Why Health Insurance Affordability Matters: Key Factors to Consider

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Health insurance 101

The Importance of Affordable Health Insurance

When it comes to health and wellness, the importance of affordability in healthcare cannot be understated. Looking forward, affordability for health insurance will become even more crucial, given rising medical expenses and uncertainties surrounding public health. Health insurance premiums are expected to increase between 5% to 8% in 2024 due to medical inflation.

Having affordable health insurance can be the determining factor for many families in whether or not they can receive vital medical care. Unforeseen health issues can place a heavy financial burden on individuals. Without insurance, these sudden expenses can push families into debt or even bankruptcy. In fact, medical debt is the leading cause of bankruptcy in the United States.

Furthermore, affordable health insurance facilitates access to necessary medical care and promotes the early detection of diseases. With regular check-ups and preventive care, conditions can be diagnosed and treated early, saving costs and improving health outcomes in the long run.

What is the affordability percentage under the ACA and state law?

For the 2023 Calendar Year, employer-sponsored coverage is considered affordable if the employee's share of the premium for the lowest-cost plan to cover the employee only (not including the family) is not more than 9.12% of the employee's household income per calendar year. This Safe Harbor calculation gives employers a predetermined maximum amount that will always result in the coverage being deemed affordable.

The IRS has announced that the 2024 health plan safe harbor affordability threshold will be 8.39% of an employee's household income. 

Overview of Obamacare Insurance

Historically, the US health insurance landscape underwent a significant shift with the introduction of Obamacare. The primary goal behind this legislation was to make health insurance more affordable for millions of uninsured Americans.

At its core, Obamacare, formally known as the Affordable Care Act (ACA), focused on increasing the affordability of health insurance. Through its marketplace, individuals and families could compare and enroll in health plans that best fit their needs. Subsidies, calculated based on household income and the federal poverty level (FPL), were provided to make these plans more affordable.

One notable case study is that of a family earning just above the poverty line. Before the ACA, they might have struggled to secure health insurance coverage. With the subsidy offered under Obamacare, they were able to enroll in comprehensive health plan coverage at a fraction of the original cost.

Employer considerations

Employers should review the required employee contribution for 2024 coverage if they plan to meet the ACA’s affordability limit under the applicable safe harbor. For the many plans using the FPL affordability safe harbor, the considerations differ for calendar- and noncalendar-year plans. 

Key Features of ACA/Obamacare Health Insurance

The ACA introduced several key features that aimed to reduce the cost of health insurance. Central to this was the premium tax credit, a form of subsidy offered to those whose incomes fall between 100% and 400% of the FPL. This tax credit ensured that insurance premiums would not exceed a specific percentage of one's household income

Additionally, the ACA established essential health benefits that every health plan must cover, making sure people receive comprehensive care. It also eliminated the penalty for pre-existing conditions, ensuring that everyone, regardless of health status, could access affordable insurance.

Impact of Affordable Care Act on Health Insurance Affordability

The ACA had a transformative effect on the health insurance market. Thanks to this legislation, over 20 million people, previously uninsured, gained insurance coverage. 

The ACA was instrumental in fostering affordability in the health insurance sector. The provisions of the Act specifically targeted improving affordability.

To clarify, the ACA established the marketplace - a platform where people could compare and buy insurance plans. The premium tax credit was introduced, ensuring that low-to-middle-income families wouldn't spend more than a specific percentage of their income on premiums. This was determined using a sliding scale based on the FPL.

Moreover, the ACA eligibility criteria expanded Medicaid to cover more low-income adults and there will be a 4980H Penalty by the IRS. It introduced measures like the employer mandate, the penalty 4980H IRS requires large employers to offer affordable health insurance. Employers exceeding the threshold of 50 full-time employees were obligated to provide coverage with a certain minimum employer contribution, and those not complying faced the 4980H penalty by the IRS.

Furthermore, the ACA has established the safe harbor provisions, protecting employees from having to spend over a particular percentage of their wage (whether salaried or hourly wage) on health insurance.

Key Questions Addressed:

  • What is Affordability in Healthcare? This pertains to the economic accessibility of healthcare services, ensuring they don't strain a person's financial capacity.
  • What is the Cost of Obamacare? While the cost varies based on several factors like location, household size, and income, subsidies like the premium tax credit can reduce the cost for eligible families.
  • What are the Levels of Coverage under the ACA? The ACA offers four levels - Bronze, Silver, Gold, and Platinum, each differing in premiums, out-of-pocket costs, and benefits coverage.
  • Is Obamacare an Insurance Plan? No, Obamacare (ACA) is a law that encompasses various provisions, including creating a marketplace for insurance plans.
  • What is Medicare? The Medicare program was established in 1965 in response to high medical costs among older Americans, many of whom did not have access to other insurance options such as employer-sponsored insurance.
  • What is the Income Limit for Obamacare Subsidies? Subsidies are based on income, and there's a ceiling for eligibility, often set at 400% of the FPL.
  • What is the purpose of coinsurance provisions? Coinsurance is a clause used in insurance contracts by insurance companies on property insurance policies such as buildings. This clause ensures policyholders insure their property to an appropriate value and that the insurer receives a fair premium for the risk.
  • What is employer-shared responsibility payment (ESRP)? The Affordable Care Act requires certain employers with at least 50 full-time employees (or equivalents) to offer health insurance coverage to their full-time employees (and their dependents) that meets certain minimum standards set by the Affordable Care Act or to make a tax payment called the ESRP.
  • What is the minimum amount of hours to get health insurance? 30 hours per week. Some federal laws also require that benefits be offered to part-time employees: The Affordable Care Act (ACA) requires employers to offer health insurance to employees working hourly at least 30 hours per week (or 130 hours per month) to avoid paying penalties.
  • What is the open enrollment period? Open enrollment is a window of time that happens once a year — typically in the fall — when you can sign up for health insurance, adjust your current plan, or cancel your plan. It's usually limited to a few weeks. If you miss it, you may have to wait until the next open enrollment period to make any changes.
  • What does an Applicable Large Employer (ALE) have to do? An ALE has to offer contribution of a certain amount of their full-time employees' premiums, so the healthcare plan is considered affordable. This means the lowest-cost self-only coverage can't exceed a set threshold of an employee's household income, providing a safe harbor so employer know when they're in compliance with the law.
  • How does a deductible work for health insurance? A deductible is the amount you pay for health care services before your health insurance begins to pay. 

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