Never Mind the Politics: Some Essential Facts About Obamacare
By Korvin Vicente
This week marks a defining moment for healthcare in America, as the first step in President Barack Obama’s signature health care law is slated for launch. As the biggest part of the Affordable Care Act (“Obamacare”), the widely anticipated health insurance exchanges will finally make their national debut.
The health insurance exchanges are a combination of federal and state run online marketplaces where individuals can acquire comprehensive and affordable health insurance. Consumers can use their individual state’s health insurance marketplace to obtain coverage from competing private health care providers.
For those already insured under an employer-based program, like most Americans are, not much will change, as coverage for these Americans will not be interrupted. On the other hand, this will come as relief for many uninsured Americans and those who buy their own coverage.
As of today, consumers will have until 2014 to explore their options. Under Obamacare, all private health insurance plans available on the exchanges will offer the same package of “minimum essential” health benefits, from preventative and wellness services to prescription drug coverage, among many others.
Essential health benefits are the minimum requirements for all plans in the marketplace, though plans may choose to offer additional coverage. As exchanges go online Tuesday, consumers will get to compare each plan side-by-side and see exactly what each option offers.
Those who do not begin the New Year with health insurance may face a penalty in 2014, in addition to paying 100% of their health care costs without subsidies or tax credits.
Under the Affordable Care Act, everyone from the federal government to individual taxpayers take on shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States1. As such, the law calls for everyone who can afford it to take responsibility for their own health insurance by getting coverage or paying a penalty – a so called “shared responsibility fee”.
When someone without health coverage gets urgent – often expensive – medical care and doesn’t pay the bill, everyone else ends up bearing the burden in the form of higher health care costs. For this reason the new health care law calls for everyone to pitch in, whether voluntarily or by paying a penalty.
In 2014 the shared responsibility fee comprises 1% of annual income, or $95 per person; whichever is higher. The fee will increase every year, and in 2016 is expected to be 2.5% of annual income, or $695 per person.
By mandating the insurance of all American citizens, the Affordable Care Act manages to enlist many more young people – the so called “young invincibles” – who are unlikely to need much medical care anytime soon. These premiums paid into the system by the young and healthy will help lower the cost of health care for everyone, as they tend to offset the cost of the older, sicker people expected to flood insurance exchanges in the coming years.
What’s more, the new federally run exchanges act as a transparent marketplace that will foster strong competitive pressures among insurers, adding further to pressures of cost-containment in the health care industry.
While the exchanges offer families an opportunity to shop, for small business owners the Affordable Care Act has different implications. Per Obamacare’s employer mandate, firms with more than the equivalent of 50 full-time employees must offer their own “minimum essential” and “affordable” health coverage come 2015.
A health plan meets the minimum value standard if it pays at least 60% of an employee’s premiums, and is considered affordable if an employee’s annual premium payments do not exceed 9.5% of household income.
Of course, employers who do not meet these standards are subject to a penalty – an “employer shared responsibility fee”. The penalty is $3,000 annually for each full-time employee pushed to seek coverage on a state exchange due to lack of coverage.
There are individuals, nonetheless, who will unfortunately fall into a coverage gap.
Individuals with incomes below the federal poverty level ($11,500) will not be eligible for subsidized assistance. The Affordable Care Act assumes the Medicaid Expansion will cover these people; however, roughly 8 million people who under the law would have been eligible for expanded Medicaid live in states that have opted not to participate in the expansion.
Thus, in states that have opted not to expand Medicaid, there will be large gaps in coverage, leaving millions of low-income adults with no affordable options.