As of Oct. 1, 2013, the Affordable Care Act mandates that each state have a health care exchange.
Even though the Affordable Care Act is moving forward, many people are confused about Obamacare. Who does it affect? How do you shop for insurance? What level of coverage should you choose?
This comprehensive guide will walk you through the Affordable Care Act, step by step. Stick with us to figure out how Obamacare affects you, how to shop on a Health Insurance Marketplace, and how to choose the best insurance coverage for your needs.
The Basics of the Affordable Care Act
President Barack Obama signed the Patient Protection and Affordable Care Act (a.k.a. Obamacare) into law March 23, 2010. It seeks to help uninsured Americans get insurance and to help the underinsured afford better coverage.
With 2 million people in 2013 alone filing for bankruptcy because of unpaid medical bills, most Americans agree something needs to be done to fix our health care system. The debate continues as to whether Obamacare is the solution. But, for now, the Affordable Care Act is the solution the government has put into play.
Many of the mandates of Obamacare are meant to keep insurance companies from denying coverage. Insurance companies are no longer allowed to deny benefits because of pre-existing medical conditions, such as a disability, pregnancy, or acute or chronic disease. Also, Obamacare mandates that parents will be able to keep their children on their insurance policy until they turn 26.
Will Obamacare Decrease or Increase Health Care Costs?
Whether overall health care costs will rise or fall under Obamacare remains to be seen. In general, the liberal media cite studies saying insurance premiums and other health care costs will fall, while the conservative media cite studies saying health care costs will rise.
Health care costs will no doubt be affected, but we’ll have to wait and see how. Costs for individuals and businesses will likely vary from person to person and state to state.
Whom Obamacare Affects
In the long run, pretty much every American will be affected by Obamacare. Next year, employer-sponsored insurance premiums are likely to fluctuate as insurance companies adjust their offerings in light of the Affordable Care Act.
For now, it primarily affects individuals who cannot get affordable health insurance through an employer and who are ineligible for public coverage through Medicare or Medicaid.
If You Have Insurance Through Your Employer
Nearly 60 percent of Americans have health insurance through an employer. It remains to be seen whether employer-sponsored health insurance premiums will rise, fall or remain the same in 2014. But for now, if you have health insurance through your employer you probably don’t need to be concerned about Obamacare or the Health Insurance Exchanges.
However, there are exceptions to this. If your employer’s plan covers less than 60 percent of allowed medical expenses or costs more than 9.5 percent of your household income, you could shop for a better plan on the health insurance exchange.
You should have received or will soon receive a breakdown of your employer-sponsored coverage. This handout will tell you whether your employer’s health plan meets mandated minimums, including covering maternity, preventative health care, ambulatory care, etc. It should also tell you if the premium you pay out of pocket is considered affordable based on your income.
If your employer-sponsored health care doesn’t meet these minimums, you could find cheaper, better insurance on your state’s health care exchange. Also, if your employer-sponsored health care coverage costs too much, you may be eligible for Affordable Care Act subsidies that will help lower the cost of your premiums.
If You’re on Medicare or Medicaid
If you’re enrolled in Medicare or Medicaid, don’t worry. Obamacare will change very little, if anything, about your health care coverage.
Originally, the Affordable Care Act sought to mandate that states expand their Medicaid coverage so that anyone making 133 percent of the poverty level or less would qualify for Medicaid. That piece of the act was shot down, leaving Medicaid expansion up to individual states.
According to The Advisory Board, 20 states are participating in the original expansion proposed by the Affordable Care Act. Four states are leaning toward participating, and five are either working under an alternative expansion model or considering the alternative model. Twenty-two states is not participating or leaning toward not participating.
This map from The Advisory Board will show you where your state stands.
If you’ve been on the cusp of qualifying for Medicaid but have been disqualified because of your income, check if your state is expanding its program.
If You’re Uninsured
Because the main goal of the Affordable Care Act is to help uninsured Americans get health insurance, the 15 percent or so of Americans who have no health insurance can now (hopefully) afford health insurance coverage.
If you don’t have insurance now, you’ll be required to have it by January 2014, or face a government fine that will become increasingly more expensive each year.
