What health insurance is considered affordable under ObamaCare?
Affordable insurance coverage has more than one definition under Obamacare. It means that insurance premiums must never cost more than 9.5 percent of adjusted family income. It also means that insurance purchased through the Obamacare exchanges and healthcare.gov must not cost more than eight percent of family income.
Employer-based policies use employee income as the basis for the determination, and Marketplace policies use the household annual adjusted income.
Comparison shopping is the best way to evaluate affordable health insurance plans. It is also an excellent tool for assessing options including whether to take an affordability exemption or use affordable employer plans that cost more than eight percent of annual income. Compare health insurance rates now by using our FREE tool above!
Affordability of Employer Plans
Employer plans that cost too much violate a central goal of the Affordable Care Act which is to promote low-cost health insurance coverage. The 9.5 percent of MAGI is the test for affordability in employer-based plans which receive employer contributions. The ACA caps the employee contribution at 9.5 percent of annual income.
Options with Affordable Employer Plans
When an employer-sponsored plan costs less than 9.5 percent of household income, the employee, and any eligible family members may not get cost assistance in the Obamacare marketplace. This definition of Affordable Insurance applies to employer-sponsored plans and expresses a clear ACA preference for job-based coverage where available. Persons offered employer coverage that costs less than 9.56 percent of family MAGI cannot get cost assistance through the Obamacare Marketplace. Families subject to the employer based 9.5 percent rule can access the below-listed coverage benefits at Healthcare.gov.
- Families with access to affordable employer coverage can still qualify for CHIP
- Families with access to affordable employer coverage can still qualify for Medicaid
- Families with access to affordable employer coverage can still qualify for Medicaid Expansion
The Eight Percent Affordability Rule
The eight percent rule uses the Modified Adjusted Gross Income (MAGI) to determine whether a resident qualifies for an exemption due to affordability and hardship. The IRS added to the employer definition by amending the 9.56 percent employee expense ceiling to 9.66 percent for the calendar year 2016.
The Individual Mandate
Everyone must get coverage and maintain it throughout the year. Those who can afford health insurance and decide not to get it will have to pay a penalty unless they qualify for an exemption. In the calendar year 2016, the penalty for a resident’s failure to get and keep coverage is $695 per individual, $347.50 for each minor, and up to a total of $2,085 for a family.
The Affordability Exemption
Residents will not have to pay a coverage penalty when the lowest cost coverage exceeds eight percent of household MAGI. It is possible for residents to have an exemption due to the eight percent rule but not have eligibility to participate in the Obamacare marketplace when coverage costs more than eight percent. The preference for employer coverage leaves many potential uninsured persons with a hard choice of paying more than they should or taking an exemption and going without qualified coverage. The affordability exemption goes to the penalty phase of the individual mandate.
Rather than pay a penalty for each month uncovered, the exemption wipes out the duty to get and keep insurance.
Residents may have options that they can evaluate by comparison shopping. For some, it would be better to use employer insurance than go without insurance even if that policy exceeds 8 percent of income but is less than 9.5 percent of household income.
Affordability by Household or Employee Income
Affordability can yield different results when measured by household income rather than individual or single employee income. The government can fine employers whose employees get marketplace policies because company coverage exceeds 9.5 percent of income. To avoid a large fine, most employers use the W-2 income for an individual employee to determine affordability. Nine and one-half percent of the W-2 amount is a safe harbor method for determining affordability for employer plans. The result can be that insurance costs more than 8 percent of MAGI.
When employer coverage costs more than eight percent of MAGI for any family member, that can get an exemption from the individual insurance mandate. Families that cannot get cost assistance benefits because eligible for an affordable employer plan can still qualify for Children’s Health Insurance Programs and Medicaid.
The Eight Percent Rule
Individuals can qualify for an insurance mandate exemption when the lowest cost Bronze plan exceeds eight percent of household income for any household member. The eight percent rule applies to marketplace plans for those without access to employer-sponsored insurance.
Coverage costs cannot exceed eight percent of annual family income.
The rules exclude those with offered, affordable employer coverage excluded from the benefit of the eight percent provision. The combination means that the individual cannot get marketplace costs assistance if offered employer coverage. The eight percent rule does not disqualify a person from getting marketplace assistance; however, it does mean that the lowest priced policy is beyond the affordable threshold.
Types of Affordable Plans
The Obamacare Marketplace divides plans into four types, and the government marks them with a metal name- Platinum, Gold, Silver, and Bronze. The plans have a common connection of actuarial value based valuation of a number of essential benefits paid by insurance versus the amount paid by the consumers. The affordable nature of these plans means that each covered person must pay eight percent or less of household income for coverage. The below-listed types of plans each meets the eight percent standard for marketplace plans. The eight percent standard shows that plans can be affordable for one purpose under Obamacare and not affordable in another. If the family income standard gives a different percentage result than the employee income standard, then the same policy can be unaffordable for different members of a single household. If the self-only coverage for a family member exceeds eight percent, they can get an exemption.
- Platinum Plans: have an actual average value of 90 percent. They have low deductibles and out of pocket costs with high premiums.
- Gold Plans: have an actuarial value of about 80 percent. They have high premiums and moderate deductibles and expenses.
- Silver Plans: have an average actuarial value of 70 percent; they feature health savings accounts and payment assistance. They have a wide range of deductibles and expenses.
- Bronze Plans: have an actuarial value of 60 percent. The insurance provider pays sixty percent of the essential benefits while the consumer pays forty percent. Bronze plans have low premiums; they qualify for payment assistance, and premium assistance.
These affordable plans have minimum essential health benefits and meet the individual mandate for required individual insurance coverage. Comparison shopping provides a useful framework for assessing the benefits of marketplace plans. Enter your zip code in our FREE tool below to compare health insurance quotes now!