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Thursday, November 21, 2013

How Does the Affordable Care Act Affect People Who Buy Health Insurance in the Individual Market?

Kathleen Stoll

Director of Health Policy

Recent public debate surrounding the Affordable Care Act (ACA) has focused on consumers who have private, individual (non-group) health insurance plans that are being terminated and the concern that those consumers may need to pay more for new coverage. Generally, people remain in the individual market because they don’t have an offer of job-based coverage.

To put this potential impact into perspective, we asked these questions: How many people are affected by these plan terminations, and how are they affected?

Today, Families USA released a report with national and state-level data that provides concrete answers to these questions.

In fact, less than 1 percent of Americans under age 65 face the situation where they would not be offered the same individual market plan and yet would not be eligible for financial help to buy a new plan. And even these people will benefit from the many consumer protections in the Affordable Care Act.

Here’s how we calculated that number:

The individual market covers 5.7 percent of the non-elderly population—only a small slice of all insured Americans. Of that 5.7 percent, 71 percent are people with household incomes that do not exceed four times the federal poverty level ($94,200 for a family of four in 2013), which means they are income-eligible for financial help (in the form of premium tax credit subsidies) to buy coverage in the new health insurance marketplaces or for expanded Medicaid.

Of the 29 percent of people in the individual market who won’t get financial help to buy new plans, only a portion (35.5 percent) would have stayed in the individual market before the Affordable Care Act.

Conversely, the number of people who would have stayed in the individual market  beyond a year and who won’t get financial help to purchase new coverage under the Affordable Care Act is less than 0.6 percent of non-elderly Americans.

Here’s how we “do the math”: 5.7% x 29% x 35.5% = 0.6%

For those who prefer a visual explanation, see our infographic.

(The report also explains that the 0.6 percent figure is a conservative estimate for several reasons.)

The average tax credit subsidy will be $5,548 per family, which would cut premiums by 66 percent (lower-income families will get even higher tax credit subsidies). Furthermore, for the lowest-income families, Medicaid typically does not charge premiums for its very comprehensive coverage.

Now, President Obama has changed the way the Affordable Care Act is being implemented so that, if states allow it, insurance companies can renew their current policies up until October 2014 without having to comply with the health law’s new requirements. So now, even this tiny 0.6 percent group can be protected.

It’s also worth noting that there are good reasons why some individual market plans are being terminated. Before the Affordable Care Act was passed, the individual market served as a transitory, “last resort” source of insurance. Referred to as the “wild wild west” of health insurance marketplaces, it had very few consumer protections. Many essential health care services were not covered in individual market “barebones plans.” For the services that were covered, these plans often had no limits on out-of-pocket costs.

Looking forward, people in the 0.6 percent group will be protected by the Affordable Care Act’s reforms when health problems arise that would have resulted in coverage denials, benefit exclusions, or unaffordable prices before the ACA was passed.

Like any other major piece of legislation, the Affordable Care Act faces real challenges. As the debate about the health law continues, it is important to look at the facts, react with reason, and keep proper perspective. The ACA will help millions of Americans obtain new, affordable health insurance, protect them from discrimination based on pre-existing conditions, and guarantee them coverage they can count on when they need it.