Even if you don’t make much money, you’ll want to shop for health insurance with your state’s exchange. If you make up to 400 percent of the current federal poverty line (about $94,200 a year for a family of four), you’ll qualify for a government subsidy that will help pay some of your insurance premiums (and possibly some other out-of-pocket expenses).
If you’re uninsured because of a pre-existing condition, remember that health insurance companies are no longer allowed to deny coverage for pre-existing conditions. You should be able to get health care coverage now.
If You’re on an Individual (Non-Group) Plan
Small-business owners, freelancers and others who are on an individual health care plan can also use the exchange to shop for more-affordable health care.
Through the Health Insurance Marketplaces, the Affordable Care Act introduces an element of competition between health insurance companies. This competition will hopefully result in more choices and lower premiums for individuals and families on individual (or “non-group”) insurance plans.
Even if you’re enrolled in insurance, you can start shopping for a new, more affordable plan now. The coverage won’t begin until Jan. 1, so you’ll probably want to stick with your current plan for a couple more months.
What Obamacare Covers
Part of the Affordable Care Act is meant to ensure that insurance companies are offering what’s been deemed “essential health benefits.” Although the Health Insurance Exchanges will offer several levels of health insurance coverage, even the most basic level will cover these essential benefits.
This is one mandate that may have an effect on your employer-sponsored coverage. Small group health plans, those purchased by small- to-mid-sized employers, will have to cover these essential health benefits. Large employers aren’t affected because they typically cover these benefits.
The essential benefits that health insurance plans are now required to cover include:
- Ambulatory patient services (outpatient care)
- Emergency services
- Maternity and newborn care
- Mental health and substance abuse services (including behavioral health treatment)
- Prescription drugs
- Rehabilitative and habilitative services/devices
- Laboratory services
- Preventative and wellness services
- Chronic disease management services
- Pediatric services (including oral and vision care)*
* Note: Dental and vision coverage are not mandated for adults; these benefits are only essential for children.
Although these are the required benefits of Obamacare, obviously some plans will cover other benefits, as well. Also, the more expensive, comprehensive plans will offer lower co-pays and co-insurance fees, as well as a larger network of doctors and hospitals.
How Much Health Insurance Will Cost
The cost of health insurance will vary from state to state and individual to individual. For some, health insurance will cost more; this is most likely to happen because you’ll have more benefits under the Affordable Care Act mandates. For others, insurance will cost less.
Let’s look at some examples of health insurance premiums for different states to give you an idea of what health insurance might cost:
Example 1: 27-year-old single man in California making $35,000 a year
Example 2: 27-year-old single man in Colorado*
* Note: These examples from Colorado do not include income. However, because the California examples did not include a Monthly Premium Assistance tax credit, you’re comparing apples to apples.
Example 3: 27-year-old single man in Kentucky making $2,916 per month (about $35,000 per year)
As you can see, Kentucky has some interesting options in its health cooperative, including very low-cost plans.
Note that the above examples from these three states are not the only plans available at each level for that state. Most states should have several plans to choose from at each level of coverage.
As you can see, all other things being equal, premiums will still vary from state to state, which is to be expected. The only way to find out what coverage might cost you is to shop for it.
Subsidies for Obamacare Insurance
If your household income is up to 400 percent of the federal poverty line, and you need to buy health insurance through the exchange, you will qualify for a government subsidy. This subsidy will come in the form of a tax credit and will help lower your monthly premium costs.
The amount of the subsidy will vary, depending on your income. If you make between 100 percent and 133 percent of the poverty line, you’ll pay, at most, 2 percent of your income toward health insurance. If you make between 300 percent and 400 percent of the poverty level, you’ll pay a maximum of 9.5 percent of your income in insurance premiums.
The chart below gives the sliding scale, depending on your relationship to the federal poverty line:
This tax credit is set up so that you won’t pay more than a specified percentage of your income for your second-lowest costing Silver level plan.
Basically, this means that your dollar-amount subsidy will be based on the assumption that you’ll buy the second-lowest cost Silver plan. If you buy a cheaper or more expensive plan, you’ll still get that same dollar-amount subsidy, but the premium you pay will be different.
