by Ryan Law
“At the end of the day, what everyone wants is a way to make sure we’re taken care of when we’re sick, and that it doesn’t ruin us financially to get that care.” – Jonathan Gruber, architect of the Affordable Care Act
There is a lot of controversy, confusion, misunderstanding and unfortunately, even blatant lies in the media about what the Affordable Care Act (ACA or Obamacare) is and how it will affect you, your insurance coverage, and the amount you pay for insurance.
Whether you like it or not the ACA is the law and it is important you understand what it is and how it relates to you and your family. After all, your health is one of your most important assets!
My attempt with this article will be to describe, non-politically, what the ACA is in plain English. If you want to hear a partisan description of the law you can tune in to your favorite Liberal or Conservative commentator. Trust me; they have plenty to say about it!
Jonathan Gruber, Mr. Mandate
The ACA was put together by Jonathan Gruber, an MIT Economist who has studied and analyzed the effects of health-care reform extensively. When Mitt Romney was governor of Massachusetts he called Gruber in to help design a health-care law for Massachusetts, which has become known as Romneycare.
In 2008 Obama called on Gruber to help him design the ACA. Gruber has written extensively about the law. He says it is the opposite of public health care and that insurance companies like the law because they get more customers, especially young, healthy ones that will pay insurance but not need as much healthcare. He says that the most important provision of the ACA is the individual mandate – without requiring people to get insurance it doesn’t work. There will be more on the mandate later in this article.
Goals of the ACA
- Decrease the number of uninsured Americans. There are currently 44 million uninsured Americans, most of which are either young and they don’t think they need insurance, or they are poor and cannot afford insurance. The ACA should reduce this by 30 million.
- Reduce health care costs
Important Provisions of the ACA
- Pre-existing conditions: Requires insurance companies to cover all applicants of the same age at the same rate, regardless of pre-existing conditions or gender. This provision is something that will be extremely beneficial to millions of people who were denied coverage due to a pre-existing condition.
- Coverage up to age 26: If you are under the age of 26 you can stay on your parent’s plan, regardless of whether you live at home or on your own, or are single or married.
- Individual mandate: This is one part of the law that the government was sued over and that went all the way to the Supreme Court. Because the Supreme Court upheld the Constitutionality of the individual mandate it will go into effect in 2014. Essentially it says that if you don’t buy insurance you will be charged a $95 penalty or 1% of income (whichever is greater) in 2014. That amount will increase until it reaches $695 per person or 2.5% of income in 2016. Regardless of your family size you will never pay more than three times the penalty amount if all your family members are without insurance. However, if health care coverage would cost you more than 8% of your income you don’t have to pay the tax.
- Health Insurance Exchanges: By 2014 each state is required to set up a health insurance exchange (states that don’t set one up will use the national one) where consumers can compare health insurance policies and premiums.
- Elimination of lifetime coverage caps: In the past health insurance plans typically had a maximum you would be covered for over your lifetime. It was often as low as $1,000,000. With the ACA coverage caps were eliminated.
- Businesses must offer insurance: Businesses with 50 or more employees must offer health insurance or they will pay a $2000 fine per employee. They don’t have to provide it for employees working less than 30 hours a week. Businesses with less than 25 employees could qualify for a subsidy to offset the costs of insurance.
NOTE: Some companies have said they may have to lay off employees or reduce employee’s hours due to this portion of the law, the most famous of which was Papa John’s CEO John Schnatter. Schnatter later said he was taken out of context and plans to comply with the law and that his company is still doing analysis on how it will affect them.
- Deductibles and out-of-pocket maximums: Employer plans have a maximum annual deductible of $2000 per person, or $4000 for a family. By 2014 the out-of-pocket maximum per person is $6000 per person per-year (out-of-pocket includes your deductible and co-pays).
- Preventive Care: There will be no co-pay, co-insurance or deductibles for preventive care.
NOTE: This portion is sometimes referred to as the Contraceptive Mandate because under this portion of the law contraceptives and the “morning-after” pill must be free to people with insurance. Some groups, including the Catholic Church, have sued the government over this as they are religiously opposed to contraceptives. Other groups (Hobby Lobby being the largest) have sued the government because they are opposed to providing the morning-after pill to employees. There are currently 28 separate lawsuits about this provision. Under current rulings churches are exempt from providing contraceptives or morning-after pills, but church-run hospitals and schools are not exempt, and they were given until August 1, 2013 to comply. Hobby Lobby and others opposed to offering the morning-after pills were given until January 1, 2013 to comply or they will pay $1.3 million per day in penalties. Hobby Lobby has chosen to stand by its principles and pay the fine rather than offer the pill.
- Insurance subsidies/tax credits: The Central Budget Office has predicted that insurance premiums may go up 10-13% due to the ACA. To offset this, low-income Americans will not pay anything for health insurance, and many in the middle-class will get some form of tax credits. Individuals making between $14,400 and $43,320 and couples filing taxes jointly making between $29,330 and $88,200 will receive some tax credits.
- Insurance company profits: Insurance companies must pay out 80-85% of insurance premiums received in medical costs and can use 15-20% for administrative needs and profits.
Costs of the ACA
- Jonathan Gruber claims that by his analysis the ACA should reduce the federal deficit by $143 billion by 2019 and by $1 trillion within 20 years.
NOTE: Niall Ferguson in the August 19, 2012 Newsweek cover article claimed that the CBO (Central Budget Office) and Joint Committee on Taxation have said net federal spending will be $1.2 trillion by 2022 even after all taxes and penalties have been collected. However, the CBO has actually said that it will decrease the deficit by more than they originally thought. I believe the jury is still out on this one – in 2022 we will know for sure, but I struggle to see how it will actually reduce the deficit. I hope I am wrong, though!
Paying for the ACA
The following taxes, fees and penalties have been put into place to help pay for the ACA:
- .9% tax on incomes over $200,000 (individual) or $250,000 (family).
- 3.8% tax on unearned income over $200,000 (individual) or $250,000 (family).
- Insurance providers will pay an annual fee.
- Pharmaceutical companies and other companies that manufacture medical devices will pay taxes and fees.
- The 7.5% AGI floor for itemized deductions is being raised to 10% (You can deduct your medical expenses if they exceed 7.5% of your Adjusted Gross Income and itemize deductions – that is being changed to more than 10% of your Adjusted Gross Income).
I hope this article has helped you understand the law better and how it will affect your family and your insurance. I’m sure we will see more lawsuits and attempts to change portions of the law through legislation – if there are any major changes we will follow up with additional articles.
NOTE: If you are looking for more detailed information about the law I recommend you check out the following resources:
- HealthCare.gov – this website contains the most comprehensive information about the ACA: http://www.healthcare.gov/index.html.
- Gruber wrote a book titled Health Care Reform: What It Is, Why It’s Necessary, How It Works. This is actually a good book for understanding the ACA, and best of all, it is written in comic-book format. It’s worth checking out from your local library.
Ryan H. Law, M.S., CFP®, AFC®
Personal Financial Planning Department
Office for Financial Success Director
University of Missouri Center on Economic Education Director
162 Stanley Hall
University of Missouri
Columbia, MO 65211
 Gruber, J., Health Care Reform: What It Is, Why It’s Necessary, How It Works, 2011 ISBN: 0809053977