The Affordable Care Act started changing the country's health-care system almost from the moment it was signed into law in March 2010. It has already expanded coverage of young adults by allowing them to stay on their parents' plans until they turn 26, outlawed lifetime limits on what insurance will cover, lowered the cost of drugs for seniors on Medicare, caused 13 million consumers to get premium rebates totaling some $1.1 billion, and expanded access to free preventive care for patients of all ages. Last summer it survived a challenge in the U.S. Supreme Court.
But all that is prelude to the transformation coming in 2014, when almost all Americans will have access to affordable health insurance that covers essential care.
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A set of rules that take effect Jan. 1, 2014, will make shopping for health insurance a completely different experience for those who buy it on their own—or are uninsured today. These are the biggies:
Guaranteed issue. This is the most popular part of health reform: Health plans must sell coverage to everyone, regardless of pre-existing conditions, and can't charge more based on health or gender.
Health insurance marketplaces. By Oct. 1, 2013, every state will have an insurance exchange—an organized marketplace where individuals and small-business owners can select from among all the qualified private health plans available in their area.
It's expected that most consumers will shop on their state's marketplace online, but they can also shop by phone, through brokers, or with the personal assistance of trained helpers called Navigators. There will also be help available for consumers who don't speak English. (To see what a health insurance marketplace looks like, visit the Health Connector run by Massachusetts, which has had a mandate since 2007.
Individual subsidies. Afraid you won't be able to afford insurance? If you buy on your state's marketplace as an individual, you may qualify for a subsidy if your household income is between 100 percent and 400 percent of the federal poverty level. The subsidy will be a new kind of tax credit that you can use right away to lower your premium costs. (The tax system already subsidizes people who have coverage through a job by excluding the cost of their health plan from income taxes.)
For instance, a family of four with an income of 200 percent of poverty, or about $46,000, will pay no more than $235 a month for health insurance. People with household incomes of less than 250 percent of poverty will also get subsidies to reduce their out-of-pocket costs, such as deductibles and coinsurance. You'll learn whether you qualify for a subsidy when you shop on your marketplace, and if you do, the amount you have coming to you.
Individual mandate. Everyone will be required to have health insurance or pay a penalty. Almost any sort of legitimate coverage will satisfy the mandate: private insurance obtained on your own or through a job, Medicare, Medicaid, CHIP, Veterans Affairs, the Indian Health Service, or Tricare.
Penalty. If you don't have health insurance, you'll have to pay a tax penalty, starting at $95 per individual, $285 per family, or 1 percent of income, whichever is greater, for 2014. (That rises to $695 per individual, $2,085 per family, or 2.5 percent of income in 2016.)
Because the vast majority of people will already have qualifying health insurance, few will confront the choice of buying a plan or paying a penalty. Moreover, you won't have to pay it if you make too little money to file a federal tax return or would have to spend more than 8 percent of your household income on the cheapest qualifying plan, even including subsidies. Americans living abroad, and those in prisons, are exempt from the mandate and associated fines.
Medicaid expansion. The health care law was intended to expand the government-run health program for low-income Americans to cover up to 16 million more people with household incomes up to 133 percent of the poverty line ($14,856 for an individual and $30,657 for a family of four). That includes many at or below the poverty line who aren't currently eligible. Read more about how to navigate Medicaid.
However, the decision on whether or not to expand Medicaid in this way was handed back to the states as part of the Supreme Court's 2012 ruling upholding the constitutionality of the health reform law as a whole. While many states have announced they will go ahead with the Medicaid expansion, others are still deciding and some have definitely turned down the expansion (although any state can change its mind at any time). In states that decline to expand Medicaid, households with incomes below the poverty line may be left without a source of health coverage. Households between 100 percent and 133 percent of the poverty line will be allowed to purchase coverage, with significant subsidies, on their state's marketplace.
Premium rebates. Insurers must spend at least 80 percent of premiums on medical care and quality improvements for customers in their individual and small-group (under 50 employees) plans. The cut-off is 85 percent for large group plans. If they don't, they must refund the difference to consumers in the form of direct refunds or reduced premiums. In 2012, the first year this rule was in effect, nearly 13 million Americans received $1.1 billion in rebates
The rule does not apply to self-insured plans offered by employers who pay employee health expenses on their own. The only way to know if you are self-insured is to ask your employer. You can't tell just by looking at your insurance card.
