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The Patient Protection and Affordable Care Act (PPACA), or the Affordable Care Act (ACA) for short, was signed into law on March 23, 2010, as part of the Health Care and Education Reconciliation Act of 2010, to be implemented in phases until fully effective in 2018. Because it is a federal law, state regulations are superseded by the PPACA and must conform accordingly.
The Affordable Care Act mandated increased preventive, educational, and community-based health care services, and was designed to set up a new competitive private health insurance market; hold insurance companies accountable by keeping premiums low, preventing denials of care, and allowing applicants with pre-existing conditions to obtain coverage (pre-existing condition exclusions have been eliminated as of January 2014); help stabilize the budget and economy by reducing the deficit through cutting government overspending; and extend coverage for adult children in both individual and group health plans until age 26.
The Act also gives small businesses and nonprofits a tax credit for an employer's contribution to employee health insurance, prohibits insurance companies from rescinding health coverage once an insured becomes ill, and eliminates lifetime benefit limits. Certain specific health coverage plans — such as retiree-only plans, stand-alone dental plans, Medigap, and long-term care insurance — are generally exempt from PPACA changes. Because these provisions have been controversial and health care laws continue to be challenged in the courts, agents should always review current law to be certain they are providing up-to-date advice.
The Health Insurance Marketplace makes health coverage available to any uninsured individual. To be eligible for coverage through the Marketplace, the individual must be a U.S. citizen or national or be lawfully present in the United States, must live in the United States, and cannot currently be incarcerated. An individual who has Medicare coverage is not eligible to use the Marketplace to buy a health or dental plan.
A group health plan or a health insurance issuer offering group or individual health insurance coverage may not establish eligibility rules based on any of the following health status-related factors relating to individuals or their dependents: health status; medical condition (physical or mental); claims experience; receipt of health care; medical history; genetic information; evidence of insurability (including conditions arising from acts of domestic violence); disability; or any other health status-related factor.
When health insurers set premium rates, they are only permitted to base those rates on 4 standards: geographic rating area (location of residence within the state); family composition (single or family enrollment); age; and tobacco use. For individual plans, the relevant location is the insured's home address; for small group plans, the relevant location is the employer's principal place of business.
Essential benefits include hospitalization, maternity, emergency services, wellness and preventive services, and chronic disease management. All Health Insurance Marketplace plans must cover pregnancy and childbirth, even if the pregnancy began before coverage took effect.
Guaranteed issue requires insurance companies to accept any eligible applicant for individual or group insurance coverage, though enrollment for coverage may be restricted to open or special enrollment periods. Guaranteed renewability requires an insurance company that offers either group or individual health coverage to renew or continue the policy at the option of the plan sponsor or the individual.
For pre-existing conditions, the law created a new program, the Pre-Existing Condition Insurance Plan, to make health coverage available to individuals who had been denied health insurance by private insurance companies because of a pre-existing condition.
For appeal rights, if an insurer rescinds individual or group coverage for reasons of fraud or an intentional misrepresentation of material facts by the insured, the insurer must provide at least 30 days' advance notice to allow the insured time to appeal. An enrollee or insured has the right to review their file, present evidence and testimony as part of the appeals process, and keep their coverage in force pending the outcome of the appeal.
For coverage of children of the insured, the law extends coverage to age 26 regardless of the child's marital status, residency, financial dependence on their parents, or eligibility to enroll in their own employer's plan. Coverage for a dependent child may continue beyond age 26 if the child continues to be incapable of self-sustaining employment because of an intellectual or physical disability, and remains chiefly dependent upon the policyholder or subscriber for support and maintenance.
Health plans are restricted from applying a dollar limit on essential benefits (lifetime and annual limits), and cannot establish a dollar limit on the amount of benefits paid during the course of an insured's lifetime. Emergency care must be covered even at an out-of-network provider, for amounts that would have been paid to an in-network provider for the same services. Preventive benefits require that 100% of preventive care be covered without cost sharing, including routine checkups, screenings, and counseling to prevent health problems. Under cost-sharing for group health plans, a group health plan must ensure that any annual cost-sharing imposed does not exceed the applicable limitations.
The ACA established insurance exchanges that administer health insurance subsidies and facilitate enrollment in private health insurance, Medicaid, and the Children's Health Insurance Program (CHIP). An exchange helps an applicant compare private health plans, obtain information about coverage options to make educated decisions, obtain information about eligibility for tax credits toward more affordable coverage, and enroll in a plan that meets the applicant's needs.
