(This article was last updated on October 28, 2016)
On March 23, 2010, the Patient Protection and Affordable Care Act was officially signed into law. Since then, many have speculated about its impact on the healthcare industry. Debates have been held on both sides of the political spectrum as to the success of the law and its outcomes for average people. The Affordable Care Act is also known as the ACA or Obamacare. It was created to make healthcare more affordable and easily accessible to a wider range of Americans.
Under the law, people in the United States who don’t qualify for an exemption are required to obtain a minimum amount of healthcare coverage. This essential fact of the law has become muddied through news media outlets, speculation, and widespread misinformation. We offer this summary of the ACA as a way to help you understand your rights and responsibilities under the law. Since the law took effect, more than 20 million previously uninsured Americans have signed up for health insurance.
The fourth open enrollment period for getting health insurance starts on November 1, 2016, and ends January 31, 2017, for the 2017 calendar year. It’s important to know what you’re expected to do and what you’re getting for your money when you sign up.
Provisions of the Affordable Care Act (Obamacare)
With 906 pages of terms and conditions in the official published version of the law – and thousands of pages’ worth of additional regulations – the Affordable Care Act is sure to confuse even the most skilled reader. Few people have read this massive law in its entirety, which is why misinformation abounds concerning its provisions. In fact, there was so much uproar about the law and its provisions that the Supreme Court had to rule on its constitutionality and its legality per the U.S. Constitution.
The Supreme Court upheld the ACA on June 28, 2012, with the exception of a provision that required states to expand the Medicaid eligibility requirements. For more information on the unconstitutionality of this provision, see the section below on Medicaid expansion. Once upheld by the Supreme Court, the ACA could then be implemented as planned.
What are the provisions of Obamacare? We won’t go over every provision in detail here. But we will describe how the law works, what it means to you as an individual and what it means to small businesses. Essentially, the provisions of the ACA provide for better and more affordable healthcare coverage for U.S. citizens. Obamacare focuses on:
- Improving healthcare nationwide
- Providing better and more effective healthcare to Americans
- Offering more affordable choices to those without insurance or those who dislike their current plans
- Reforming the way that insurers and providers offer their services
- Putting regulations into place to keep insurers and providers honest
- Reducing the amount of spending generated through an inflated healthcare system
- Providing incentives, like tax breaks to small businesses, so that they cover their employees
Under this law, millions of uninsured people now have access to healthcare options that they may not have had in the past. Additionally, the law provides for the protection of patient rights. It also ensures that insurers and healthcare providers provide accessible healthcare to those who may have been refused prior to the implementation of the law. In subsequent sections, we’ll discuss how these provisions affect you as a citizen.
Overview of the Healthcare Industry and Origin of the Affordable Care Act
Many people attribute healthcare reform to President Obama, thanks in large part to media coverage and misinformation. However, the concept of an individual mandate under government-funded healthcare dates back to 1989 with the implementation of a plan by conservative think tank The Heritage Foundation.
In fact, former governor of Massachusetts Mitt Romney initiated a similar idea in his state, called “Romney Care.” The current provisions of the ACA were modeled after this law. The Affordable Care Act is a result of decades’ worth of debates, bills, forums and discussions from both sides of the congressional aisle.
What was wrong with healthcare in America prior to the implementation of the Affordable Care Act? Many people have wondered this same question. But these people may have already been covered through private or employer-sponsored insurance plans. Generally speaking, people tend to notice problems only if they apply directly to them. Unfortunately, healthcare in the United States has long been fraught with inconsistent policies and procedures that made it difficult for many people to obtain coverage.
Those with lower incomes, disabilities and pre-existing conditions might not have received the right care or been denied coverage due to any number of factors. Additionally, women might have paid much more than men for coverage, while older people may have been denied a variety of treatment options offered to younger patients. If there was a discrepancy in your paperwork, insurance providers could drop you from your plan, with little warning and no recourse.
The purpose of the Affordable Care Act is to remedy these discrepancies in the American healthcare industry and increase consumer rights and protections. Insurers are now required to offer plans for people with pre-existing conditions, and the costs associated with health insurance will now be regulated more closely. This allows Obamacare to open healthcare access to millions of people who otherwise wouldn’t have access. Even those who already had insurance will benefit from Obamacare. Under the healthcare law, insurance now has to cover a lot of basic treatments and situations that your insurance may not have covered before.