This calculator from the Kaiser Family Foundation can help you estimate how much subsidy you may be eligible for. Here’s an example for one family that illustrates how the subsidy works:
As you can see, regardless of which plan you choose, under this scenario you’d get a $4,760 tax subsidy for your health care. You could pay less in premiums by opting for a Bronze plan, or more in premiums by opting for a Gold or Platinum plan. But either way, your government subsidy will be $4,760.
Also, if your income is between 100 percent and 250 percent of the federal poverty level, you may also be eligible for a cost-sharing reduction subsidy. This further subsidy will help lower your deductibles, co-insurance and co-payments. To be eligible for this subsidy, you must choose a Silver-level plan.
How Subsidies are Given
The health care subsidy tax credit is interesting because you don’t need to wait until tax time to get it. Instead, when you apply for health care coverage through your state’s exchange, you can apply for the tax subsidy to be given directly to your chosen insurance company. This means that your premiums, right off the bat, will be lowered by the tax subsidy.
You can also choose to apply for the subsidy when you file your taxes. In this case, you’ll get the money you’re eligible for as a refundable credit. This means, for instance, that if you owe the IRS $1,000 at the end of the year but have a $4,000 health care subsidy coming, the IRS will cut you a check for $3,000.
(As opposed to non-refundable credits, which can take your tax liability down to $0, but won’t come to you in a check if you have some credit left over.)
Another option is to apply part of your subsidy to your health insurance premiums, while waiting for the rest at the end of the year. If your income is at all variable, or if you expect to change jobs, get a raise, or otherwise change your income in the year to come, this is probable the wisest option.
That’s because if you underestimate your income (thus overestimating your health insurance tax credit) for the year, you may owe the government money.
Let’s say you estimate, based on your 2013 income, that your income will represent about 225 percent of the federal poverty level in 2014. So you take the full subsidy up front, based on that estimate. But then you get a raise in 2014, which puts you at 260 percent of the federal poverty level. This would bump you down into a lower subsidy amount, and you’d have to pay back the difference at the end of the year.
Neither the insurance premium tax credit nor the cost-sharing subsidy are given automatically. You’ll have to apply for these subsidies either when you apply for health care coverage or when you file taxes.
How to Shop for Obamacare
Now that you know the basics of Obamacare, let’s talk about how you shop for coverage through your state’s health exchange and how you decide which plan on the exchange is right for you.
First, you’ll need to find your state’s exchange. Then, you’ll check out the plans that are available to you and/or your family, depending on your situation. We’ll help you sort through the various types of plans so that you can find the best health care coverage for your needs.
Finding and Using Your State’s Exchange
As of Oct. 1, each state, as well as each U.S. territory, is required to open a Health Insurance Marketplace, commonly referred to as an exchange.
These exchanges allow individuals and families to shop for health care coverage and allow them to choose between competing health insurance providers. You can shop on the exchanges online (though you should expect some glitches and slow websites for the first few days or weeks), or you can shop by mail.
If you need help, you can talk to a representative on the phone or, in some areas, in person.
You can find your state’s health care exchange website using the map below. States in gray are running their own exchanges, while states in green are relying on the federal government’s exchange at healthcare.gov.
If you live in a U.S. territory that isn’t on this map, go to the healthcare.gov website to find your area’s exchange.
Types of Plans Available
In an attempt to streamline the process of shopping for insurance coverage, the Affordable Care Act assigns labels to the levels of health care coverage. These levels are based on actuarial values. That’s a fancy term that basically means the percentage of overall medical expenses that the plan is estimated to cover.
A Bronze-level plan, the lowest available level for most people, is estimated to cover about 60 percent of overall medical costs, while the platinum level is estimated to cover about 90 percent of total medical costs.
If you meet certain age requirements (generally, if you’re younger than 30 and in good health), you may also qualify for an even lower level of coverage under a catastrophic plan. These plans have very low premiums, but only protect you from the worst health disasters, such as a necessary surgery or medical emergency. If you just need to visit a doctor, you’ll pay out of pocket, though catastrophic plans will cover one preventative health care visit per year.
