Do You Understand How Obamacare Works?

Do you understand how Obamacare works?

 Obamacare in 116 Words

Obamacare is the nickname of the Patient Protection and Affordable Care Act signed into law by Barack Obama in 2012. The law created an online Marketplace for Americans to buy health insurance from private health insurers. Consumers fill out an online Marketplace application, and based on income and family size, Americans that qualify earn subsidies to reduce health insurance costs. Other families qualify for Medicaid coverage through the Marketplace.

In addition, the law required more from health insurers. Health insurers could no longer turn down applicants based on pre-existing conditions. Also, insurers were required to cover 10 standard benefit categories. Americans were required by the law to have a Qualified Health Plan or face a penalty.

Obamacare Tax Credits

Americans are required to file income taxes every year. In the process, Americans find out their annual income through a variety of tax forms — W-2s, 1099s, and 1040 tax returns are all examples.

Based on the income information from tax forms, an individual or a family will estimate their income for the forthcoming year. This income figure — paired with family size and tax filing status — determines if an individual or a family qualifies for tax credits to reduce monthly premium payments. It isn’t as hard as it sounds if you look at the Federal Poverty Level table!

Family Size 100% 133% 138% 250% 400%
1 $11,880 $16,394 $29,700 $35,640 $47,520
2 $16,020 $22,108 $40,050 $48,060 $60,080
3 $20,169 $27,821 $50,400 $60,480 $80,640
4 $24,300 $33,534 $60,750 $72,900 $97,200
5 $28,440 $39,247 $71,100 $85,320 $113,760
6 $32,580 $44,960 $81,450 $97,740 $130,320
7 $36,730 $50,687  $91,825 $110,190 $146,920
$40,890 $56,428 $102,225 $122,670 $163,560

Source: Health & Human Services

Individuals and families with incomes between 100 percent to 400 percent of the Federal Poverty Level may qualify for subsidies. These subsidies are formally termed Advanced Premium Tax Credits (APTC), but many refer to the subsidies as plain old “tax credits.”

These subsidies are government funds paid directly to private health insurance carriers. These are partial payments of the monthly premium made by the government. Individuals and families must pay the rest of the bill. If Blue Cross Blue Shield’s normal premium rate for a person is $100, then the government may pay $20 up front. The individual would have to come up with the other $80.

Americans must apply for tax credits through the Health Insurance Marketplace. Other subsidies are available to individuals and families through the Affordable Care Act reducing other out-of-pocket costs associated with health insurance.

Obamacare Cost Sharing Reductions

Aside from tax credits, individuals and families qualify for additional financial assistance from the federal government in the health insurance realm. Cost Sharing Reductions greatly reduce the out-of-pocket expenditures associated with health insurance, such as deductibles and coinsurance.

There are three conditions that must be satisfied.

Those looking to receive Cost Sharing Reductions need to first enroll in a Silver plan. Also consumers must make between 100 and 250 percent above of the Federal Poverty Level to qualify for Cost Sharing Reductions. Finally, consumers must buy their Silver health plans from the Health Insurance Marketplace.

A Silver Plan might normally have a $5,000 deductible for an individual. Cost Sharing Reductions might limit the same deductible from the same plan down to $2,000 for the same plan based on the individual’s annual income.

Like tax credits, Cost Sharing Reduction payments never end up in the hands of citizens who qualify. The payments go directly to the health insurance carriers.

Medicaid Expansion under Obamacare

Obamacare sought out to expand Medicaid coverage to the country’s poor. Medicaid is government funded health insurance giving health benefits to those who normally cannot afford health coverage. Under the law, the federal government required every state to extend Medicaid coverage to all persons with incomes below 138 percent of the Federal Poverty Level.

The states thought this was unfair — Congress overstepped its bounds, and States risked losing funding for non-compliance. The United States Supreme Court ruled in this was an unfair mandate, so the States weren’t required to expand Medicaid under the law. The ruling did not say that the federal government could fund Medicaid expansion in States; States had the option to accept government funding to expand Medicaid.