You don’t have to choose a marketplace plan to make a difference when it comes to providing health insurance for those in need; any plan helps create more options for more people. Prior to the ACA, there were approximately 45 million Americans who did not have any kind of health insurance. These people included low- to middle-income families, senior citizens, and women who had to pay more for basic preventive services.
Obamacare seeks to provide these people with the coverage they need to prevent common illnesses and conditions. The ACA also provides for the standardization of coverage and benefits, as well as the regulation of insurers and healthcare providers. If you’re interested in learning the specifics of how Obamacare improves modern healthcare in America, then check out the ACA’s official site or our articles on individual aspects of the law.
How Obamacare Affects You
If you’re like most Americans, you want to know how a law applies directly to your life. After all, it’s one thing to discuss political topics in theory. It’s another thing entirely to understand its impact on your everyday life. Obamacare was designed to help people like you obtain affordable healthcare coverage. And it doesn’t matter whether you have a pre-existing condition or have been denied in the past for various reasons. In an effort to transform the healthcare industry, the ACA has helped millions of people gain access to the type of care they need to live healthier lives.
How does Obamacare work in your favor? For starters, you have more options for purchasing health insurance. You can still obtain healthcare coverage using the same methods you always could: private companies, your employer, Medicaid or Medicare. Now, you can also buy healthcare coverage through your state’s insurance marketplace or through the federal government’s marketplace. In a later section, we’ll go over these options in detail.
Under the law, you must obtain health insurance or face a fine imposed by the IRS on your annual tax returns. For 2017, the open enrollment period for private plans starts on November 1, 2016, and ends on January 31, 2017. If you fail to acquire health insurance through an acceptable source during this time, then you may owe a penalty fee for each month that you did not have insurance next year.
This fee varies and may be waived in certain circumstances by claiming exemption status. The fee for noncompliance is also referred to as the “individual mandate” provision of the ACA. But it was actually considered a tax by the Supreme Court in its June 2012 ruling and therefore, subject to collection by the IRS. The IRS can also charge interest on this fee if you don’t pay it.
In 2016, the individual mandate requires that noncompliant citizens pay a fine equal to 2.5 percent of their total taxable household income, or $695 per uninsured adult and $347.50 per uninsured child, per household, whichever is greater. The fine goes up each year based on inflation. People who are eligible for an exemption will not have to get health insurance under the ACA.
Any person who is without health insurance for three months or less won’t be charged a penalty fee. However, they must get a health insurance policy that complies with the law before they reach their fourth month of being uninsured.
If you did not obtain healthcare this year, then you may be able to offset the cost of the penalty fees. To do this, you will need to discuss special enrollment options with a qualified tax adviser or a member of your state’s marketplace administrators. Otherwise, you’ll have to wait for open enrollment to begin again for the following year.
There are limitations to the program. There will be people who can’t pay the premiums at any price, even if those prices are much lower than those of private insurance companies or employer-provided health plans. It’s estimated that approximately 30 million people, or 10 percent of the U.S. population, will not be able to afford any of the insurance options now available.
But there’s hope if you fall with in this category. The government has put in place several financial assistance options to help offset the cost of mandated insurance. More on subsidies and financial assistance can be found in a subsequent section of this article.
There are several sources for finding simple and straightforward explanations of Obamacare and its impact on the American healthcare industry aside from our website, online articles and the official website of the federal marketplace. You can also view videos, like the one created by the Kaiser Foundation, which explains the ACA in about seven minutes. Despite these efforts, many people remain unaware of the requirements or even the benefits of the new law.
Before Obamacare came into law, 85 percent of Americans had some type of health insurance. President Obama has made it clear that these people are already enjoying the benefits that Obamacare offers to those without insurance.
People without insurance, or those who want different coverage, now benefit from the same features. They benefit from the individual mandate, employer mandate and the health insurance exchange (the marketplace) as well. Even though the law is now officially in place, many of the best benefits are still to come. Over the next several years, the ACA is designed to evolve into a plan that radically alters healthcare in America.
