Often abbreviated simply as the ‘Affordable Care Act (ACA),’ this federal statute is actually 2 laws, called the ‘Patient Protection Act’ and ‘Affordable Care Act.’
Enacted between 2010 through 2014, and amended by the Health Care and Education Reconciliation Act, the federal government has reformed both the private health insurance industry and government-sponsored health programs such as Medicaid and Medicare to provide U.S. citizens with more comprehensive healthcare coverage by eliminating the current exclusions of pre-existing conditions, as well as expanding the availability of Medicaid. All health plans issued after January 1, 2014 must provide coverage for pre-existing conditions, and insurers cannot deny coverage for applicants with pre-existing conditions.
As defined by healthcare.gov, under the law, a new “Patient’s Bill of Rights” gives all Americans the stability and flexibility we need to make informed choices about our health and to put consumers back in charge of their health care. [hhs.gov]
Grandfathered vs. Non-Grandfathered
Grandfathered health plans are defined as health plans that were issued prior to January 1, 2014. Although all health plans going forward are mandated under the PPACA to cover pre-existing conditions, currently in 2014, individuals may remain on pre-PPACA plans which may still exclude pre-existing conditions.
In comparison, non-grandfathered health plans are those plans that comply with the pre-existing condition inclusion legislation set forth by the PPACA. Any health plan issued after January 1, 2014 is considered to be ‘non-grandfathered.’
For purposes of the state licensing exam, if a health plan excludes pre-existing conditions, it is considered to be a ‘grandfathered’ plan. By the end of 2015, such grandfathered plans will be eliminated, or modified by insurers to include pre-existing conditions in order to be compliant with the PPACA.
State and Federal Health Exchanges
To provide a fair and affordable selection of insurance plans from which to choose, the PPACA also mandates each state to provide an insurance ‘Exchange,’ or Marketplace, in which multiple private insurance plans are offered U.S. citizens who are not currently enrolled in an individual or employer-based insurance policy, Medicare, Medicaid or other government-sponsored plan. If a state does not offer its own exchange, residents of such state must purchase insurance through the federal exchange by enrolling online through healthcare.gov.
Brief Overview of the PPACA:
Coverage
- Ends Pre-Existing Condition Exclusions for Children: Health plans can no longer limit or deny benefits to children under 19 due to a pre-existing condition
- Keeps Young Adults Covered: Children can remain on their parents policy until age 26
- Costs
- Ends Lifetime Limits on Coverage: Lifetime limits on most benefits are banned for all new health insurance plans
- Reviews Premium Increases: Insurance companies must now publicly justify any unreasonable rate hikes
- Maximizes the Use of Premium Dollars: Policy premium dollars must be spent primarily on health care – not administrative costs
- Covers Preventive Care at No Extra Cost: No copayment or doctors fee for preventive care
- Protects One’s Choice of Doctors: Individuals may choose the primary care doctor they want from their plan’s network
- Removes Insurance Company Barriers to Emergency Services: Anyone can seek emergency care at a hospital outside of their health plan’s network.
PPACA Definitions and Regulations
Minors and Adult Child Coverage ExtensionAs of 2010, children are allowed to remain on their parents’ insurance policy until the age of 26, regardless of if they live with their parents, are financially dependent on their parents, a student, or married.
Guaranteed Issue
The PPACA mandates that all health insurers offering health insurance coverage in the individual or group market throughout the United States must accept every employer and individual that applies for such coverage; however, enrollment is restricted to ‘Open Enrollment’ or ‘Special Enrollment’ periods.
Open Enrollment Period
The annual Open Enrollment Period is the period of time during which individuals who are eligible to enroll in a Qualified Health Plan can enroll through the Healthcare Marketplace. The Open Enrollment Period starts on November 1st and continues through December 15th. Plans sold during Open Enrollment start on January 1st.
The individual market has set this timeframe every year for Open Enrollment, much like Medicare, where new and renewing members can enroll. If that window of time is missed, the individual must wait until the next Open Enrollment Period to get coverage, unless he or she experiences a qualifying life event that allows for enrollment through a Special Enrollment Period.
