How does Obamacare Work?
If you ask a dozen different people how Obamacare works, you might get a dozen different answers. Most people now understand that the Affordable Care Act makes health insurance more affordable for Americans, and even those who disagree with the concept of national healthcare agree that a more affordable system provides universal benefits. The main problem comes in trying to explain how Obamacare actually works in a logistical way. For example, do you understand how subsidies affect your premiums? The law itself comprises over a thousand pages of technical jargon, which can be daunting for even the most experienced insurance professionals to dig through and understand.
On this site, we want to explain Obamacare in a way that’s as clear and concise to as many people as possible. The Affordable Care Act was signed into law so that regular people with average salaries could afford real healthcare coverage for themselves and their families. The system only works if people understand how it works, and that’s what this page is all about. The following outline gives you a better idea of how Obamacare works in a practical sense.
What Changes under the Affordable Care Act?
First and foremost, we should point out that Obamacare seeks to addresses two major issues in the American healthcare industry: cost and availability. Before the ACA became law in 2010, millions of people lacked basic health insurance to cover things like doctor’s visits, routine screenings and emergency care. When we say “millions,” we mean that roughly 44 million people went without insurance, which is almost 15 percent of the United States population. Some people chose to forgo insurance for personal reasons, but mostly people went without insurance because they couldn’t afford any type of coverage. Obamacare changed the game by making insurance affordable and more widely available.
New Health Insurance Options
Even people who had insurance prior to Obamacare’s becoming law might have paid a lot more for coverage than they felt comfortable with. And there were other discrepancies. Women, for example, would pay more for health insurance than men, and people with pre-existing conditions could be denied coverage completely. Under the new law, everyone has new health insurance options in addition to their existing coverage. Men and women pay the same for comparable coverage, and people with pre-existing conditions cannot be denied a health insurance plan. Plus, health insurance costs less for millions of people and includes more benefits under the law.
Minimum Essential Coverage
You might have heard news sources discuss “minimum essential coverage” in relation to the new healthcare law. What does the government mean when it talks about minimum essential coverage? In essence, this concept refers to the idea that everyone needs to obtain a minimum amount of health insurance coverage to fulfill their obligations under the law. Chances are that you already meet the requirement if you have one of the following types of coverage:
- A Marketplace insurance plan
- A private plan outside of the Marketplace
- An employer-sponsored group health plan
- A COBRA, retiree or union plan
- Student insurance plans through school
- A social insurance plan such as Medicare or Medicaid
- TRICARE or veteran health insurance
- A plan specifically for Peace Corps volunteers
- Grandfathered health insurance plans
In fact, the only coverage that doesn’t meet minimum requirements is a supplemental health plan such as short-term disability or a dental-only plan. The government wants to make insurance more widely available, and you can see from the list of options that there are lots of ways to meet the requirement under the law. As long as you buy a legitimate health insurance plan through the Marketplace, a private insurer or your employer, you’ll be complying with the law.
The Individual Mandate
What happens if you don’t comply with the law? The answer to this question leads to heated debates between the two major political parties. In order for Obamacare to work effectively, everyone needs to participate. Participation means different things to different people. If you buy a health insurance plan, then you contribute to the system and help to make insurance more affordable for everyone else. If you don’t, then someone else has to make up for your portion through higher premiums. To offset this cost, the government has created the “individual mandate.”
Collectible by the IRS, the individual mandate is also called a “shared responsibility fee” or a “non-compliance fee.” Simply put, the individual mandate makes buying health insurance a requirement for every eligible American citizen. There are exceptions to the mandate. For instance, non-citizens, people in jail and members of recognized Native American tribes do not have to buy health insurance. However, most people have to participate or pay a fine.
The fine varies based on the year and your tax filing status. In 2014, the fee is $95 per individual or one percent of your income, whichever is higher. You’ll pay this fee when you file your taxes for the year. The non-compliance fee will increase every year to account for inflation. The fee applies to children as well as adults, and it’s collected by the IRS. While the IRS cannot press criminal charges or withhold assets to collect the fee, it can deduct the fee from your refund and charge interest if you refuse to pay. Over time, the fee could become substantial for average families.
The Health Insurance Exchange
One of the key elements of the Affordable Care Act is the establishment of a federal health insurance exchange, which is referred to as the “Marketplace.” If you hear people talking about state health insurance exchanges, the federal Marketplace or just “marketplaces,” they’re referring to the same concept. Like all insurance systems, the Marketplace only allows enrollment during a set time during the year. The next enrollment period lasts from Nov. 15, 2014 through Feb. 15, 2015. Outside of the open enrollment period, you can’t sign up for a plan on the Marketplace unless you qualify for a special enrollment period due to significant circumstances such as job loss or deaths in the family.