The Consequences of Not Complying with Obamacare and the Individual Mandate
We’ve mentioned that there are consequences for refusing to purchase healthcare. Some people object to this tenet of the law because they feel that such consequences are an imposition against personal freedoms. However, Obamacare only works if everyone contributes. Thus, the individual mandate and employer mandate work to protect uninsured Americans. You must obtain what the government calls “minimum essential coverage.” If not, you will be charged a fee for every month that you lack this essential coverage.
The ACA requires every person to be insured for the entire year. For next year, if you wanted your coverage to begin on January 1, 2017, then you must have completed your enrollment by December 15, 2016. The next open enrollment period runs for three months: November 1, 2016, through January 31, 2017.
Be aware that your coverage begins on the first of the month following enrollment during the middle of the month. In other words, if you sign up for coverage by January 15, your coverage will begin on February 1, provided that you’ve paid your premium. If, however, you enroll during the last part of the month, your coverage will not begin until the 1st of the second month. For example, if you enroll by January 20, your policy will take effect on March 1.
Options for Purchasing ACA-Complaint Insurance
One of the biggest concerns about Obamacare came from those who already had insurance. Many wondered if they would be able to keep their current plans as well as their current healthcare providers. In short, you will be able to keep your existing plan for the most part, even if there are some minor changes in how you receive care. In this section, we’ll discuss in detail the options for purchasing or obtaining ACA-compliant insurance.
People who purchase health insurance from their employers make up approximately 44 percent of the insured population. This means that nearly half of all people who are currently covered buy plans from work. You might think that these people won’t see any real benefit from Obamacare. And, if you’re part of this population, you may wonder how the ACA affects your healthcare coverage.
Rest assured that you should be able to keep your existing policy under the new law, provided that your employer upholds its end of the bargain. Here are some changes and information regarding employer-sponsored healthcare coverage:
- You will now have access to free preventive care, such as routine physicals.
- Under Obamacare, there’s a cap on out-of-pocket expenses, which means you could end up paying much less for yearly visits, checkups and other healthcare services.
- Insurers cannot inflate the cost of service or offer unfair price discrepancies based on age, gender or pre-existing conditions.
- Insurers cannot drop patients from plans due to illness or any other unsubstantiated reason.
- Employers with more than 50 employees must offer health insurance to full-time workers or face a penalty. For smaller businesses, the government offers incentive programs, in the form of tax credits, to help offset the cost of providing insurance.
Thanks to the Affordable Care Act, it’s estimated that roughly one-third of American citizens will be covered by a plan purchased on the marketplace. Plans range in levels, from bronze to platinum. Bronze plans are low-cost and high deductible while platinum plans are more expensive with a greater percentage of cost coverage. Regardless of the plan that you choose, if you participate in a marketplace plan, you can expect a variety of benefits, including:
- Apples-to-apples comparison features to help you make a decision about your coverage
- Individual state marketplaces and a federal marketplace for those who don’t live in a state that offers its own exchange site
- Coverage for standard medical treatments, such as hospital and doctor visits, maternity care, mental health care and prescription drugs
- Tax credits to help offset the cost of your plan if you meet certain eligibility requirements
Think of your state’s marketplace or health insurance exchange as a virtual shopping mall in which all the stores offer the same products for you to peruse and evaluate against each other. You’ll see a number of insurers and coverage options so that you can choose the marketplace plan that works for your needs and budget. The government has allowed individual states to decide whether they want to set up a health insurance exchange or not.
These marketplaces are designed to help you pick the right plan that works for you or your family’s needs. Some states have chosen not to set up a marketplace. In those states, residents will have access to the federal marketplace, where they can compare plans and apply for financial assistance if needed.
It doesn’t matter whether you buy insurance from your employer or a private company. You are still entitled to what the ACA considers “10 essential benefits,” which are designed to keep people healthier and prevent major issues that could overwhelm the cost of healthcare. Essential benefits include:
- Prescription medication
- Emergency services
- Hospitalization and surgery
- Laboratory services
- Mental health services, such as behavioral therapy, counseling, substance abuse treatments and psychotherapy
- Outpatient care, which is also called ambulatory patient services
- Pediatric care, including dental and vision
- Prenatal and postnatal care
- Preventive care in the form of general wellness checkups and chronic disease management
- Rehabilitative care, including necessary equipment and devices
As of 2015, most people with insurance held job-based (group coverage), but nearly 22 million people had private, non-group coverage. The uninsured rate was also down to about 9 percent. For those with private insurance, you will most likely benefit from the same features as those who purchase plans through their employers. If you can’t afford insurance, then there may be subsidies available to reduce your cost. You should also note that the government will waive the penalty fee associated with not having insurance for people who qualify for exemptions.
