BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

The Basics Of Buying Health Insurance Under The Affordable Care Act

Forbes Finance Council

Justin Brock is Chief Operations Officer of Bobby Brock Insurance whose agents specialize in Medicare.

If someone does not receive health insurance through their employer, parents, Medicaid or Medicare, another option is to purchase a private insurance plan on a health care exchange, the virtual marketplaces for health insurance. But before shopping, it is important to understand the basics about health care under the Affordable Care Act (ACA).

I have helped over 2,000 families navigate the marketplace since the ACA went live. We have navigated the ups and downs of it since then, and the platforms have come a long way. Before I dive into the details of the ACA, here are some key points:

1. The health care exchanges are where people and small businesses can purchase their own insurance. The open enrollment period to buy is between November 1 and December 15. There is a Special Enrollment Period for those who qualify.

2. The total cost of health care depends on the premiums, deductibles, copayments, coinsurance and out-of-pocket maximum written in the plan.

3. Depending on their household income, some buyers may qualify for savings options through premium tax credits and cost-sharing reductions (CSRs).

ACA Overview

The ACA is not a health insurance plan. It created the exchanges, where people and small businesses can purchase their insurance. Some states opted to individually run their exchange; however, most states use the national exchange (HealthCare.gov). The open enrollment period is November 1 through December 15 of the previous year (i.e., to shop for 2021 coverage, enrollment is November 1, 2020 through December 15, 2020). Special enrollment is available outside this period for individuals with a qualifying life event. An insurance agent can help someone navigate enrollment and the exchange to find the best-priced plan that fits their needs.

All the plans available on the exchange are major medical plans; they meet ACA requirements and cover the 10 essential benefits. However, the payment schemes for these benefits vary by plan. Coverage for preventive services may also differ by plan.

People shopping plans outside the open enrollment period or seeking short-term coverage can consider a temporary major medical plan. Temporary plans are not compliant with the ACA coverage requirements and do not cover preventive or preexisting conditions, but still provide strong medical benefits. Temporary plans can be purchased through an insurance agent. They are more affordable, and with simplified underwriting, the plans can be effective immediately, making them ideal for filling a gap in insurance of up to three years.

The Cost Of Coverage

The total cost of a health insurance plan is derived from several sources: premiums, deductibles, copayments (copay), coinsurance and out-of-pocket-maximum. Premiums are the monthly bill a policyholder pays for their insurance, regardless of their health care usage. The deductible is the threshold a policyholder must pay before insurance pays for anything. Copay is the amount someone must pay, out of pocket, each time they receive medical care, and coinsurance is the percentage of costs someone must pay for care after they have reached their deductible. The out-of-pocket maximum is the amount someone must pay, out-of-pocket, before their insurance begins covering 100% of costs for the remainder of the year or benefit period.

The ACA established levels of major medical plans based on their out-of-pocket maximums. These are the metal plans: Bronze, Silver, Gold and Platinum. On average, someone with a Bronze plan would pay about 40% of costs, 30% with Silver, 20% with Gold and 10% with Platinum. Bronze plans have lower monthly premiums but higher costs when a policyholder receives care. Platinum plans have the highest monthly premiums but the lowest costs when care is sought. An additional option of care is catastrophe insurance.

Provider Networks

When shopping for a plan, potential buyers should keep in mind the providers (doctors, therapists and facilities such as hospitals or urgent care) they use. Insurance plans differ based on the medical providers available to a policyholder. The four main types of managed care plans are:

1. Health Maintenance Organizations (HMOs): These usually limit their coverage to only include providers within their network, except during an emergency. These plans focus on prevention and wellness.

2. Preferred Provider Organizations (PPOs): Care received from providers within the network costs less than care from outside providers. A policyholder can pay to see specialists without a referral.

3. Point-Of-Service (POS): Care received from providers within the network costs less, and these plans usually require a referral from a primary care provider to see a specialist.

4. Exclusive Provider Organization (EPO): These plans limit their coverage to only include providers within their network, except during an emergency.

Eligibility For Financial Aid

Depending on their expected household income, a buyer may be eligible for pricing discounts. Their estimated household income is the sum of the income cited for their taxes and all additional tax-exempt incomes (but not Supplemental Security Income), adjusted for any foreseeable raises, job changes or changes in household size. Based on their estimate, a buyer may qualify for a premium tax credit and/or a CSR. If an applicant's estimated income is 100%-400% of the federal poverty line for their household size, they qualify for a premium tax credit, which can be applied to monthly premiums. The amount of tax credit is determined by household income and number of dependents. CSRs are available to people with a household income at or below 250% of the federal poverty line and who have purchased a Silver plan. A CSR reduces deductibles and out-of-pocket costs.

A marketplace application can be completed on paper and mailed in, online at HealthCare.gov or with an insurance agent. The application will cover the information needed for financial aid: Social Security number(s), employer income information (W-2s, wage or tax statements) and policy number(s) of any current health insurance may all be needed. Applicants will be notified of the savings amount they qualify for. They can then shop on the exchange and see their discounts applied directly to each plan's pricing.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice concerning your specific situation.


Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?


Follow me on LinkedInCheck out my website