What You Should Know About the Affordable Care Act

How Health Reform Affects You

Affordable Care Act - You can expect significant health insurance changes in the coming years. alexsl/iStockphoto

On March 23, 2010, President Obama signed into law the federal health reform legislation known as the Patient Protection and Affordable Care Act (generally just referred to as the Affordable Care Act, ACA, or Obamacare). The purpose of the legislation is to assure that almost all Americans have access to affordable health insurance.

The key reforms in the Affordable Care Act were designed to significantly decrease barriers to obtaining health coverage as well as accessing needed health care services. But the law has been controversial from the beginning, and the bitter partisan divide over health care reform has resulted in a less than optimal implementation of health care reform.

Most of the ACA's provisions took effect in 2014, including the requirement that virtually all Americans maintain health insurance coverage—either through their employer, through a public program such as Medicaid or Medicare, or by purchasing coverage in the individual market, either via the exchange or off-exchange. From 2014 through 2018, there was a penalty that was assessed by the IRS when people didn't maintain health insurance, but that penalty was repealed after the end of 2018, under the terms of the Tax Cuts and Jobs Act, which was enacted in December 2017. But there is still a penalty for being uninsured in Massachusetts, DC, New Jersey, California, and Rhode Island, as they all have their own individual mandates and associated penalties.

Highlights of the Affordable Care Act

Bars individual and small group health plans from:

  • Denying coverage because of pre-existing medical conditions.
  • Rescinding coverage except in cases of fraud or intentional misrepresentation.
  • Charging higher premiums because of health issues.
  • Charging older enrollees more than three times as much as younger enrollees.
  • Offering plans that don't cover the essential health benefits, unless the plan is grandfathered or grandmothered.

Requires all non-grandfathered health plans to:

  • Cover preventive care with no cost-sharing.
  • Cap out-of-pocket costs for in-network essential health benefits. HHS sets the upper limits for out-of-pocket costs each year. In 2020, it can't exceed $8,150 for an individual, or $16,300 for a family. For 2021, HHS has proposed increasing the maximum out-of-pocket amounts to $8,550 and $17,100, but those numbers could change once the regulations are finalized.
  • Allow young adults to remain on a parent's health plan until age 26.

Requires large employers to:

  • Provide affordable, minimum value health insurance to their full-time employees, or be subject to potential penalties.

Requires individuals to:

  • Obtain health insurance, unless they qualify for certain exemptions. This requirement technically remains in effect, although the federal penalty has been reduced to $0 for people who are uninsured in 2019 and beyond (states can impose their own mandates and penalties; New Jersey, DC, Massachusetts, California, and Rhode Island all have penalties for residents who are uninsured and not otherwise exempt from the penalty).

Makes coverage and care more affordable with:

  • Premium tax credits (aka premium subsidies)
  • Cost-sharing reductions (these are no longer directly funded by the federal government, but eligible enrollees still receive them; although insurers incorporate the cost into premiums, that cost is largely covered by premium subsidies)
  • Medicaid expansion (14 states have not yet accepted federal funding to expand Medicaid as of 2020; Wisconsin has not expanded Medicaid but does provide Medicaid coverage—without the enhanced federal funding rate—to people with income up to the poverty level, so there's no coverage gap in Wisconsin).

ACA Changes for Americans With No Health Insurance

Depending on your income, family size, and state of residence, you may have several coverage options, including financial help (subsidies) if you cannot afford to purchase health insurance. The following are examples of coverage options—the income levels apply to 2020 coverage.

For Medicaid eligibility, the 2020 Federal Poverty Level numbers are used in 2020, whereas for premium subsidy eligibility, the 2019 FPL numbers are used for 2020 coverage (this is because open enrollment for private plan coverage takes place in the fall, before the start of the year, and before the FPL numbers are updated for the new year).

Example 1: Eligible for Medicaid in a state that has expanded Medicaid
Annual income:

  • up to $17,608 for an individual
  • up to $36,156 for a family of four

Comments:

  • Low-income Americans who are U.S. citizens (as well as many legal immigrants who have been in the US for at least five years) can enroll in their state's Medicaid program.
  • Your state may impose some minimal level of out-of-pocket expenses, such as a copayment of $1 to $5 for a doctor's visit or for selected services. Some states also impose nominal premiums for Medicaid enrollees with income above the poverty level (the ACA's expansion of Medicaid extends to 138% of the poverty level, so it does include many people with income above the poverty level; many states provide free coverage for all Medicaid-eligible enrollees, but some do have modest premiums).
  • In states that have not expanded Medicaid, able-bodied, childless adults are typically ineligible for Medicaid regardless of how low their income is, and eligibility for parents of minor children tend to be limited to those with extremely low incomes—far below the poverty level.