Of course, the percentage of medical costs that your plan covers will depend on the plan that you choose, as well as the amount of medical services that you use in a year.
The main difference between the plan levels is the out-of-pocket costs. The Bronze level plan will have lower monthly premiums but higher out-of-pocket costs if you go to the doctor. A Gold plan, on the other hand, will have higher monthly premiums but lower out-of-pocket costs.
Speaking of out-of-pocket costs, the Affordable Care Act mandates that out-of-pocket medical costs for both individuals and families will be limited. Out-of-pocket costs like co-payments and deductibles cannot exceed $6,350 a year for an individual or $12,700 a year for a family, as long as you (or your employer) are shopping through a government-administered health exchange.
All consumers will eventually benefit from this out-of-pocket cap, though certain plans will not have the cap in place until 2015.
Other Terminology to Know
As you’re shopping for your health plan, you’ll come across some health insurance terminology that will be helpful to understand. These terms will give you a better idea of which health care plan will be the best bet for you.
Deductible: This is the amount that you pay for covered services before your insurance kicks in.
If your deductible is $1,000, you’ll have to pay for all of your health care services until you’ve paid $1,000 out of pocket. Then your insurance will kick in, either covering your services in full or requiring a coinsurance payment.
Copayment: Known in short as copay, this is the fixed dollar amount that you pay for certain types of health services.
For instance, you might pay $25 for a doctor’s office visit or $200 for an emergency room visit. Usually, copayments don’t count toward your deductible.
Coinsurance: This is the percentage that you’ll pay out-of-pocket for certain types of services. Common coinsurance percentages are 15 percent, 20 percent and 30 percent. So if you’ve met your deductible but then have a $3,000 hospital stay with a 15 percent coinsurance payment, you’ll pay $450 out of pocket.
Out-of-Pocket Maximum: This is the most that you’ll pay out of pocket for covered services over the policy period (usually a calendar year). Once you hit your out-of-pocket maximum, your insurance company will pay for all covered services.
While some health care plans have lower out-of-pocket maximums, under the Affordable Care Act, the uppermost maximum is $6,350 for an individual or $12,700 for a family. (This applies only to health care plans bought through an exchange.)
HMO (Health Maintenance Organization): This type of plan gives you coverage at certain doctors and hospitals, usually called a network. When you sign up, you select a Primary Care Physician (PCP) from the network. Women typically select an OB/GYN in addition to their PCP. To see a specialist when you have an HMO plan, you’ll need to get a referral from your primary doctor.
HMOs tend to have lower premiums than other plans and often have low deductibles as well. As long as you use in-network services, the overall out-of-pocket costs for HMO plans tend to be low. However, if you see a doctor or go to a hospital that’s out of the network, you may not have any insurance coverage at all.
PPO (Participating Provider Options): Like HMOs, PPOs come with a network of doctors, specialists and hospitals that you can choose from. However, with a PPO, you don’t have to choose a primary care physician to stick with and you don’t always need a referral to see a specialist.
PPO plans usually have higher premiums than HMOs, but they also come with a bit more choice. With a PPO, you can seek services outside of your network, though your costs will be higher because out-of-network services generally require a higher copayment/coinsurance.
EPO (Exclusive Provider Option): An EPO is similar to an HMO in that you must use in-network providers, except in an emergency. You don’t, however, need to select a Primary Care Physician or contact your doctor for specialist referrals.
Because you get to choose your hospitals and providers with an EPO, it’s essential to double-check that your choices are considered in-network for your health care plan. Otherwise you could get stuck with a large, unnecessary bill.
CDHP (Consumer-Directed Health Plan) with HSA: CDHPs typically combine a high-deductible PPO plan with an HSA, or Health Savings Account. An HSA allows you to save money out of your pre-tax income to put toward health care expenses, thereby lowering your tax liability.
To open an HSA, you must have a high deductible insurance plan. But your higher deductible often means a lower premium, and you can then use the money you put into your HSA to cover a range of qualified medical expenses.
Now that you know some of the basic health insurance terms, let’s look at a few examples of health care plans and break them down.
(These plans are pulled from the Covered California website for a family of three with a 33-year-old, 30-year-old, and a child. But what we’re really looking at is the types of plans and the monthly premiums.)
