Obamacare health plans must meet federal ACA minimum standards, but each state must approve the health insurance offered.
With all the discussion about congress repealing the Affordable Care Act, there is confusion over what exactly is an Obamacare health plan. Some people think the federal government is dictating the type of health plans that must be sold to individuals and families. It is up to each state to set the rules for their health insurance plans. The federal government under the regulations of the Affordable Care Act (ACA) stipulates what type of health plans are eligible for the Premium Tax Credits that make health insurance affordable for individuals and families.
Obamacare Plans Meet Federal ACA Standards
The federal government doesn’t tell the states which health plans they can allow to be sold in their states. The federal government tells the states that if their residents want to be eligible for the Premium Tax Credits (PTC), the health plans sold must comply with federal minimum essential coverage standards. States are free to allow other health plans to be sold. However, as was the case in California, some pre-ACA health plans were closed or terminated to new enrollments in order to boost enrollment in what has been termed Obamacare plans.
Obamacare Health Plans Qualify For Premium Tax Credits
The central element of the Affordable Care Act is the Premium Tax Credits, which can be advanced monthly, to lower the health insurance cost to individuals and families. The ACA rules state that only Qualified Health Plans (QHP) are eligible for the Premium Tax Credits. To be deemed a Qualified Health Plan it must have certain benefits such as maternity coverage, no cost preventive office visits, and a prohibition against denying coverage based on pre-existing conditions. In addition, Qualified Health Plans can have different member cost sharing elements such as differences to the deductible, copayments, and coinsurance. These different benefits translate into the metal tier levels of Bronze, Silver, Gold, and Platinum. Bronze plans have higher deductibles and lower premium rates and the Platinum has no deductible and higher premium rates.
Each State Regulates Their Own Insurance Plans
Each individual state sets the rules for their health insurance plans. While the federal government can’t regulate insurance at the state level, they can set conditions that pertain federal IRS tax regulations. (See McCarran-Ferguson Act that exempts business insurance from federal regulation). If a tax payer wants a federal subsidy to lower their health insurance costs, they must enroll in a plan that meets certain standards. They can then reconcile this health insurance Premium Tax Credit (Form 8962) on their federal income tax return. Tax payers having to meet certain conditions for a tax credit is nothing new. Many federal tax credits that individuals can claim on their taxes require the product or service to meet certain conditions in order to qualify for the credit or deduction.
Some states, like California, may mandate additional benefits be added to the base ACA Qualified Health Plan elements. For example, California mandates additional prescription drug benefits that caps the monthly cost of expensive brand name drugs to $250 per month for certain metal tier health plans. Some of these added design benefits do drive up the cost of health insurance. But as long as the health plan meets or exceeds the federal Qualified Health Plan definition, it is eligible for the ACA Premium Tax Credits.
Are Other Health Plans Offered?
But health insurance companies can, and do, offer non-standard benefit design plans for consumers to purchase. These plans are not eligible for the ACA Premium Tax Credits unless they are offered through a Marketplace Exchange. It is up to the state to regulate these health plans. In California, the off-exchange non-standard benefit design plans must still meet the actuarial value of a specific metal tier level such as Silver.
Non-Standard Obamacare Health Plan
A Silver 70 Qualified Health Plan in California has a $2,500 individual medical deductible and $35 office visit copayments for 2017. Blue Shield offers a Silver Seven 3750 health plan. The Silver Seven 3750 has a $3,750 individual medical deductible and $7 office and lab copayments. Similar to the Silver 70 Qualified Health Plan, the Blue Shield Silver Seven 3750 meets the 70% actuarial value for the Silver metal tier designation. (Silver 70% actuarial value means that the average member of the health plan will have 70% of his or her health care expenses covered by the health plan.) Even though the Blue Shield Silver Seven 3750 meets all the elements of a Qualified Health Plan, Covered California has chosen to only offer their standard benefit design health plans. However, the Blue Shield Silver Seven 3750 meets the ACA requirements for a Qualified Health Plan and satisfies the requirement that tax payers have credible health insurance. In general, most non-standard benefit design health plans sold off-exchange usually have lower premium rates compared to Covered California standard benefit design plans. Only Qualified Health Plans purchased through a Marketplace Exchange such as Covered California or Healthcare.gov are eligible for the Premium Tax Credits.
Eligibility For Premium Tax Credits
Covered California, the ACA Marketplace Exchange for California, determines which plans will be offered to consumers that are eligible for the Premium Tax Credits. The primary role of Covered California is to determine the eligibility for the Premium Tax Credits for an individual or family applying for health insurance. The applicant can then decide if they want the estimated Premium Tax Credits (based on their estimated income and household size) to be advanced on a monthly basis or take the Premium Tax Credit when they file their federal income taxes. It is the Advance Premium Tax Credits (APTC) on a monthly basis that make the Qualified Health Plans affordable under the rules of the ACA.
Minimum Essential Coverage To Avoid Shared Responsibility Payment
The ACA also implemented rules that restricted or squelched alternative health plans. For instance, only enrollment in a Qualified Health Plan, on or off the exchange, with or without the eligibility for the Premium Tax Credits, will be recognized by the IRS as credible health insurance with minimum essential coverage (MEC). Enrollment in credible health insurance means the tax payer and his or her household are not subject to the Shared Responsibility Payment, more commonly referred to as the Individual Mandate.
Obamacare Plans Eligible for Premium Tax Credits
To summarize, the federal government is not selling health insurance. The ACA set the rules for health plans that are eligible for the Premium Tax Credits and meet minimum essential coverage for satisfying the IRS Shared Responsibility Payment. The states, through their insurance departments, can approve plans that meet the Qualified Health Plan standards. Most health insurance companies are only offering health plans that meet the Qualified Health Plan standard. People can still enroll in short term medical insurance or enroll in medical and hospital indemnity plans, but they don’t meet minimum essential coverage for either the PTC or Shared Responsibility Payment.
An Obamacare health plan is one that meets the Qualified Health Plan standards, is minimum essential coverage for tax payers to avoid the Shared Responsibility Payment, and may be eligible for Premium Tax Credits. However, Obamacare health plans are only one part of the Affordable Care Act that made expanded Medicaid available to states for low income residents and made changes to Medicare as well as small and large employer group health plans.