Example 2: Eligible to buy a subsidized health plan through a state-based health insurance exchange
Annual income:

  • up to $49,960 for an individual
  • up to $103,000 for a family of four

Comments:

  • Health plans that participate in an exchange must offer a package of essential health benefits and cover at least 56% of average health care expenses for an overall standard population. But that doesn't mean that your plan will necessarily cover at least 56% of your costs—if you need very little in the way of health care, you might pay for most of it yourself, depending on how your plan is designed (catastrophic plans can cover a lower percentage of average expenses, but subsidies cannot be used to purchase catastrophic plans).
  • If you buy your health insurance through an exchange and qualify for premium subsidies, your share of the premium (for the second-lowest-cost silver plan in your area) won't exceed a certain percent of your income—ranging from 2.06% to 9.78% in 2020—depending on how much you earn. You're not required to buy the second-lowest-cost silver plan though. You can choose to buy a more or less expensive plan, and apply the subsidy to that plan instead. If you buy a cheaper plan, you'll pay an even lower percentage of your income in after-subsidy premiums, and if you buy a more expensive plan, you'll pay a higher percentage of your income in after-subsidy premiums.

Example 3: Eligible to purchase private coverage but without financial assistance
Annual income:

  • $49,961 and above for an individual
  • $103,001 and above for a family of four

Comments:

  • You are not eligible for a subsidy, or financial assistance at this income level, although California has subsidies for people with higher income, and Washington state plans to make them available as of 2021. Note that these state-based subsidies are not part of the ACA; these states are going above and beyond the federal law and providing state-funded subsidies for eligible residents.
  • If you remain without health insurance, you're no longer subject to a federal penalty in 2019 and beyond (although as noted above, your state might be imposing its own penalty). But you won't be able to enroll in a health plan until open enrollment, which could leave you in a tough spot if you end up needing extensive medical care mid-year.
  • If your income is just a little above the eligibility thresholds, you can lower it by contributing to a traditional IRA or an HSA (if you have an HSA-qualified health plan).

ACA Changes for Americans with Health Insurance

Depending on the type of health insurance you already had, you may or may not have experienced changes as a result of the ACA.

If your source of health coverage was already an employer plan, these are some of your options:

Stay in your employer plan: If your employer continues to offer health insurance, you can keep it.

Shop for a health plan through the health insurance exchange in your state: If you own a small business, or your employer offers only minimal benefits, or you must pay more than 9.78% of your income in premiums (in 2020) for just your own coverage, you can look for better options in the exchange (note that small business plans are no longer available in the exchanges in many states).

If your source of health insurance is an individual policy that you purchased for yourself and/or your family prior to 2014 these are your options:

Keep your current plan: If your health plan continues to offer the same coverage, you can renew it. However, new health insurance policies must comply with federal minimum coverage standards; older health plans that don't meet these standards cannot enroll new customers. Grandfathered plans (in force by March 23, 2010) can remain in existence indefinitely, as long as the insurer continues to renew them—which they are not required to do. Grandmothered plans (effective dates after March 23, 2010, but before the end of 2013) are allowed to remain in force through the end of 2021 (and that might be extended into future years; numerous extensions have been issued thus far).

Shop for coverage through the insurance exchange in your state: If your income (as determined by the ACA's modified adjusted gross income calculation) doesn't exceed 400% of the poverty level ($49,960 for a single individual in 2020), you may qualify for federal tax credits to help offset the cost of your premium. Note that you can only purchase individual major medical coverage (through the exchange or outside the exchange) during the annual open enrollment period, or during a special enrollment period triggered by a qualifying event.

If you are on Medicare, your options may not have changed significantly, but your drug-related costs have decreased if you need enough medication ​that you reach the donut hole, and your access to services may have improved:

Your basic (or guaranteed) benefits and eligibility have not changed: The ACA did not change the eligibility rules for Medicare or the basic framework of benefits that it provides.

Medicare Advantage: Federal subsidies for Medicare Advantage plans have been reduced, which initially resulted in speculation that the plans would become less robust and lose enrollees. But Medicare Advantage enrollment has continued to increase in the years since the ACA was signed into law. The plans are more popular than ever, with more than a third of all Medicare beneficiaries enrolled in Medicare Advantage plans in 2019.

Access to services: Medicare now covers annual wellness visits, thanks to the ACA's preventive care benefit mandates.

Prescription drug coverage: The prescription drug coverage gap (Medicare Part D doughnut hole) has been eliminated as of 2020. But plans can still have different benefits above and below the initial coverage limit, and the donut hole concept is still important in terms of how medication costs are calculated toward reaching the catastrophic coverage threshold.

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Article Sources
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  1. 115th Congress. H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

  2. Federal Register. Department of Health and Human Services. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2020. Published April 25, 2019.

  3. US Department of Health and Human Services. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2021; Notice Requirement for Non-Federal Governmental Plans. Published February 6, 2020.

  4. Healthinsurance.org. A state-by-state guide to Medicaid expansion, eligibility, enrollment and benefits. Updated January 14, 2020.

  5. U.S. Internal Revenue Service. Revenue Procedure 2019-29.

  6. Covered California. Types of Financial Help.

  7. Washington Health Benefits Exchange. Cascade Care 2021 Implementation.

  8. Healthinsurance.org. Can small businesses use the ACA’s health insurance marketplaces (exchanges)? Published January 1, 2020.

  9. Healthinsurance.org. Should I keep my grandmothered health plan? Published January 31, 2020.

  10. Kaiser Family Foundation. A Dozen Facts About Medicare Advantage in 2019. Published June 6, 2019.

  11. Medicareresources.org. Are there changes in the Medicare Part D prescription drug coverage for 2020? Published October 3, 2019.

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