First, let’s compare three Bronze-level plans:
Each of these plans meets the 60 percent actuarial value requirements, meaning they’re all Bronze level. But, as you can see, the monthly premiums vary a little. Also, when you look into the benefits of each plan, you’ll see that each option could mean very different overall health care costs.
The first plan is an EPO, which restricts your network, except in emergency situations. The second plan is an EPO with an attached Health Savings Account, which can offset some medical costs with tax savings. The third has the highest premium because it’s a PPO plan, which gives you more flexibility when choosing providers for your health care coverage.
Let’s look into the details of each plan so we can break them down:
Plan 1: Anthem Multi-State Plan 60 EPO
This plan has a very high deductible at $5,000, a common hallmark of Bronze-level plans. As with all plans under Obamacare, it allows for one (at least) preventative care visit per year, free from a co-pay. One advantage of this plan would be the predictable co-pays. Co-insurance fees can be unpredictable, since they depend on the actual charge for services, so if you want to know exactly what a medical service will cost you, co-pays are nice.
One thing to note: this plan would most likely qualify you to open a separate HSA. You don’t have to open an HSA through your health insurance company or your employer. If your plan meets IRS requirements for this tax-advantaged account, you’re allowed to open your own HSA through a financial institution.
Plan 2: Anthem Multi-State Plan 60 HSA EPO
This plan comes with a built-in HSA, which can be convenient if you want to save up for future medical expenses. It also has a slightly lower deductible than the previous plan we looked at. However, don’t let the deductible fool you: your health care costs could be much higher under this co-insurance based plan.
It all depends, of course, on how many health services you use in a given coverage period. But those 40 percent co-insurance fees could add up pretty quickly if you wind up in the hospital or contract a disease the requires lots of testing to diagnose.
This isn’t to say that this plan is the wrong one for you. If you can handle high co-insurance fees, your insurance will kick in more quickly because of this plan’s lower deductible. But, again, it all depends on what the year looks like for you, health-care-wise.
Plan 3: HealthNet Bronze 60 PPO
As you can see, this plan is very similar to the first Anthem plan. The co-pays and co-insurance fees are practically identical, and the $5,000 deductible is the same. However, you’ll pay a little bit higher premium for this PPO plan because your network will be a little larger and you would also be able to get out-of-network care, if necessary.
Again, you could likely open up your own HSA to go alongside this particular health plan, if you decide that’s right for your family.
Now let’s compare some Silver-level plans, which come out of the same scenario of the California couple in their early 30s with one child. For many individuals and families, Silver-level plans will likely represent the best balance of affordable premiums and affordable overall health care costs.
Note that many Silver-level plans are considered high-deductible health plans, which means that many of them would qualify for an HSA, whether the HSA option is attached to the plan. Again, if you qualify for one, an HSA can be an excellent way to save for health care expenses while getting some decent tax benefits.
The differences in Silver-level plans’ premiums is greater than the difference in Bronze-level plans, almost $100 a month between the lowest-cost and highest-cost plans seen here. (Note: These are not the only plans available to this fictional California couple.)
Let’s look at the plans one at a time, again.
Plan 1: HealthNet Enhanced Silver 70 HMO
As you can see, the costs for Silver-level plans are generally going to be quite a bit lower than costs for Bronze-level plans. Plus, your insurance will kick in much more quickly, because the deductible is $2,000.
Plan 2: Sharp Enhanced Silver 70 HSA HMO
This plan offers exactly the same coverage, but it comes with the convenience of an attached HSA. Also, note that both of these plans, as well as the next Silver-level plan, have “lower cost sharing available on a sliding scale.”
This refers to the cost-sharing credit discussed earlier. If you’re within a certain income level – compared to the poverty level – you could qualify for lower out-of-pocket fees, as long as you choose a Silver-level health plan.
Plan 3: Anthem Multi-State Plan Enhanced Silver 70 EPO
Again, this plan has the same out-of-pocket costs as the two previous examples. So why are the monthly premiums so much higher?