Children of an insured must be covered under the parent's health plan until age 26.
The Affordable Care Act (ACA) requires all individual and group health insurance plans to be issued on a guaranteed issue basis.
Under PPACA, plans are classified into 5 categories of coverage in the Marketplace: four "metal level" plans and catastrophic plans. The metal level plans pay different amounts of the total cost of an average person's care; the actual percentage the insured pays, in total or per service, depends on the services used during the year. On average, the metal level plans pay as follows:
Under the bronze plan, for example, the health plan is expected to cover 60% of the cost for an average population, with the participant covering the remaining 40%; participants with severe disease may pay significantly more. All insurers offering adult and family coverage under the metal levels must also offer child-only coverage.
Young adults under age 30, and individuals who cannot obtain affordable coverage (have a hardship exemption), may be able to purchase individual catastrophic plans covering essential benefits. These plans offer lower monthly premiums but also feature high deductibles (several thousand dollars); the insured is generally required to pay all medical costs up to that deductible amount. Once the insured meets the deductible, essential health benefit costs are covered by the catastrophic plan with no copayment or coinsurance.
Under the ACA, premium discounts may be awarded to low-income individuals regardless of the chosen metal level.
The Medical Loss Ratio (MLR) indicates how much of the health coverage premium must go toward actual medical care, as opposed to administrative costs and profits. Under the Affordable Care Act, consumers receive more value for their premium dollar because insurance companies are required to spend 80% (individual and small group markets) or 85% (large group markets) of premium dollars on medical care and health care quality improvement, rather than on administrative costs — meaning only 15%–20% of the premium may be applied to administrative expenses. Insurers who fail the MLR test for a calendar year must provide a rebate to their customers and refund excess premiums.
State insurance exchanges offer coverage through qualified health plans (QHPs). Qualified health plans may not have pre-existing condition limitations, lifetime maximums, or annual dollar limits on essential health benefits. A health plan's status as a qualified health plan is based on its benefit design, marketing practices, provider networks (including community providers), plan activities related to quality improvement, and use of standardized formats for consumer information.
As mandated by the Affordable Care Act, all private health insurance plans offered in the Marketplace must provide the same set of essential health benefits. All health care plans must include at least the following 10 essential benefits:
State insurance exchanges must provide for an initial open enrollment period, annual open enrollment periods after the initial period (currently scheduled from November 1 through January 15), and special enrollment periods. Unless otherwise specifically stated, individuals or enrollees have 60 days from the date of a triggering event to select a qualified health plan. Triggering, or qualifying, events include marriage, divorce, birth or adoption of a child, a change in employment, or termination of health coverage.
Qualified individuals and enrollees may enroll in or change from one qualified health plan to another as a result of the following triggering events: a qualified individual or dependent loses minimum essential coverage; a qualified individual gains a dependent or becomes a dependent through marriage, birth, adoption, or placement for adoption; an individual who was not previously a citizen or lawfully present individual gains such status; a qualified individual's enrollment or non-enrollment in a qualified health plan is unintentional or erroneous and results from an error, misrepresentation, or inaction of an officer, employee, or agent of the exchange; an enrollee adequately demonstrates that the qualified health plan they are enrolled in substantially violated a material provision of its contract; an individual is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost-sharing reductions, regardless of whether that individual is already enrolled in a qualified health plan; a qualified individual or enrollee gains access to new qualified health plans as a result of a permanent move; a Native American, as defined by the Indian Health Care Improvement Act, may enroll in a qualified health plan or change plans one time per month; and a qualified individual or enrollee demonstrates that they meet other exceptional circumstances the exchange may provide for.
Enrollment in the Health Insurance Marketplace began in October 2013, and tax credits for those who qualify became available in 2014. After submitting an application for health insurance for a qualified health plan, individuals may take an advance tax credit to reduce the cost of their health coverage if purchased through an exchange. For purposes of the premium tax credit, household income is defined as the Modified Adjusted Gross Income (MAGI) of the taxpayer, spouse, and dependents. The MAGI calculation includes income sources such as wages, salary, foreign income, interest, dividends, and Social Security.
