(This article was last updated on October 12, 2015)
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 American citizens. 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. This essential fact of the law has become muddied through news media outlets, speculation and widespread misinformation. The purpose of this Obamacare summary is to give you an overview of Obamacare, so that you understand your rights and responsibilities under the law. Since the law’s official launch on October 1, 2013, more than 8 million previously uninsured Americans have obtained healthcare.
Now, we will be entering the third Open Enrollment Period (OEP), for the 2016 calendar year, which begins on November 1, 2015. It is important to make sure that you understand what is required of you and what you’re getting for your money.
Provisions of the Affordable Care Act (Obamacare)
With nearly a thousand pages of terms and conditions, the Affordable Care Act is sure to confuse even the most skilled reader. Few people have read this massive law in its entirety. This accounts for the fact that so much 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, according to 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 now be implemented according to plan.
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. In essence, 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 been able to obtain 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 widespread 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 have a tendency 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 should be forced to offer plans for people with pre-existing conditions and regulate the cost of insurance. This allows Obamacare to open up 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 premium Marketplace plan in order 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.
How Obamacare affects you
If you’re like most American citizens, 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 through same options 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 Internal Revenue Service on your annual tax returns. For 2015, the deadline to enroll was March 31. In 2016, the deadline to enroll will be January 31. If you fail to enroll in a government plan or acquire health insurance through an acceptable source, then you will owe a penalty fee for each month that you did not have healthcare.
This fee varies and may be waived in certain circumstances by claiming exemption status. The fee for noncompliance is sometimes 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 and interest assessed by the IRS.
In 2015, the individual mandate requires that noncompliant citizens pay a fine equal to two percent of their total adjusted gross income or $325 per uninsured adult and $162.50 per uninsured child, or 2 percent of the family’s taxable income, whichever is greater. The fine goes up in 2016 and 2017; in 2016, it will be $695 per uninsured adult and $347.50 per uninsured child, or 2.5 percent of the family’s taxable income, whichever is great. 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 is considered exempt from the penalty tax. 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, open enrollment for a government healthcare plan begins on November 1, 2015, 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.
However, there is hope if you fall within 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. Sources include: this website, online articles and the official website of the Affordable Care Act. 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. In fact, they have been for the last three years.
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 properly 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. In 2015, if you wanted your coverage to begin on Jan. 1, 2015, you must have completed your enrollment by Dec. 15, 2014. For 2016 coverage, you will need to complete your enrollment by December 15, 2015 in order for your policy to begin on January 1, 2016.
In general, it is important to 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 health insurance that is compliant with Obamacare
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 the insurance referenced above.
People who purchase health insurance from their employers make up approximately 50 percent of the insured population. This means that 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 50 percent 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 in yearly visits, checkups and other healthcare visits.
- 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 more coverage. Regardless of the plan chosen, if you participate in a Marketplace plan, you can expect a variety of benefits, including:
- State-sponsored marketplace websites that offer apples-to-apples comparison features to help you make a decision about your coverage
- A federal Marketplace for those who don’t live in a state that offers its own marketplace
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. However, all of 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 marketplace.
As stated above, 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, a private company or the government. You are still entitled to what the ACA considers “10 essential benefits,” designed to keep people healthier and prevent major issues that could overwhelm the cost of healthcare. Essential benefits include the following:
- Access to prescription medication
- Emergency services
- Hospitalization or surgery
- Laboratory services
- Mental health services, such as behavioral therapy, counseling, substance abuse treatments and psychotherapy
- Outpatient care, which is also referred to as ambulatory patient services
- Pediatric care
- Prenatal and postnatal care
- Preventive care, in the form of general wellness checkups, along with management services for chronic diseases
- Rehabilitative care and the use of devices necessary for rehabilitative recovery
The remaining U.S. population comprises about 30 million people who buy private insurance and 30 million people who can’t afford any of the options available. 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 people 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. These 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 unfairly treated by insurers or providers.
Financial assistance and subsidies under the Affordable Care Act (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 $1.1 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 by $143 billion, 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 Line (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? The federal government sets a national poverty line for the 48 contiguous states, and the number changes each year; Alaska and Hawaii regulate their own poverty lines.
For those who make less than 400 percent of the FPL, subsidies are available. What is 400 percent of the FPL? In 2016, that number will equate to approximately $47,080 per year for individuals and $97,000 for a family of four. In addition, if a Marketplace plan will cost more than eight 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, which is called the tax credit.
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 to the person on their yearly tax returns and is designed to help reimburse a person for their insurance-related, out-of-pocket costs from that year. This may be from 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, the government works hard to offer 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 for children, regardless of their parents’ ability to afford insurance. CHIP covers basic preventive care and limited treatments.
Changes to Medicaid and Medicare, as a result Of Obamacare
As mentioned above, 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. It has 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 long-standing government program. Instead of helping only those who fall below the federal poverty line, Medicaid now may help the 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. 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; they may also opt out of Medicaid expansion. As of April 2015, 27 states and the District of Columbia chose to expand Medicaid and 21 chose not to expand Medicaid. The official ACA website offers more information on Medicaid expansion, if you’re interested in your own state’s standing.
The Affordable Care Act also seeks to reform Medicare, in terms of available benefits and consumer protection. Now, people who take advantage of 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 will not have trouble with providing healthcare to their full-time employees. But businesses with fewer than 100 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 25 full-time employees do not have to insure their employees. But they do receive tax breaks for complying with the ACA. In 2014, tax breaks equated to 35 percent; for all years beyond 2014, they increase up to 50 percent.
- Companies that make less than $250,000 per year and 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 earn more than $250,000 per year, as well as those 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 to this question is yes. Many companies that can’t afford insurance have reduced their full-time staff in order 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 in order 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 essence, 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 the end of the 2015 Special Enrollment Period, which ran from Feb. 23-Jun. 30, an estimated 944,000 Americans who previously lacked coverage enrolled through the government Marketplace. They now have health insurance and can benefit from everything Obamacare currently 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.