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- The Affordable Care Act reformed health insurance coverage in favor of consumers
- The Act requires everyone to have qualified health insurance.
- Qualified health insurance must have a minimum value
- The minimum value standard applies to all health insurance policies issued after 2014
Before the Affordable Care Act, insurers were free to offer stripped-down policies that did not provide adequate protection against medical debt. Many insured persons encumbered a large amount of debt due to annual limits and low rates of cost-sharing.
To protect policyholders, the Affordable Care Act requires essential health benefits, minimum essential coverage, expense limits, and a minimum actuarial value.
Comparison shopping is an excellent selection method for finding the best values in qualified health insurance policies. Click here to compare free health insurance quotes now!
Designing Minimum Value
In the build-up to the enactment of the Affordable Care Act, the Congress considered many models for determining adequate coverage. Based on studies of population groups and employer-sponsored coverage, they arrived at a consensus on minimum value.
The Congress approved a formula designed to pay at least 60 percent of the total medical costs of a standard US population. The minimum level included the Congress’ view that plans also needed a substantial level of medical care and inpatient hospital services.
Computing Minimum Value
The Department of Health and Human Services issued a final rule on computing the actuarial value needed to meet the minimum value requirement of the Affordable Care Act. The IRS issued similar guidance.
The essential formula requires dividing the costs of essential health benefits in a given plan by the total cost of those essential benefits. Then, the process must convert the result into a percentage. The total costs include copays, coinsurance, and insurance cost sharing.
The Goal of Adequate Coverage
The proponents of the Affordable Care Act focused on several widespread industry practices that were persistent and harmful to consumers. For example, many policies offered coverage that would not support typical demands of a significant illness.
Insurers used annual and lifetime limits, exclusions, and many other contract provisions to protect profits.
By using such provisions, insurers exposed their subscribers to risks of heavy medical debt as policy protections might disappear when needed most; this pattern included non-renewal of costly policies.
The Individual Mandate
The individual mandate of the Affordable Care Act is the provision that requires eligible citizens to get and keep qualified health insurance.
The individual mandate requires insurance coverage that meets or exceeds the quality standards of the law. These standards include a minimum actuarial value for each policy.
The flip-side of the individual mandate is the universal or guaranteed acceptance. As of 2014, the Affordable Care Act banned the use of pre-existing conditions by insurers to deny insurance coverage.
All financially qualified applicants can get a guaranteed issue health policy that meets the requirements of the Affordable Care Act. Qualified health insurance avoids the tax penalty for no insurance.
Qualified Health Insurance
The individual mandate has a tax penalty for those that fail or refuse to get coverage. To avoid the penalty, one must have qualified health insurance or an exemption from the mandate.
Qualified health plans have Minimum Essential Coverage. The Minimum Essential Coverage consists of the below-listed elements.
- Have a minimum actuarial value of 60 percent.
- Have annual limits on deductibles and out-of-pocket expenses.
- Cover 10 Essential Health Benefits.
Open Enrollment and Exceptions
The right to buy qualified coverage on the marketplace depends on the open enrollment period. This official period is the time the government guarantees purchase rights. After open enrollment, the general rule is that no one can purchase qualified insurance without a recognized exception.
- Extension of enrollment period by the federal or a state government.
- Special enrollment period based on qualifying life events.
- Special Enrollment based on status such as persons returning to the US after living abroad.
The concept of actuarial value is the method for comparing the value of different types of health insurance policies. The Marketplace groups the four types of Obamacare policies y tiers. The tiers reflect their actuarial value. The four types have the below-described actuarial values.
- Platinum plans have an actuarial value of 90 percent or more. They cover 90 percent of the costs of essential benefits with insurance payments or costs sharing.
- Gold plans have an actuarial value of 80 percent or more.
- Silver plans have the middle range actuarial value of 70 percent. These plans can pair with Health Savings Accounts and high deductibles.
- Bronze plans have the lowest actuarial value at 60 percent. The bronze level is the lowest permissible level of insurance participation in costs.
Minimum Actuarial Value in Obamacare
The rules require that every qualified policy must meet the minimum value standard. The minimum standard cost sharing in Obamacare is 60 percent insurance-paid on essential benefits.
The Obamacare Bronze tier plans represent the minimum value standard. Bronze-level policies have high deductibles, provide 60 percent cost-sharing, and 40 percent coinsurance.
Cost Sharing and Minimum Value
In simple terms, insurance payments begin after the subscriber exceeds the deductible threshold. After passing the deductible amount, the insurer pays 60 percent of the costs of each covered benefit. The insurer leaves 40 percent for the consumer’s account.
Once at the overall limit for expenses or deductibles, the insurer must pay the entire costs of covered benefits. The deductible triggers payments, and the cost-sharing provision determines the percentage the insurer pays.
Obamacare Marketplace Plans have Minimum Value
All plans approved for sale of the Obamacare Marketplace have the required elements for qualified health coverage including minimum actuarial value.
The four types of Obamacare plans each exceed 60 percent actuarial value.
State exchanges also have the power to authorize subsidies and financial assistance. Plans approved by state exchanges meet the requirements of the ACA.
Major Medical have Minimum Value
Employer-sponsored plans that meet the requirements of the Affordable Care Act have a minimum actuarial value of sixty percent or greater. Major medical plans were part of the sampling that the Obama Administration used to develop minimum value.
Grandfathered plans have minimum actuarial value, if they change, they can fall below the minimum. Grandfathered plans must report changes to their subscribers.
Defining Minimum Value
The Obamacare legislation introduced the standard for minimum value as part of the massive reform of the US health insurance industry.
The definition is that minimum value must cover 60 percent of the costs of essential benefits and provide a sufficient level of coverage for medical care and hospitalization.
Comparison shopping is an excellent tool for selecting among qualified health plans on and outside of the Obamacare Marketplace. Enter your zip code below now to compare free health insurance quotes!
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