In essence, the Marketplace is a virtual collection of available federal and private insurance plans. You can compare plans side by side to see which options work for you. There are four “metal” plans available on the exchange: Bronze, Silver, Gold and Platinum. Young adults under 30 can also purchase a low-cost “Catastrophic” Plan that only covers emergency situations.
The health exchange isn’t mandated by law. In other words, individual states don’t have to set up their own websites. If you live in a state without its own exchange site, then you can use the federal Marketplace to buy a metal plan. Costs vary based on your age, family size, income level and other factors. Keep in mind that you don’t have to use the Marketplace to buy health insurance, but this system does make it easier for some people. You can also use the Marketplace to apply for federal cost assistance or see if you meet Medicaid eligibility. If you qualify for subsidies, then a portion of your monthly premium will be covered by the government.
Using the Marketplace is pretty straightforward. During the open enrollment period mentioned above, you simply visit the HealthCare.gov website and create an account. You’ll be guided with on-screen instructions to find your state and determine whether you can use a state-run website or the federal exchange. Once you’re in the right place, additional instructions are presented to help you navigate the site.
Cost Assistance and Funding Obamacare
How is Obamacare funded? You can probably guess that the new healthcare law is funded primarily through taxes. As such, some people will pay more for the new system while others won’t pay anything but will still receive benefits. Fortunately, the system is designed to work on a sliding scale in which low-income families will receive cost assistance to pay for insurance. The federal government will use a portion of the taxes collected to pay for subsidies.
Subsidies can be confusing to people. In essence, subsidies work like a voucher. The government allots a specific amount of money to each person based on need. If you earn between one and four times the federal poverty line or FPL, then you qualify for a subsidy. Let’s look at a brief example to understand how subsidies work:
- Jim is an individual without any dependents. He lives in Tennessee, earns $21,000 per year and doesn’t smoke.
- Under the guidelines, Jim’s salary puts him within 183 percent of the FPL.
- Jim qualifies for a subsidy worth up to 34 percent of his premium cost for a Silver Plan on the Marketplace. Instead of paying $1,761 per year for a Silver Plan, Jim will pay $1,157. The government gives him $605 per year toward his premium.
Jim could choose a lower-cost Bronze Plan and pay even less per year, and he could even apply the subsidy to a more expensive plan if he can afford the premium. The subsidy is a set amount offered by the government. You’re free to apply that subsidy toward whichever plan meets your needs and budget. Cost assistance varies significantly based on your geographic region, family size, tobacco use and income. The Kaiser Family Foundation offers a subsidy calculator to give you an idea of what you might get on the Marketplace. Also, you should note that subsidies are only available on the Marketplace. Private and employer-sponsored health plans do not offer federal cost assistance.
New Benefits for Everyone
Under Obamacare, people with health insurance can expect some major upgrades in their coverage. For example, dependents can stay on their parents’ health insurance plans until they turn 26. Additionally, everyone who buys a health insurance plan can expect ten essential benefits guaranteed by the law. The following ten benefits are covered by all new plans under Obamacare:
- Emergency care
- Laboratory testing
- Maternity care before, during and after labor
- Mental health care
- Outpatient services
- Pediatric care
- Prescription drugs
- Preventative care such as routine screening
- Rehabilitative services and relevant equipment
You can see that Obamacare promises some hefty benefits, but keep in mind that these benefits are not “free” in the sense that you get them without health insurance. You still need to buy a health insurance plan to receive these benefits. The ten essential benefits are included at no extra cost in all plans. In other words, people will receive these benefits whether they purchase a Bronze or Platinum Plan on the health insurance exchange. No matter your premium or coverage rate, you will have access to these ten benefits under new plans.
Grandfathered plans may not cover these benefits. Grandfathered plans may still be offered by some employers and private companies, but your insurance provider has to tell you if you have a grandfathered plan that doesn’t include the ten benefits listed above. If it doesn’t, then you’re free to switch to a new health insurance plan that includes the coverage you need.
Expanded Medicaid Eligibility
For people who receive Medicaid, Obamacare also extends benefits and makes the program even better. In fact, the Affordable Care Act also expanded Medicaid so that more low-income individuals now qualify for coverage. In particular, age requirements have been extended to allow people between 19 and 65 years old to apply. Unfortunately, Medicaid expansion isn’t available in every state. The government left it up to individual states to decide how they wanted to implement Medicaid changes, and many states have chosen to keep Medicaid the same.