Special Enrollment Period Requirements
Special Enrollment Periods are times outside of the Open Enrollment Period during which individuals have a right to sign up for health coverage. In the Marketplace, an individual qualifies for a Special Enrollment Period 60 days following certain life events that involve a change in family status or loss of other health coverage. Job-based plans must provide a Special Enrollment Period of 30 days. Life events that qualify an individual for a Special Enrollment Period include:
- Getting married
- Having a baby
- Adopting a child or placing a child for adoption or foster care
- Losing other health coverage
- Moving to a new residence
- Gaining citizenship or lawful presence in the U.S.
- Leaving incarceration
Individuals already enrolled in a Marketplace plan qualify for a Special Enrollment Period if a change in income or household status occurs that affects eligibility for premium tax credits or cost-sharing reductions.
Voluntarily quitting a Marketplace plan mid-year does not qualify an individual for a Special Enrollment Period.
Members of federally recognized Indian Tribes or Alaska native shareholders can enroll in or change plans once per month any time of year (not just during Open Enrollment).
Prohibiting Discrimination Based on Health Status
A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish rules for eligibility (including continued eligibility) of any individual to enroll under the terms of the plan or coverage based on any of the following health status-related factors in relation to the individual or a dependent of the individual:
- Health status
- Medical condition (including both physical and mental illnesses)
- Claims experience
- Receipt of health care
- Medical history
- Genetic information
- Evidence of insurability (including conditions arising out of acts of domestic violence)
- Disability
Guaranteed Renewability of Coverage
If a health insurance issuer offers health insurance coverage in the individual or group market, the issuer must renew or continue in force such coverage at the option of the plan sponsor or the individual, as applicable.
Shared Responsibility
The Patient Protection and Affordable Care Act will accomplish a fundamental transformation of health insurance in the United States through shared responsibility. Systemic insurance market reform will eliminate discriminatory practices such as pre-existing condition exclusions. Achieving these reforms without increasing health insurance premiums will mean that all Americans must be part of the system and must have coverage. Tax credits for individuals and families will ensure that insurance is affordable for everyone.
Employer Shared Responsibility Payment (ESRP)
The Affordable Care Act requires certain employers with at least 50 full-time employees (or equivalents) to offer health insurance coverage to its full-time employees (and their dependents) that meets certain minimum standards set by the PPACA or to make a tax payment called the ‘Employee Shared Responsibility Payment (ESRP).’
No employer with fewer than 50 full-time employees is subject to the Employer Shared Responsibility Payment in any year.
Individual Mandate for Minimum Essential Coverage
Since its enactment, the PPACA has required most individuals to attain health insurance coverage or pay an annual tax penalty. Penalties are reduced from an individual’s tax refund, if any; however, if an individual does not receive a tax refund and is not exempt from the penalty, he or she will not be subject to criminal prosecution, nor can a levy or lien be placed on the individual’s income or property. Starting in 2019, the fine for declining to purchase health insurance has been eliminated as a result of the Tax Cuts and Jobs Act; however, the individual mandate still exists as part of the PPACA.
Under the PPACA, individuals are required to maintain ‘minimum essential coverage’ for themselves and their dependents. Minimum Essential Coverage is defined as:
- Coverage under certain government-sponsored plans
- Employer-sponsored plans, with respect to any employee
- Plans in the individual market
- Grandfathered health plans
- Any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS Secretary
- Minimum essential coverage does NOT include dental or vision correction coverage
- Advanced Premium Tax Credits (APTC)
A tax credit that can help an individual afford coverage bought through the Marketplace. Unlike tax credits claimed when filing annual taxes, these tax credits can be used right away to lower monthly premium costs. If qualified for an APTC, an individual may choose how much advance credit payments to apply to premiums each month, up to a maximum amount. APTCs may be available to most households with income not more than 400% of the federal poverty level.
If the amount of advance credit payments received for the year is less than the tax credit due at the end of the year, the difference is provided as a refundable credit when filing an annual federal income tax return. If advance payments for the year are more than the amount of tax credit due, repayment of the excess advance payments are due with when filing an annual federal income tax return.