Under the new law, young people will pay more for insurance coverage while older people will pay less. However, young adults may stay on their parents’ insurance plans until they’re 26. In addition, the government allows people under the age of 30 to purchase low-cost catastrophic plans, which help in the event of an emergency in lieu of more extensive coverage. Obamacare also ensures that people with pre-existing conditions get the coverage they need without being treated unfairly by insurers or providers.
Financial Assistance and Subsidies under Obamacare
It’s not always easy to gauge the success of a new program by its projected impact. But Obamacare may help millions of American individuals and business owners substantially reduce their healthcare costs, particularly when it comes to low- or middle-income families.
As one of the largest tax cuts ever created for the middle class, Obamacare will potentially save billions of dollars in terms of reduced premiums and better, more affordable preventive healthcare. Government-sponsored healthcare is projected to cost as much as $1.34 trillion over the next decade. If that seems astronomical, that’s because it is. However, this trillion-dollar endeavor may also reduce the national debt while providing U.S. citizens with lifesaving healthcare coverage.
It’s important to keep in mind that while those who earn between 100 and 400 percent of the federal poverty level (FPL) will benefit from Obamacare federal subsidies, not everyone will. Some people will still struggle to provide healthcare coverage for themselves and their families. But there are assistance programs set in place to help these individuals.
Under the Affordable Care Act, people who fall below the poverty line will qualify for subsidies to make healthcare more affordable. How do you know if you fall below the poverty line? Each year, the federal government sets a national poverty level for the 48 contiguous; Alaska and Hawaii regulate their own poverty lines.
For those who make less than 400 percent of the FPL, subsidies are available. In 2016, the upper limit is $47,520 a year for individuals and $80,640 annually for a family of three. Also, if a marketplace plan will cost more than 8.16 percent of your family’s adjusted gross income (AGI), then you qualify for an exemption from the individual mandate.
The federal subsidy for people who earn between 100 and 400 percent of the FPL is designed to help reduce the monthly cost of health insurance, also known as the monthly premium. There is a second subsidy offered under the ACA, but this one is for out-of-pocket costs. Any person or family who earns less than 250 percent of the FPL, and who enrolls in a silver-level plan, is eligible for a tax credit. The tax credit is reimbursed on your yearly tax returns and is designed to help reimburse you for insurance-related, out-of-pocket costs from that year, which could include annual deductibles, copays or coinsurance payments.
What does all of this really mean? In essence, the government will not enforce a penalty against those who can’t afford insurance, and there are options for people who need help making ends meet. Along with subsidies offered by state marketplaces and the federal marketplace, options exist to help people find coverage.
Medicare, Medicaid, CHIP and tax credits will help those who can’t afford insurance find a plan that works within their budgets. Especially useful for families with children, the Children’s Health Insurance Program (CHIP) provides health insurance for children regardless of their parents’ ability to afford coverage. CHIP covers basic preventive care and limited treatments.
Changes to Medicaid and Medicare Due to the ACA
Part of the Supreme Court’s ruling in June 2012 dealt with the expansion of Medicaid benefits. Medicaid has been around in some form since 1965, and it’s been through several changes to help make it more beneficial to low-income and low-resource families. Not everyone who earns less than the poverty line qualifies for Medicaid, but most do. Medicaid was designed to help people who couldn’t afford insurance get the care they needed.
With the expansion of Medicaid under the Affordable Care Act, more people now have access to this longstanding government program. Instead of helping only those who fall below the federal poverty level, Medicaid now may help more than 15.9 million additional people. These people are the ones who may not have been able to afford insurance but also didn’t qualify for Medicaid under the old guidelines. Obamacare seeks to close the gap on the number of people who can’t afford insurance. Medicaid expansion includes wider coverage, new and better benefits, fraud prevention, cost reduction and better care for those who participate.
Unfortunately, for many low-income families, the Supreme Court also ruled that individual states do not have to subscribe to this portion of the law; states can opt out of Medicaid expansion. As of October 2016, 31 states and the District of Columbia have adopted Medicaid expansion while the remaining 19 have not. If you’re interested in your own state’s standing, check out the official ACA website for more information on Medicaid expansion.
