The Affordable Care Act of 2010 (ACA) brings sweeping change to health insurance coverage in the United States, providing security to millions of working age people who are currently uninsured or underinsured or who may lose job-based health insurance in the future. 

 

The law also has at its heart a recognition of the needs of low- and moderate-income people who have been most affected by the nation’s inability to enact comprehensive health reform until this year.

 

 While most people in the U.S. have health insurance through an employer, the chance of having employer-based coverage declines dramatically with income. Nearly two-thirds (64.6 percent) of the 45.7 million uninsured people under age 65 are living in households with incomes of less than 200 percent of poverty, or about $44,100 for a family of four (Exhibit 1). In addition, of the estimated 25 million adults under age 65 who have such high out of pocket costs relative to their income that they are underinsured, more than half (55 percent) have incomes under 200 percent of poverty.

 

The Congressional Budget Office estimates that the ACA will cover some 32 million uninsured people over the next ten years, or about 94 percent of legal residents. About 23 million people will still lack health insurance, one third of whom will be undocumented residents who are not eligible for coverage under the law. 

 

As elements of the bill begin to be implemented, now is a good time to map out which provisions in the ACA that will help low- and moderate-income individuals and families gain access to affordable, comprehensive health insurance.

 

Medicaid expansion.

 

Beginning in 2014, the ACA expands eligibility for Medicaid for all legal residents to 133 percent of the federal poverty level, about $14,404 for a single adult or $29,327 for a family of four. This is a substantial change in the Medicaid program in its coverage of adults. Although several states have expanded eligibility for parents of dependent children, in most states income eligibility thresholds are well below the federal poverty level.  And adults who do not have children are not currently eligible for Medicaid regardless of income in most states.

 

Because almost half (46 percent) of people who are uninsured in the U.S. live in households with incomes under 133 percent of poverty, this provision will potentially have the greatest effect on increasing health insurance of all the new law’s provisions (Exhibit 1)..The Congressional Budget Office estimates that by 2019, enrollment in Medicaid will increase by 16 million people.

 

State exchanges and subsidized coverage.

 

The Affordable Care Act provides for the establishment of state or regional health insurance exchanges for individuals and small employers. New insurance market regulations will govern health plans sold both inside and outside the insurance exchanges, including the prohibition of rating on the basis of health, limits on how much premiums can vary based on age, no lifetime or annual limits on what a plan will pay, and no rescission of coverage when someone becomes ill.

 

The exchanges will provide a new, regulated marketplace in which people without access to employer-sponsored coverage that meets certain affordability and coverage standards can purchase insurance.  Qualified health plans sold through the exchange and those sold in the individual and small group markets will be required to provide a federally-determined essential benefit package.  People purchasing coverage through the exchanges will have a choice of the essential benefit package with four different levels of cost sharing: plans that cover on average 60 percent of an enrollee’s medical costs (bronze plan), 70 percent of medical costs (silver plan), 80 percent of medical costs (gold plan), and 90 percent of medical costs (platinum).  Out-of-pocket costs are limited to $5,950 for single policies and $11,900 for family policies.

 

Sliding-scale premium credits will be available to people with incomes up to 400 percent of poverty who purchase health plans through the exchanges. The credits will be tied to the silver plan and will cap premium contributions for individuals and families to about 3 percent of income at just over 133 percent of poverty ($14,404 for a single adult or $29,327 for a family of four) and gradually increase to 9.5 percent at 300 percent to 400 percent of poverty ($43,320 for a single person and $88,200 for a family of four) (Exhibit 1).

 

In addition, cost-sharing credits and lower annual out-of-pocket limits will limit cost-sharing for low- and middle-income individuals and families.  Credits will limit cost-sharing such that the costs covered by the silver plan (70 percent of costs covered) will increase to 94 percent for those with incomes up to 150 percent of poverty, 87 percent up to 200 percent of poverty, and 73 percent up to 250 percent of poverty  (Exhibit 1).  In addition, out-of-pocket expenses will be capped for families earning between 100 percent and 400 percent of poverty from $1,983 for individuals and $3,967 for families up to $3,967 for individuals and $7,933 for families.

 

This subsidized private coverage available through the exchanges has the potential to provide health insurance for up to 20 million uninsured adults and children in households with incomes between 133 percent and 400 percent of poverty, or 44 percent of uninsured people under age 65 (Exhibit 1).. About 29 percent of uninsured people, or 13.2 million, are in households with incomes between 133 percent and 250 percent of poverty.  People in this income range will benefit from premium credits that will cap their premiums from 3 percent to less than 8 percent of their income.  They will also benefit from cost-sharing credits that would limit their out-of-pocket expenditures. An additional 15 percent of uninsured people or 3.7 million have incomes of between 250 percent to 400 percent of poverty and will be eligible for premium credits that cap their contribution from 8 to 9.5 percent of their income. 

 

There are about 5 million uninsured people with incomes over 400 percent of poverty who would not be eligible for a premium subsidy through the exchanges but who would benefit from the new market regulations and standardized benefit packages with limits on cost-sharing.  The CBO estimates that about 24 million people will gain coverage through the exchanges, though not all previously uninsured, and the majority will receive premium credits.

 

The essential benefit package, the new insurance market regulations, out-of-pocket limits, and cost-sharing subsidies will also help reduce the number of people who are underinsured. Such standards and regulations will ensure that people have comprehensive health plans that both encourage the use of timely, preventive services and protect against catastrophic costs in the event of a serious accident or injury.

 

Individual mandate.

 

Beginning in 2014, all U.S. citizens and legal residents will be required to maintain minimum essential health insurance coverage through the individual insurance market or an insurance exchange, a public program, or their employer or face a penalty.  There are some exemptions: individuals who cannot find a health plan that is less than 8 percent of their income net of subsidies and employer contributions, people who have incomes below the tax-filing threshold ($9,350 for an individual and $18,700 for a family), those who have been without insurance for less than three months, and other circumstances such as religious objections. 

 

Individuals not exempt from the mandate, who cannot demonstrate on a tax form that they have health insurance, will be required to pay a penalty equal to the greater of $95 or 1 percent of taxable income in 2014, $325 or 2 percent of taxable income in 2015, and $695 or 2.5 percent of taxable income in 2016, up to a cap of the national average bronze plan premium. Families will pay a penalty of half the amount for children up to a cap of $2,085 per family.   

 

Looking forward.

 

The ability of low- and moderate-income families to either enroll in Medicaid or purchase comprehensive, subsidized private insurance without the fear of being charged a higher premium because of a pre-existing condition is a major improvement from the current situation where few, if any, options for affordable coverage exist in the absence of employer benefits.  But critical to achieving near universal coverage will be making the enrollment barrier free and seamless between different sources of coverage, as well as ensuring both the affordability of premiums and the quality of the benefit package over time.

 

Sara R. Collins, Ph.D., is Vice President of Affordable Health Insurance at The Commonwealth Fund.

 

Exhibit 1