Obamacare Basics with the Definitions You Need to Know
Obamacare is the Patient Protection and Affordable Care Act of 2010. It makes health care more affordable for everyone by lowering costs for those who can't afford them. It is the most comprehensive piece of legislation since the Social Security Act of 1935. It is also the largest revamp of the U.S. health care system since the 1960s. It's named for President Barack Obama, who championed health care reform during his term from 2009 to 2017.
ACA Costs and Benefits
The act is also called the ACA. Its goal is to lower the nation's health care costs. It initially did this by mandating that everyone buy insurance. As a result, healthier young people paid premiums even though they didn't use their insurance as much as older people do. That offset insurance companies' cost of insuring even the sickest.
The ACA prevented companies from excluding anyone. As a result, everyone could afford to see a doctor before their symptoms turn into a crisis. Prior to the ACA, the uninsured used expensive hospital emergency rooms as their primary care provider. That raised health care costs for everyone.
Expanded Subsidies for Middle-Income Families
Obamacare also expanded subsidies for middle-income families. That allowed more people to afford better insurance. Prior to the ACA, only families with corporate-sponsored insurance could afford comprehensive plans.
To pay for the subsidies, Obamacare increased taxes on health care providers and high-income earners. People making $200,000 a year ($250,000 for married couples) pay higher income and investment taxes. To enforce the mandate, a tax penalty was levied on those without insurance. Congress repealed the tax penalty with the Tax Cuts and Jobs Act. It goes into effect in 2019.
"These costs will rise as Trump laid out plans to weaken Obamacare," according to the Congressional Budget Office's report in August 2017. The costs would also have risen under any of the congressional plans proposed to replace Obamacare. Initially, the act increased health care costs because many previously undetected illnesses were diagnosed and treated during initial exams.
Obamacare enacted more changes to health insurance, such as:
- Insurance companies can't exclude people with pre-existing conditions. Insurers are also barred from dropping anyone when they become sick.
- Parents are allowed to have their children up to age 26 on their plans.
- The Medicare "doughnut hole" gap in prescription drug coverage was subsidized. It is scheduled to close altogether in 2020.
Other Obamacare Definitions You Need to Know
The Affordable Care Act added many terms to the health care lexicon. Here's a list of the most important ones and their definitions.
Health insurance exchange. Health insurance exchanges are online shopping sites that allow you to compare and buy health insurance plans. Some states run their own exchanges, though most allow their residents to use the one run by the federal government. People who don't purchase a plan by the open enrollment cut-off date can't get insurance through the exchanges. They can get short-term plans with fewer benefits. President Trump shortened the enrollment period from 90 days to 45 days.
Federal poverty level. This is the annual income level that the federal government uses to determine who is living in poverty. The poverty level increases each year to keep up with inflation. Obamacare expanded Medicaid to include those who make 138 percent or less of the poverty level. It provides tax credits for those whose make 400 percent or less.
10 essential health benefits. Under Obamacare, all insurance plans had to provide services in each of 10 essential categories:
- Outpatient care
- Emergency room services
- Preventive care, wellness visits, and chronic disease management
- Maternity and newborn care
- Mental and behavioral health treatment
- Prescription drugs
- Services and devices to help people with injuries, disabilities, or chronic conditions
- Lab tests
- Pediatric care
Grandfathered in. This term applies to all health insurance plans that were in existence before March 23, 2010, when the Affordable Care Act was signed. These plans didn't have to provide the 10 essential benefits or comply with many of the other ACA regulations. They may offer both lower coverage and premiums than the plans on the exchanges.
Check to see when your plan was first offered. If you have a grandfathered-in plan, compare it carefully to plans on the exchanges. See if you can get a better deal. Once you let it go, you can't get it back.
For more on how to get a better deal with Obamacare, see my book "The Ultimate Obamacare Handbook."