 The federal government pledged to fund Medicaid expansion programs at 100 percent until the end of 2016. This funding amount will diminish gradually to 90 percent until 2020. It is in the best interest of the states to expand Medicaid, for states have the authority to decide best allocation practices for the funds. Arkansas was quite successful in its Medicaid Expansion endeavor.

So far, thirty two states and Washington, D.C. have expanded their Medicaid programs. Many more states are flirting with the possibility of expanding their own Medicaid programs.

Medicare under Obamacare

The Affordable Care Act strengthened Medicare in many ways. The law was instrumental in protecting Medicare coverage and keeping the coverage separate from Marketplace coverage. In other words, Americans cannot enroll in a Marketplace plan and Medicare at the same time. Whereas enrollments into Obamacare health plans are done through the Health Insurance Marketplace, Medicare enrollments can be completed through the Social Security Administration website or here.

The Affordable Care Act also brought more benefits to Medicare members. The health law mandated that many medical services be free of charge to members due to their preventative nature. Now services such as colonoscopies and mammograms are free of charge, for the services prevent the spread of such ailments as breast and colorectal cancer. The prescriptions used to maintain ailments and even cure sicknesses were also positively affected by the health law.

Medicare beneficiaries use their Part D coverage to purchase prescription drugs. With more prescription drug usage, folks have the potential to fall into what is called the Coverage Gap, or the “Donut Hole.” As of now, this is a coverage area where enrollees pay more for prescription drugs than their Medicare Part D plan. The Donut Hole will completely close by 2020 amounting in savings for millions of people.

Your share of costs

for brand-name drugs

in the Coverage Gap

Your share of costs

for generic drugs

in the Coverage Gap

2015 45% 65%
2016 45% 58%
2017 40% 51%
2018 35% 44%
2019 30% 37%
2020 25% 25%


The Obamacare Tax Penalty

For the first time in American history, citizens were required to have health insurance. However, not just any type of health insurance would do — citizens had to enroll in a Qualified Health Plan. Medicaid, Medicare, and health insurance from a private carrier are all examples of Qualified Health Plans.

There is an incentive for Americans to enroll in a qualified health plan. Americans face a maximum penalty of $695 or 2.5% of income for not enrolling in a Qualified Health Plan.

Officially called the Individual Shared Responsibility Payment, a person cannot exempt themselves from this penalty or fee through enrolling in short-term health insurance or through enrolling in supplemental insurance, such as dental or vision insurance. However, many health insurance customers opt for buying short term health coverage.

In buying short term health insurance coverage, a person can drastically save money on yearly health insurance costs. This often holds true when a person must pay the penalty in addition to short term coverage premiums. The Obama Administration is currently trying to limit short term plans to provide a maximum of three months of coverage per year as part of the Obamacare law.

Short term health plans allow patrons health coverage for up to one year under current legislation.

The Future of the Affordable Care Act

The Affordable Care Act’s future hangs in the balance of the impending Presidential Election. Donald Trump is currently the presumptive Republican Party nominee, and his first healthcare reform initiative is to “completely repeal Obamacare.”

The desire to repeal Obamacare is coupled with Republican lawmakers’ sentiment to replace the law. The Republican Party recently released their replacement to the Affordable Care Act. The 37-page healthcare policy paper is part of Paul Ryan’s “A Better Way,” and is more of a set of guidelines rather than an actual bill.

Hillary Clinton favors keeping Obamacare in place with some modifications. Some of her tweeks include voluntary buy-ins to Medicare for those aged 55 and up. In addition, she wishes to issue added tax credits to make expenditures like high deductibles and copays more affordable.

Philip Strang works as a health insurance agent for American Exchange. He specializes in enrolling individuals and families into health plans through the Health Insurance Marketplace.