Medical Loss Ratio (MLR)
A basic financial measurement used in the Affordable Care Act to encourage health plans to provide value to enrollees. The MLR is also referred to as the ‘80/20 Rule,’ and generally requires insurance companies to spend at least 80% of the money they take in on premiums on actual health care and quality improvement activities instead of administrative, overhead, and marketing costs.
If an insurer uses 80 cents out of every premium dollar to pay its customers’ medical claims and activities that improve the quality of care, the company has a medical loss ratio of 80%. A medical loss ratio of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions.
Insurance companies selling to large groups (usually more than 50 employees) must spend at least 85% of premiums on care and quality improvement. The PPACA sets minimum medical loss ratios for different markets, as do some state laws.
Any insurer that fails the MLR test in a calendar year for all plans in a given market segment (individual or group) must refund excess premiums to consumers enrolled in plans in that market segment.
Essential Health Benefits
As defined by healthcare.gov, The Affordable Care Act ensures health plans offered in the individual and small group markets, both inside and outside of the Health Insurance Marketplace, offer a comprehensive package of items and services, known as essential health benefits. Essential Health Benefits are defined as a set of health care service categories that must be covered in order to be certified and offered in the Marketplace.
Essential health benefits must include items and services within at least the following 10 categories:
- Ambulatory and outpatient care
- Emergency room services
- Hospitalization (inpatient care)
- Maternity and newborn care
- Mental health and substance use disorder services including behavioral health treatment, counseling and psychotherapy
- Prescription drugs
- Rehabilitative services and devices including physical and occupational therapy, speech-language pathology, psychiatric rehabilitation and more
- Laboratory services
- Preventive and wellness services, and chronic disease management
- Pediatric services including oral and vision care
Qualified Health Plan (QHP)
An insurance plan that is certified by the Health Insurance Marketplace that provides essential health benefits, follows established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts) and meets other requirements. A qualified health plan will have a certification by each Marketplace in which it is sold.
Qualified Health Plan Categories
Plans in the Marketplace are primarily separated into 4 health plan categories (Metal Tiers):
- Bronze (60% coverage)
- Silver (70% coverage)
- Gold (80% coverage)
- Platinum (90% coverage)
Qualified health plans are based on the percentage the plan pays of the average overall cost of providing essential health benefits to members. The plan category chosen affects the total amount an individual is likely spend for essential health benefits during the year. The percentages the plans will spend, on average, are 60% (Bronze), 70% (Silver), 80% (Gold), and 90% (Platinum). This isn’t the same as coinsurance, in which an individual pays a specific percentage of the cost of a specific service.
Actuarial Value
As defined by healthcare.gov, Actuarial Value is the percentage of total average costs for covered benefits that a plan will cover. For example, if a plan has an actuarial value of 70%, on average, the insured would be responsible for 30% of the costs of all covered benefits. However, the insured could be responsible for a higher or lower percentage of the total costs of covered services for the year, depending on the insured’s actual health care needs and the terms of his or her insurance policy.
A fifth tier, titled ‘Catastrophic,’ pays less than 60% of the total average cost of care on average and are only available to individual under age 30 or who have a received a ‘hardship’ exemption. Hardships are life situations (such as being homeless, facing eviction, bankruptcy, having received a shut-off notice from a utility company, have experienced domestic violence, to name a few) that keep an individual from getting health insurance and are received, when applied for, through the Marketplace.
Cost Sharing Reductions
A discount that lowers the amount payable for out-of-pocket for deductibles, coinsurance, and copayments. This reduction is available for individuals who get health insurance through the Marketplace, their income is below a certain level, and they choose a health plan from the Silver plan category. Members of a federally recognized tribe may qualify for additional cost-sharing benefits.
Modified Adjusted Gross Income (MAGI)
The figure used to determine eligibility for lower costs in the Marketplace and for Medicaid and CHIP. Generally, modified adjusted gross income is the adjusted gross income plus any tax-exempt Social Security, interest, or foreign income.
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