of All-inclusive Care for the Elderly (PACE) provides financial assistance for senior citizens. It's a combination of Medicaid and Medicare that covers medical costs, nursing home care and related expenses.
Medicaid, CHIP and all other low-income programs are handled through the healthcare exchange. When you input your income, you will be alerted if you qualify for income assistance. You will then be led through the process of applying for Medicaid or other programs available to you based on your age and income.
Make Wise Choices
The Affordable Care Act is still new, and it may undergo some changes over the next few years. By taking the time to research your healthcare options, you can make the best choice for your family's needs and income. If you have any other questions about how the law affects you or what you should do from here, you may find the resources offered by the American Public Health Association to be helpful.