Standard disclosure forms. All health plan must now use a standardized, consumer-friendly form to provide a uniform summary of benefits and coverage, including information on co-payments, deductibles, and out-of-pocket limits. This makes it easier for you to compare plans. Insurers must have to calculate and disclose a patient's typical out-of-pocket costs for two medical scenarios: having a baby and treating type 2 diabetes. See a sample form (PDF).
Caps on Flexible Spending Accounts (FSAs). Employers previously could set limits on their FSAs at whatever level the chose (usually $2,500 to $5,000). But now the most you can set aside tax-free for medical expenses not covered by insurance will be $2,500, with the cap increasing by the annual inflation rate in subsequent years. Plus you can no longer use FSAs to pay for over-the-counter drugs unless you have a doctor's prescription. For people with 2012-2013 health care plans that run on a fiscal (rather than calendar) year, the cap kicks in July 1, 2013. Read more about FSAs.
New Medicare tax for high earners. Two Medicare-related taxes are impacting high earners in 2013. Individuals earning over $200,000 (or $250,000 for couples who file jointly) will see their Medicare payroll tax rate increase from 1.45 percent to 2.35 percent. They'll also pay a new 3.8 percent Medicare tax on unearned income, including investments, interest, dividends, annuities, rent, royalties, certain capital gains and inactive businesses. Read more about Medicare.
Exceptions to the unearned-income tax. It does not apply to the sale of your principal residence—unless your capital gain on the house is more than $250,000 for single filers and $500,000 for married couples filing jointly. And even then, it applies only to the capital gain in excess of those amounts. So, for instance, a single filer who made a $300,000 profit on a house sale would only pay the tax on $50,000. Also exempt from the new tax: income from tax-exempt bonds, veteran's benefits, and qualified retirement plan distributions such as those from an IRA or 401(k).
More young adults with insurance. All health plans must allow young adults to remain as dependents on their parent's health plan until they turn 26 (PDF), whether or not they live at home or can be declared as dependents on the parent's income tax return. An estimated 6.6 million young adults who would otherwise be uninsured have gained coverage during the first year of eligibility, according to a recent analysis by the Commonwealth Fund, a nonprofit health policy research organization.
Cheaper drugs for people on Medicare. Seniors who reach the "donut hole" – the point when they have to start paying prescription drug expenses themselves – now get a 52.5 percent discount when buying brand-name drugs and a 21 percent discount on generic drugs covered by Medicare Part D. As of March 2013, more than 6.3 million older adults and people with disabilities had saved $6.1 billion in prescription costs since the law was passed. The donut hole will continue to shrink until it disappears completely by 2020.
Temporary help for people with pre-existing conditions. To tide people with health problems over until 2014, the law created temporary Pre-existing Condition Insurance Plans in all 50 states plus the District of Columbia. Thanks to federal subsidies, people who have been denied coverage or quoted outrageous premiums because of their health history can buy these comprehensive health plans for about the same price as a healthy person their age would pay for a private plan. The catch is that to qualify for the program, the law says people must have gone without insurance for at least six months. Even so, 67,482 Americans had enrolled in these plans as of April 30, 2012. This program is scheduled to expire in 2014, when people with pre-existing conditions will no longer be locked out of the health insurance market. ** Update: The federal government closed PCIPs closed to new enrollees in late February 2013, because the $5 billion set aside to fund these plans was about to run out. **
Free preventive care. New private health plans must cover and eliminate cost-sharing (co-payment, co-insurance or deductible) for proven preventive measures such as immunizations, Pap smears, and screening colonoscopies. Health plans must provide additional preventive measures to women, including free well-woman visits, screening for gestational diabetes, domestic violence screening, breastfeeding supplies, and contraception. Workplaces run by religious organizations that object to birth control are to receive a special accommodation: their health plans must still offer the coverage, but the cost of it will be borne entirely by their insurance companies.
People on Medicare are also now entitled to the same free preventive coverage, and in addition get a free annual "wellness visit."
More consumer protections. Health insurers can't set lifetime limits on your coverage or cancel if you get sick. Annual limits on coverage in job-related and individual plans are now restricted to a minimum of $2 million beginning Sept. 23, 2012, and will be completely phased out in January 2014.