Affordable Care Act Takes Effect

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Some of the most important provisions of the Patient Protection and Affordable Care Act (also known as “ACA” or “Obamacare”) will take effect within the next few months. On October 1, the new state insurance marketplaces (also known as “exchanges”) will open to help the uninsured find a health insurance plan and–if they qualify–receive a federal subsidy. This year’s enrollment period extends from October 1 to March 31.

Most people who fail to obtain health insurance by March 31 will face a penalty on their federal taxes: $95 per adult or 1% of household income, whichever is greater. That penalty will rise to $695 per adult or 2.5% of household income by 2016. The Supreme Court ruled that this “individual mandate” is constitutional under the federal government’s taxing authority.

If you earn too little money to be required to file a tax return, you are not subject to this penalty. You are also exempt if buying the least expensive type of qualified plan (the “bronze” plan, as explained below) would cost you more than 8% of your income. But the latter exemption is not likely for very many people because of federal subsidies for people of modest means.

If you fail to obtain insurance by March 31, you’ll have to wait until next year’s enrollment period, unless you experience a life-changing event such as loss of a job or divorce. Although you can no longer be denied insurance because of a preexisting condition, you could find yourself unable to get it when you need it.

In this post, I’ll summarize how the Affordable Care Act applies to people with difference sources of health insurance: Medicare or Medicaid, coverage through employment, or policies obtained in the new health insurance marketplaces.

Medicare and Medicaid

If you are already insured through Medicare or Medicaid, your insurance will continue under Affordable Care. Medicare recipients will receive additional benefits, including free preventive care and expanded prescriptive drug coverage.

The ACA authorizes states to expand Medicaid coverage to include households with incomes up to 133% of the federal poverty level. That would include single adults with incomes up to $15,282, two-person families with incomes up to $20,628, three-person families with incomes up to $25,975, and four-person families with incomes up to $31,321. The federal government will pay 100% of the cost of this expansion in 2014; the federal contribution will drop to 95% in 2017 and to 90% in 2020.

Whether you can qualify for Medicaid under the expanded eligibility depends on where you live. Under the original ACA, a state that refused to expand Medicaid would lose Medicaid funding altogether, but the Supreme Court struck down that provision of the act, in effect making the expansion voluntary. Twenty-two states have decided not to participate or are leaning that way, most commonly southern states and other Republican-controlled states.

Coverage through employment

If you have health insurance through your employer, that coverage is likely to continue. And if you work for a business with over 50 workers, your employer will have to provide insurance or face a penalty. (This provision was supposed to go into effect in January of 2014 but has been delayed for one year.) Large employers will also be penalized if the coverage they provide isn’t both adequate and affordable. “Adequate” means that it must cover at least 60% of the average cost of health expenses in the area, according to a calculation that adjusts for the demographic characteristics of the local population. “Affordable” means that it doesn’t force employees to pay more than 9.5% of their household income in premiums.

Smaller employers are not required to provide insurance, but they are encouraged to do so with tax breaks and special state marketplaces where they can shop for affordable plans. The Maryland marketplace is called “SHOP” (the Small Business Health Options Program).

Even f you work for an employer that does offer health insurance, you can still choose to obtain a plan elsewhere, but you won’t get a federal subsidy if your employer’s plan is adequate and affordable as defined above.

If, on the other hand, you leave your job, voluntarily or involuntarily, the new law really helps. In the past, your options were very limited: you could continue your employer’s plan for 18 months under COBRA, but only if you could afford to pay both the employee and employer’s contribution. Or you could pay the full cost of individual insurance, or just go without. Now you have the option–but also the mandate–to obtain coverage through the new state marketplaces, with a good chance of getting a federal subsidy.

Health insurance marketplace

Most people (over 80%) will obtain health insurance either from their employer or through Medicare or Medicaid. But for those who are not covered that way, the new health insurance marketplaces, such as Maryland Health Connection at www.marylandhealthconnection.gov , will give them new options. States like Maryland are running their own exchanges, while others are letting the federal government run them wholly or partly. In either case, you should have the same kinds of choices and subsidies.

The insurance plans come from private insurers, but they must conform to certain standards. All must accept people with preexisting conditions at no extra charge, charge women and men the same rates, and observe federal caps on out-of-pocket costs. All must provide certain essential health benefits, such as hospitalization, doctor visits, emergency-room services, preventive tests, maternity and newborn care, mental health care and prescription drugs. Some of these are benefits that many of today’s plans lack.

The marketplaces will offer four levels of plans–platinum, gold, silver and bronze–depending on the extent to which they cover average health care costs in the area. Coverage ranges from 90% for platinum to 60% for bronze. The higher tiers will have higher premiums, but lower deductibles and co-payments.

You will be able to get a federal subsidy to offset at least part of your cost, as long as your income is under 400% of the federal poverty level. That would be $45,960 for a single person, $62,040 for a family of two, $78,120 for a family of three, and $94,200 for a family of four. The Kaiser Family Foundation provides a calculator for estimating your subsidy at www.kff.org/interactive/subsidy-calculator/ . The Foundation estimates that the average family with get a subsidy of $5,548.

For example, a single, 35-year-old adult with an annual income of only $20,000 should get a subsidy of about $2,667, which could be applied to any of the four levels of plans. After the subsidy, a silver plan would cost only $1,021 per year, and a bronze plan would cost only $390. A family with two 40-year-old adults and two children should get a subsidy of $8,182, reducing a silver plan to $3,365 and a bronze plan to $1,389.

When you purchase insurance in the marketplace, you provide an estimate of your income to calculate your subsidy, and then start paying the remaining premium for the plan you choose. Any adjustment is made when you file your tax return and report your actual income.

Young adults

Because most young adults have fairly low incomes, most will qualify for subsidized policies or expanded Medicaid if they don’t get insurance through their jobs. In addition, two provisions of the Affordable Care Act apply to them specifically.

One provision that is already in effect is that young people can continue to be covered through their parents’ health insurance plans up until their 26th birthday.

When the health insurance marketplaces open on October 1, adults under 30 can buy a catastrophic policy intended only for unusually high costs. It will have a lower premium than the usual tiers (platinum-to-bronze), but a higher deductible.

Affordable care?

The Affordable Care Act is a massive social experiment with uncertain outcomes. On the one hand, it is a big expansion of coverage to include more people, with more medical conditions, receiving a wider range of services. That’s potentially very costly. On the other hand, its individual mandate intends to increase the number of healthy people paying premiums without needing too many services. As Amanda Gengler put it in Money magazine (Oct. 2013), “The success of Obamacare hinges on a delicate balance: Insurers have to cover everyone, regardless of how ill they are, and everyone has to have coverage, even those who never need to see a doctor (a group that’s called the ‘young invincibles’).”

If too many of the young and healthy opt out, preferring penalties to premiums, policies for others could become unaffordable, even with the tax subsidies.

Some employers could also opt out rather than providing qualified coverage, especially for their retirees, and some workers may feel that the coverage available in the marketplace is not as good a deal as they used to have at work.

What’s supposed to happen is that the Affordable Care Act creates far more winners than losers. What will really happen remains to be seen.

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