lhia_1208_article1In June, the U.S. Supreme Court upheld the constitutionality of two contentious provisions of the Affordable Care Act (ACA), paving the way for the law’s continued implementation. Here’s a brief overview of what the ACA entails for those with individual health insurance.

“Individual mandate”: The ACA requires nearly all Americans to maintain “minimum essential” health coverage for themselves and their dependents or pay a “shared responsibility payment” beginning in 2014.

If you obtain your insurance coverage through an individual plan, you will be able to buy coverage through an insurance exchange. This does not mean you MUST buy coverage through an exchange. If you bought your plan on or before March 23, 2010, you will be able to keep it if you choose. These “grandfathered” plans do not have to meet certain requirements the ACA imposes on other health plans, which could make them less expensive than exchange plans.

Penalties: The ACA allows the government to penalize individuals who lack qualified health insurance for three months or more. They will pay this “shared responsibility payment” to the IRS along with their annual taxes. (This formed the basis for the Supreme Court’s ruling that the “individual mandate” was a tax—which falls within Congress’s authority—rather than an unconstitutional expansion of Congress’s power to regulate commerce.)

Penalties start in 2014 at $95 per adult and $47.50 per child, to a maximum of $285 for a family or 1.0 percent of family income, whichever is greater. Penalties increase in subsequent years until they reach a maximum of $2,085 for a family or 2.5 percent of family income, whichever is higher, in 2016. Penalties will be pro-rated by the number of months without coverage. You won’t have to pay an assessment if you have very low income and cannot afford coverage, or for specified other reasons, including religious beliefs.

Insurance exchanges: The ACA requires every state to create an “affordable insurance exchange” by January 1, 2014 or default to a federal program. These online marketplaces will allow consumers, small businesses and brokers to compare and buy health insurance plans from private insurers, as well as the health plans available to members of Congress, administered by the Office of Personnel Management. (Members of Congress must buy their coverage through exchanges starting in 2014.) The ACA also creates a new type of non-profit health insurer, Consumer Operated and Oriented Plans (CO-OPs), which must meet the same state and federal quality and financial standards as other health insurance plans.

Individuals will be able to enroll in an exchange plan only if they are not enrolled in Medicare, Medicaid or acceptable employer coverage. They can also use exchanges to see whether they qualify for federal or state health programs (such as Medicaid), subsidies and tax credits.

Essential health benefits: The law requires all individual and small group plans to cover “essential health benefits.” These include services in the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

All health plans, including grandfathered plans, must meet ACA provisions that:

  • prohibit lifetime dollar limits to key health benefits
  • prohibit a plan from cancelling coverage due to a mistake on your application and
  • require plans that offer dependent coverage to offer coverage to children until they turn age 26.

Non-grandfathered plans must also cover certain preventive services at no cost to the policyholder. The law also prevents plans from putting certain restrictions on coverage, such as choice of primary care provider and requiring prior approval or higher copayments or co-insurance for out-of-network emergency room services. Although these provisions will reduce your out-of-pocket costs, they will likely increase premiums.

These provisions are designed to ensure that health policies cover a comprehensive set of services to avoid serious coverage gaps. They may make it easier for consumers to avoid the mistake of thinking that limited benefit (or “mini medical”) health insurance plans provide comprehensive coverage. While these policies can supplement comprehensive health insurance plans, they do not offer an adequate substitute.

Coverage levels: Health exchanges will offer four tiers of health insurance coverage, ranging from “bronze” to “platinum.” All plans will cover the “essential health benefits”; the different tiers indicate “actuarial value,” or the percentage of covered expenses plans in each tier will pay. Bronze plans will pay 60 percent of covered expenses, silver plans 70 percent, gold plans 80 percent and platinum plans 90 percent. The remaining percentage becomes the insured’s out-of-pocket financial responsibility. Your out-of-pocket expenses could take the form of annual deductibles, copayments and co-insurance or any combination thereof, depending on how your plan is structured. Please note that “actuarial value” indicates the percentage of covered medical costs, not your actual medical costs, which could be much higher.

Costs: The Congressional Research Service said premiums within exchanges will likely vary depending on “…enrollees’ age, the health of the people actually enrolled in the plan, the varying prices paid by plans for medical goods and services, the breadth of the provider network, the provisions regarding how out-of-network care is paid for (or not), and the use of tools by the plan to reduce health care utilization (e.g., prior authorization for certain tests).”

A Kaiser Family Foundation study projected costs for plans that would meet bronze-level requirements. With a 20 percent coinsurance level, a bronze plan might have a per-individual deductible of $4,375. Thus, after meeting the $4,375 annual deductible, insureds would have to pay 20 percent of healthcare expenses out of pocket. Alternatively, a plan with a lower deductible meeting the bronze plan requirements might have a deductible of $3,475 and a coinsurance percentage of 40 percent. Both plans would cap total patient out-of-pocket costs at $6,350, as required by the ACA. Family deductibles for families would be double these amounts.

Credits and subsidies: Low-income individuals and families might qualify for subsidies and tax credits; these would only be available through an exchange. The law creates sliding-scale federal subsidies for individuals and families who make too much to qualify for Medicaid, but up to 400 percent of the federal poverty level. States will have the flexibility to establish basic health plans for low-income individuals not eligible for Medicaid.

Insurance agents: Although exchanges will allow individuals and small employers to shop online for health plans, insurance agents and brokers will still service and sell the policies provided by private insurers. This means you can still rely on your insurance agent to steer you through the buying process and recommend the products that best meet your family’s needs.