Affordable Health Insurance under The Affordable Care Act
The Patient Protection and Affordable Care Act, commonly referred to as the Affordable Care Act (ACA), or Obamacare, is a landmark law that introduced significant reforms to the American health insurance market. It was signed into law in 2010 but major provisions of the law didn’t come into effect until January 1, 2014.
One of the stated goals of the law is to make health insurance and health care more affordable. This article will discuss why access to affordable insurance is necessary and how the law tries to reach its goal.
Before the Affordable Care Act
Before the ACA, individuals without employer-sponsored health insurance plans often had a hard time finding affordable insurance, and it was impossible for those with pre-existing conditions to find coverage. If you had a diagnosed medical condition such as asthma, diabetes, heart disease, cancer, or even less serious conditions, your application for coverage could be turned down by the insurance company.
Because of this, millions of Americans had no access to affordable health care, and would either not seek for medical help for serious health problems or face the possibility of medical bankruptcy by paying full-price for their doctor bills.
Obamacare to the rescue
The problem the Affordable Care Act needed to solve was to make coverage more widely available while still making health insurance – and hence medical care – affordable. Obamacare aimed to solve this problem by introducing new consumer protections, assistance programs, and coverage requirements in the Affordable Care Act. Some important provisions of the ACA include:
- Guaranteed coverage for pre-existing conditions
- Minimum standards for coverage
- The “individual mandate” (requirement to have coverage)
- Subsidies for private insurance
- Limiting insurance company profits
- “Catastrophic” plans for those who qualify
- Allowing Health Savings Accounts
How do these provisions of the law attempt to bring consumers affordable coverage under the Affordable Care Act? Let’s dig deeper.
Guaranteed coverage under Obamacare
Obamacare provides guaranteed coverage for people with pre-existing conditions and they’ll pay the same monthly premium for their coverage as a healthy individual in the same geographic area. After the Affordable Care Act went into effect, people who were once considered “uninsurable” could finally buy affordable coverage without fear of being denied because of their medical history.
Minimum standards for Obamacare plans
Under the Affordable Care Act, all major medical health insurance plans are required cover the same minimum health benefits in order to comply with the law. Obamacare identifies 10 types of medical coverage that all plans must provide. This makes every health insurance plan available today an “Obamacare” plan, whether you buy it through a government website, directly from an insurance company, or from a licensed web-based broker.
The individual mandate under Obamacare
Under Obamacare, the individual mandate requires almost everyone to have health insurance coverage that complies with the Affordable Care Act. This is the real key to the success or failure of the health reform law, because the only way to provide quality minimum coverage to everyone is to collect premiums from healthy individuals that are unlikely to use their health insurance in the near future. To enforce the individual mandate, the law imposes a tax penalty on those who go without an Obamacare-compliant health insurance plan for more than two consecutive months in a year.
The ACA provides subsidies—also known as premium tax credits—for Obamacare plans bought from a government exchange or a participating web-based broker. Individuals and families with incomes falling between 100% and 400% of the federal poverty level are generally eligible for subsidies. 400% of the federal poverty level in 2016 translates to an income of about $47,000 per year for individuals, or $97,000 per year for a family of four. Subsidies limit how much of your monthly insurance premium you are personally responsible for, as a percentage of your total income. The basis for calculating subsidies is also pegged to a benchmark silver-level health insurance plan in your coverage area.
Obamacare Introduced special “catastrophic” plans
When the Affordable Care Act came into effect, some older non-Obamacare plans were allowed to continue for a while as “grandfathered” health insurance plans. Over time, many of these plans were cancelled. Plans compliant with the Affordable Care Act may have been too expensive for some of these formerly grandfathered customers. As a result, Obamacare allows for a hardship exemption from the individual mandate and lets the customer buy a catastrophic plan instead. Catastrophic plans tend to have lower monthly health insurance premiums, though they may have higher deductibles, and government subsidies generally cannot be used to help pay for catastrophic plans. Catastrophic plans are also available under Obamacare for people under 30 years of age without a hardship exemption.
Health Savings Accounts work with Obamacare
Though Health Savings Accounts (HSAs) have been around for many years, they were incorporated into the Affordable Care Act and can help people save money on qualifying medical expenses and annual deductibles. These tax-advantaged savings accounts allow consumers to set aside pre-tax money specifically for qualified medical expenses. They are designed to work together with certain high-deductible, ACA-compliant health plans. Instead of being caught off guard by unexpectedly high deductibles, a consumer with an HSA may have already saved enough to cover some or all of the annual deductible.
There are some contribution limits associated with HSAs, however. In 2016, individuals can only contribute $3,350 per year, and families can only contribute $6,750 per year. The HSA can only be opened with a qualified ACA plan that meets certain requirements, including an individual deductible of at least $1,300, or a family deductible of at least $2,600 in 2016. However, since HSA contributions can be made on a pre-tax or tax-deductible basis, saving enough may reduce your taxable income enough to qualify you for a higher subsidy amount when you file your taxes.
Is Obamacare really more affordable?
The Affordable Care Act has certainly turned the health insurance industry on its head since taking effect in 2014. On the one hand, there are certainly more people with health insurance than in the past, and people with pre-existing medical conditions can finally get the affordable health care they need.
However, Obamacare is still a relatively new solution to a decades-old problem, and there are a lot of issues to work out. For one, the actual costs of health insurance and health care have not decreased. While subsidies may make it feel like health insurance is more affordable for those who qualify, not everyone does. Many consumers without subsidies have seen their insurance costs increase significantly under Obamacare. Nonetheless, flexible options like catastrophic insurance and HSAs can help make Obamacare more affordable for you.