For one thing, this plan probably offers a slightly more flexible network of health care providers and allows you to make more decisions, rather than having to go through your Primary Care Physician for referrals, as the two HMO plans would require.
Also, for this plan, Anthem’s network of providers to choose from may simply be larger, which is one major thing that you’ll need to research when choosing a health care plan.
Which Plan is Right for You?
This is a big decision, and it’s one that has lots of different angles to consider. While no one can decide for you which health plan is best for you and/or your family, you can get help online, over the phone, or in person when making this decision. Check out your state’s health care exchange for more information on how you can get help choosing your health plan.
As you’re making the decision, keep these factors in mind:
Balancing Costs: It can be tempting to look at the upfront costs of any health insurance plan. But if you’re only looking at the premium, you’re probably not getting a clear idea of how much the health plan will cost you.
To get some idea of how much a health plan will cost you overall, consider what your past few years’ worth of health care have looked like. Have you needed to use prescriptions regularly? Go to the doctor often? Do you have any ongoing health struggles that may result in emergency care or surgery?
If you answered yes to one or more of these questions, it may be to your benefit to pay a higher premium for better health care coverage. But if you’re generally healthy and usually don’t see a doctor more than once or twice a year, you may save money with a lower-premium, higher-deductible plan at the Bronze or Silver level.
Remember, though, that even if you don’t usually require a lot of health care, the worst could happen. You might, in fact, have to go to the emergency room for stitches, or unexpectedly need a major surgery in the coming year. If you choose a lower-premium Bronze plan, you’ll end up paying a lot of money out of pocket for these services.
As long as you can afford your whole deductible, you could be fine taking a gamble on a lower-coverage Bronze plan. But if you can’t afford a $4,000-$5,000 deductible, you’re likely better off choosing a plan with a lower deductible and higher premium.
Look at the Network: Because Obamacare requires all health care plans to cover essential health benefits, one of the main factors that will differentiate health care plans, especially those at the same metal level, is network size. Nearly all health care plans, specially those at the more-affordable Bronze and Silver levels, will be network-based, so you’ll have less or no coverage if you go out of your health care network for services.
So before you sign up for any health care plan, look into that plan’s health care network. Networks will differ between insurance companies, as well as within insurance companies. (i.e. Anthem’s network will be different from HealthNet’s, and Anthem’s Bronze plans may have a smaller network than Anthem’s Silver plans.)
It’s essential that you have a variety of in-network providers near your home, and that you can choose from a variety of hospitals, especially in an emergency. If you travel, you may also want to check the health plan’s coverage in other states, to ensure that you could access emergency care out of state and still be covered by your insurance plan.
If You Don’t Get Health Insurance Coverage
Under the Affordable Care Act, you can sign up for health care coverage between Oct. 1, 2013 and March 31, 2014. After that open-enrollment period, you can’t sign up unless you experience a life-changing circumstance, like losing a job or becoming self-employed.
Although the law requires that you become insured if you aren’t covered by employer coverage, an individual plan, or Medicaid/Medicare, you certainly don’t have to follow the law. No one is going to put you in jail for refusing to get health care coverage.
You will, however, be taxed a fine for each uninsured adult in your family, which will come out of your 2015 tax refund (or be added to your 2015 tax bill). The fine for the first year is $95 per uninsured adult, or 1 percent of the family income, whichever is higher. In 2015, the fine will raise to $325 per uninsured adult, or 2 percent of the family income. In 2016, the fine will be $695 per uninsured adult, or 2.5 percent of the family’s income.
If you meet certain exemptions, you won’t have to pay the fine, even if you don’t apply for health care coverage. Exempt groups include religious conscientious objectors; those who are part of a religiously-based health care co-operative; people who make too little to file income taxes; individuals who can prove financial hardship; Native Americans (who are under a separate health care system); and poor individuals in states not expanding Medicaid.
The Bottom Line
The bottom line is that the Affordable Care Act is complex, and you should take your time navigating it. Health care coverage won’t kick in until Jan. 1, so you have plenty of time to shop around, do your research, and decide on the right health care plan for your needs.
Do you have any other questions about Obamacare that you need answered? Feel free to ask in the comments, and we’ll do our best to get you a thorough answer as soon as possible.