Legal residents and citizens with incomes between 100% and 400% of the Federal Poverty Level (FPL) are eligible for the tax credits. States have the option of extending Medicaid coverage to people under 138% of the FPL. Persons who receive public coverage, such as Medicare or Medicaid, are not eligible for the tax credits.
Persons who are eligible for a premium tax credit and have household incomes between 100% and 250% of FPL are eligible for cost-sharing subsidies (reductions). Eligible individuals are required to purchase a silver level plan in order to receive the cost-sharing subsidy. The tax credit is sent directly to the insurance company and reduces the insured's monthly health care premiums; tax credits are based on the individual's or family's expected annual income.
Small employers that offer health plans may be eligible for federal tax credits, depending on the average wages and size of the employer. These tax credits, available to low-wage employers (under $50,000 average per employee) with 25 or fewer workers, may cover up to 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers. In California, small businesses with fewer than 25 employees may be eligible for the federal premium tax credit as long as they purchase health insurance through the Covered California for Small Business (CCSB) program. The credit is available to eligible employers for 2 consecutive taxable years.
Advance payments of the premium tax credit, or APTC, is a tax credit that can help individuals afford coverage bought through the Marketplace. These tax credits can be used right away to lower the monthly premium costs for insurance. If the insured qualifies, the insured may choose how much advance credit payment to apply to the premium each month, up to a maximum amount. If the amount of advance credit payments for the year is less than the tax credit due, the insured receives the difference as a refundable credit when filing the federal income tax return; if the advance payments for the year exceed the amount of the credit, the insured must repay the excess advance payments with the tax return.
APTC is paid on a sliding scale, from 100% of FPL to 400% of FPL, and is generally calculated based on attested projected annual income for the upcoming coverage year. Maximum APTC is calculated with reference to income and the applicable second-lowest-cost silver plan. In California, advance premium tax credits (APTCs) may be available to certain households with income not exceeding 400% FPL. The credit is calculated by the California Health Benefit Exchange (Covered California) and paid by the Exchange directly to insurers.
Originally, the Affordable Care Act required all U.S. citizens and legal residents to have qualifying health care coverage. This was known as the individual mandate, and was part of the Act's Shared Responsibility Provision. If the individual did not have qualifying health coverage, a federal tax penalty would be assessed, based on the individual's taxable income, number of dependents, and joint filing status.
As of 2019, the individual mandate and shared responsibility penalty no longer apply. However, many states have their own individual health insurance mandate; in those states, an individual must have qualifying health coverage or pay a state tax penalty.
Employer penalties apply to employers with more than 50 full-time employees if at least one employee receives a premium tax credit for health care coverage:
| Coverage | Penalty Tax |
|---|---|
| Employer does not offer coverage | $2,000 per full-time employee (first 30 employees are excluded) |
| Employer offers coverage | The lesser of $3,000 per employee who receives a premium tax credit or $2,000 per each full-time employee (first 30 employees are excluded) |
Employers with fewer than 50 full-time employees are exempt from these penalties.
Covered California is the state's benefit exchange under the reform law. It provides coverage to households above 138% of FPL, with subsidies available up to 400% FPL. Covered California offers 4 health plan levels — platinum, gold, silver, or bronze — that range from 10% to 40% of the customer's share of health care costs. Subsidies are available for low-income households: the Advanced Premium Tax Credit (APTC) for households under 400% FPL, and Cost-Sharing Reductions (CSR) for households under 250% FPL.
Covered California for Small Business (CCSB) is a health insurance marketplace available through Covered California for businesses with 1 to 100 eligible employees. Enrollment in CCSB is available year-round. Employers may choose plans from 4 levels of coverage — Bronze, Silver, Gold, and Platinum — as well as Dual Tier Choice, which allows them to select 2 adjoining metallic tiers.
Small businesses that buy health insurance through Covered California may qualify for federal tax credits to offset part of their costs. To qualify for the federal premium tax credit, employers must have fewer than 25 full-time equivalent employees, pay employees an average annual salary of less than $54,000, and contribute at least 50% toward qualified employee premium costs.
All agents interested in selling for the Covered California marketplace must hold a valid license with the California Department of Insurance and complete Covered California's training and certification program. Initial agent certification training is provided entirely online through a computer-based system and covers a range of information and instruction on topics including the Affordable Care Act; Covered California for Small Business; agent roles and responsibilities; eligibility for individuals and families; and privacy requirements.