On the bright side, this means that Medicaid will at least remain intact in all 50 states. On the downside, some people who might qualify for Medicaid under the new guidelines will not be able to enroll because their state chose not to expand it. To date, 27 states plus the District of Columbia have chosen to expand Medicaid eligibility. Of the remaining states, 19 have decided against expanding Medicaid while four have not yet made a decision. The four undecided states are Indiana, Tennessee, Utah and Wyoming.
Changes for Business Owners
The Affordable Care Act also affects business owners and employers. If you own a small business, be prepared to think about health insurance for your employees in a new light. Under the old laws, businesses could get away with not offering healthcare coverage to their employees. This isn’t the case under Obamacare. Starting in 2015, businesses that employ more than 100 full-time workers have to offer affordable coverage to those employees. In 2016, businesses with more than 50 full-time employees have to do the same.
What do you do if you run a business with fewer than 50 full-time employees? In short, you don’t have to do anything. The government requires companies to offer insurance if they meet the workforce requirements, but businesses that employ fewer than 50 workers are exempt from the “employer mandate.” Larger companies will have to pay fees for each employee they don’t cover; smaller businesses will not be charged this fee. However, small businesses gain an advantage under the new law if they do offer healthcare coverage.
Small Businesses and the SHOP
Under the Affordable Care Act, small businesses that offer health insurance to their employees when they don’t have to may be eligible for tax credits that offset the expense of offering coverage. Plus, small business owners can use the Small Business Health Options Program or SHOP to buy employee coverage for their staff. Unlike the Marketplace for individuals, the SHOP allows business owners to purchase health insurance plans any time during the year. Note that the SHOP is not open to self-employed people. Self-employed professionals need to use the individual exchange for insurance.
New Regulations for Insurers and Providers
Along with changing the way insurance works for individuals and businesses, Obamacare also imposes some new regulations on insurers and providers. We won’t go into detail here on what those new regulations entail, but we will offer a summary so that you understand your rights as a consumer under the new law. In general, insurers and providers have to be clearer and more upfront with their beneficiaries. This includes:
- Concise statements regarding your charges
- Clear policies that outline your benefits and rights
- The inability of insurers to drop your coverage randomly
We mentioned before that people with pre-existing conditions can’t be denied coverage. The goal of Obamacare is to make insurance more affordable and more widely available, and keeping insurers accountable for their actions helps ensure that more people gain access to health insurance and medical treatment when needed.
Charitable hospitals also have to follow some new rules under Obamacare. They have to post a clear policy on their charges to patients who receive care at one of their facilities, and they need to notify people who qualify for charitable care that they meet the facility’s guidelines. New regulations for charitable hospitals ensure that the people who actually need to use these services can use them.
One other change should be noted: Under Obamacare, restaurants now have to post the calorie content of their menus so that patrons can access this information easily. The ACA not only attempts to radically change healthcare but also seeks to give Americans more information so they can make better lifestyle choices as well.
What Stays the Same?
With all the changes taking place under the new law, it can be tough to figure out what stays the same. In reality, most people won’t notice significant changes under Obamacare because their benefits will stay the same or improve in many cases. Premiums might increase, but we’re not talking about exorbitant premium hikes or staggering price increases on medical care. It’s been reported that premium increases are significantly lower than anticipated for 2015. Insurance rates will climb as normal because the cost of medical services and coverage increases over time. But these increases are normal and expected. In essence, President Obama has stated that if you like your current insurance plan you can keep it. For the most part, this has been true for millions of Americans.
Social Programs under the New Law
Social programs like Medicaid, Medicare and CHIP all stay the same under the new law. We mentioned earlier that Medicaid will be expanded in 27 states plus Washington, D.C. Medicare will also see some changes in the way that beneficiaries receive their benefits, but these programs don’t change in terms of their existence or governance. The Children’s Health Insurance Program or CHIP will also be available like it always has been to children of families with low incomes. If you qualified for Medicaid under the old laws, then you still probably qualify for Medicaid now. If you participate in Medicare, then it’s business as usual for you. In fact, you don’t even need to use the Marketplace to sign up for social programs.
The Future of American Healthcare
In truth, some people will pay more for health insurance than others. That’s how the system works: People who can afford to pay more will just as people with higher incomes get taxed at a higher percentage. However, it’s important to note that everyone will receive new and better benefits under the law regardless of how much they pay for insurance each month. With covered preventative care and access to more screening options, we could see a significant change in the American healthcare industry over the next decade.
People who take better care of themselves through routine doctor’s visits may spend less overall in emergency visits and costly medical care. With less of a burden on the insurance industry nationwide, the system can work more effectively and efficiently for people who really need intense medical care. Obamacare works on the idea that people will monitor their own healthcare needs long-term so that we can build a healthier nation.