The Affordable Care Act also seeks to reform Medicare in terms of available benefits and consumer protection. Now, people who enroll in Medicare will receive the same benefits as those who enroll in other forms of insurance. This means that they can expect better treatment, better coverage, more widely available healthcare options and other reforms to increase Medicare’s effectiveness.
Additionally, the ACA will begin cutting aspects of Medicare that don’t work. You should note that Medicare is not included under the marketplace. If you’re enrolled in Part A or Part C of Medicare, then you already meet full compliance with the ACA.
How Obamacare Works for Businesses
Larger companies typically don’t have trouble providing health insurance to their full-time employees. But businesses with fewer than 50 employees may struggle to meet healthcare demands. The ACA has made it easier and more affordable for small businesses to purchase healthcare on the marketplace. This alleviates the burden of small businesses that need to comply with the law on offering health insurance to employees.
Small businesses can take advantage of their own marketplace, referred to as the Small Business Health Options Program (SHOP). There is no enrollment period for SHOP, but an employer should be considerate of the open enrollment deadlines for their employees. Here’s some additional information on how Obamacare works for businesses:
- Businesses with fewer than 50 full-time employees do not have to insure their employees. But business with fewer than 25 employees do receive tax breaks for complying with the ACA. In 2014, tax breaks equated to 35 percent; for all years beyond 2014, they increase to up to 50 percent.
- Companies that employ fewer than 50 full-time workers gained access to better healthcare options for their employees. They can also take advantage of the SHOP to provide coverage for full-time workers.
- Businesses that employ more than 50 full-time employees became subject to the employer mandate in 2015. This mandate requires those companies to provide health insurance for their full-time staff. In addition, these companies may also notice an increase in Medicare Part A.
Small business owners may have concerns about the cost of providing insurance. But they can rest assured that the ACA helps mitigate these costs. Business owners can choose to pay a fine instead of covering their employees. This fine falls under the “employer mandate” and helps offset the cost of insurance, should your employees need to get treatment. If you own a small business and want to take advantage of the tax credits mentioned above, you will need to consult with an agent who’s well-versed in the program.
Does Obamacare hurt some employees of small businesses? Unfortunately, the short answer is yes. Many companies that can’t afford insurance have reduced their full-time staff to avoid the penalty for not providing insurance. Others have simply chosen to pay the fine in lieu of providing insurance for full-time workers.
Still, Obamacare has created a variety of opportunities in government and healthcare jobs that may offset the loss of private industry positions. In addition, there are workers who have lost their jobs, or have had their hours cut, due to Obamacare. These workers may also apply for a hardship exemption to reduce their tax burden. Time will tell whether the ACA needs to be modified for businesses to support job growth.
Who Pays for Obamacare?
You might be wondering how Obamacare gets funded. After all, with such a large increase in the way that benefits are distributed, the cost of Obamacare could skyrocket if not funded through various means. Nothing in life is free, and the ACA makes sure that affordable healthcare stays affordable through the following payment sources:
- Personal income taxes
- A tax on Medicare of 0.9 percent
- Unearned income tax on people who earn more than $200,000 per year
- Spending cuts in other government departments
- A tax levied against insurance companies
- Taxes levied against businesses of more than 50 full-time workers that don’t comply with the law
In short, taxes pay for Obamacare. Many have expressed concern or even outrage about a healthcare system that depends on tax support. However, almost 97 percent of small businesses and 99 percent of families will be able to take advantage of the ACA’s new provisions.
Taxes also don’t affect people who can’t afford to pay them. In other words, the more money you make, the more taxes you’ll pay to support this program. Regardless of how much individuals earn, more than 70 percent of Americans will benefit in some way from Obamacare and healthcare reform. As of March 2016, about 11.1 million Americans had enrolled in health insurance through the marketplace. Those who sign up can now benefit from everything Obamacare has to offer.
The summary above is designed to give you a better idea about what the Affordable Care Act means for you as an American citizen. News sources and politicians have debated Obamacare endlessly. But the real test of the program is in how it relates to individuals and businesses on a personal level. Over time, more people will gain access to healthcare that is affordable, convenient and helpful in preventing common illnesses and medical conditions.