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Monday, May 6, 2013

Overview of Private Health Insurance Provisions in the Patient Protection and Affordable Care Act (ACA)

Annie L. Mach
Analyst in Health Care Financing

Private health insurance (PHI) is the predominate form of health insurance coverage in the United States, covering about two-thirds of Americans in 2011. The Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended) includes provisions that restructure the private health insurance market by (1) implementing market reforms that impose requirements on private health insurance plans and sponsors of health insurance (e.g., employers); (2) creating marketplaces, “exchanges,” where individuals can shop for and purchase health plans that meet or exceed federal standards; (3) providing financial assistance to qualified individuals who purchase health plans through an exchange; (4) establishing an individual mandate that requires most individuals to either maintain health insurance coverage or pay a penalty; and (5) assessing penalties on certain employers that either do not provide health insurance or provide health insurance that is “unaffordable” or does not provide “minimum value.”

The ACA provisions build on and modify the existing structure of the PHI market. In the PHI market, most individuals receive coverage through the group market (i.e., from an employer or association). Prior to the passage of ACA, the group market had many protections for individuals, such as limiting pre-existing condition exclusions and prohibiting discrimination based on health status. However, access to coverage in the group market could be different depending on the size of the group. In general, the size and composition of a group can affect both an organization’s decision to offer coverage and the cost of that coverage to an enrollee. As a result, smaller groups are less likely to offer coverage than larger groups, and members of smaller groups are less likely to enroll in the coverage than members of larger groups. Some individuals purchase nongroup, or individual, coverage in the PHI market. Prior to the passage of ACA, nongroup coverage typically provided fewer protections than group coverage. For example, subject to state law, insurers offering coverage in the nongroup market could deny coverage to applicants who had pre-existing conditions or a history of health problems.

The PHI market reform provisions in ACA affect health insurance offered to groups and individuals, impose requirements on sponsors of coverage, and, collectively, establish minimum requirements with respect to access to coverage, premiums, benefits, cost-sharing, and consumer protections. Some market reforms are already in effect, such as the requirement for certain health plans to provide dependent coverage up to age 26. Beginning in 2014, when more of the market reforms take effect, certain health plans will have to offer a somewhat standardized set of benefits, called the essential health benefits (EHB), and certain health plans will have to accept all individuals who apply for coverage, regardless of health status and pre-existing conditions.

ACA’s new marketplaces, the exchanges, must be operational in every state in time for the first exchange open season, which begins October 1, 2013. Coverage under exchange plans will begin as early as January 1, 2014. In addition to individuals shopping for and obtaining nongroup health insurance coverage through exchanges, some individuals may be eligible to receive financial assistance for the cost of that coverage in the form of premium tax credits and cost-sharing subsidies. Small employers will be able to purchase coverage to offer to their employees through small business health options program (SHOP) exchanges; however, ACA limits the SHOPs to small employers with either 50 or fewer employees or 100 or fewer employees, at state option.

Another ACA requirement is that most individuals must either maintain health insurance coverage or pay a penalty. The “individual mandate” goes into effect in 2014. To comply with the mandate, most individuals will have to maintain “minimum essential coverage,” which includes coverage obtained through exchanges, employer-sponsored insurance, nongroup coverage, and coverage from a federal program such as Medicare and Medicaid. Certain individuals are exempt from the individual mandate penalty, such as those with qualifying religious exemptions and those whose household income is less than the filing threshold for federal income taxes for the applicable tax year.

Employers play an important role in providing coverage in the existing PHI market, and ACA includes two provisions that could influence an employer’s decision to offer health benefits. First, certain small employers may be eligible to receive tax credits. To be eligible, small employers cannot have more than 25 full-time equivalent employees and must contribute a uniform percentage of at least 50% to their employees’ health insurance coverage. The tax credit became available in 2010, and it is available for a total of six years. Second, beginning in 2014, ACA imposes penalties on employers with at least 50 full-time equivalent employees, if one or more of their full-time employees obtain a premium tax credit through an exchange. Individuals who meet certain requirements may be eligible for a premium tax credit if their employer does not offer health insurance coverage, or if their employer offers coverage that is “unaffordable” or does not provide “minimum value,” as defined by ACA.

This report provides an overview of ACA provisions that affect the PHI market. In general, the ACA provisions build on or modify the existing structure of the PHI market, and a short background on the existing structure is included in the report. While this report provides a broad overview of the PHI provisions in ACA, the reader may be interested in more in-depth discussions on specific aspects of the law. Appendix C directs the reader to a collection of CRS reports that provide such in-depth analysis. Additionally, a table showing key policy staff for each provision is included at the end of the report.

Date of Report: April 23, 2013
Number of Pages: 30
Order Number: R43048
Price: $29.95

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