What Is ACA-Compliant Health Insurance?
The Affordable Care Act (ACA, also known as Obamacare) ushered in numerous new health insurance regulations. We often hear health coverage described as being “ACA-compliant,” but what does that mean?
ACA compliance is required for most types of health coverage, but the specifics vary from one type of health plan to another. This article explains how ACA compliance works for each type of health coverage.
Rules Vary by Group Size
Most people with private health insurance in the United States get their coverage from an employer. In fact, employer-sponsored health plans cover nearly half of all Americans. More than a third of the rest of the population has government-run coverage (Medicare, Medicaid, CHIP, etc.).
Only a small fraction of the population has individual/family coverage (i.e., self-purchased health plans). However, these are the plans that tend to get the most attention when we talk about ACA compliance.
The ACA’s regulations extend to employer-sponsored health plans as well, and across individual/family health plans and employer-sponsored health plans, most policies are ACA-compliant.
But the specifics of how the ACA regulates the coverage differs significantly. And even if we only consider employer-sponsored plans, the ACA’s rules vary depending on how many people the business employs.
As a general rule, nearly all health insurance policies with effective dates of January 2014 or later are required to be fully ACA-compliant (we’ll discuss plans with earlier effective dates in a moment).
But “fully ACA-compliant” means different things for different types of coverage. Here’s a general summary of what it means for a health plan—effective January 2014 or later—to be ACA-compliant, depending on how the coverage is obtained.
Individual/Family Coverage
Individual/family health plans are policies that people purchase on their own, as opposed to obtaining from an employer. These plans can be purchased in the health insurance exchange or directly from a health insurance company. Note that subsidies are only available if the coverage is purchased in the exchange.
Here’s how ACA compliance works for individual/family health plans:
Policies are guaranteed-issued during open enrollment or special enrollment periods.
Pre-existing conditions are covered, and medical underwriting cannot be used.
Premiums can only be based on age (three-to-one maximum ratio), location, tobacco use, and the number of family members enrolling in coverage.
Policies must cover the essential health benefits, with a cap on out-of-pocket costs for in-network care.
Policies cannot impose annual or lifetime dollar limits on any essential health benefit.
Young adults can remain on a parent’s plan until age 26.
Medical loss ratio rules require these plans to spend at least 80% of premiums on medical care and quality improvements.
Small Group Coverage
In most states, “small group” means that the employer has up to 50 employees. But there are four states (California, Colorado, New York, and Vermont) where businesses with up to 100 employees obtain health coverage in the small group market.
The rules for ACA compliance in the small group market are essentially the same as the rules that apply in the individual/family market:
Polices are guaranteed-issue for small businesses to purchase year-round (there’s a one-month window each fall when employers can enroll if they don’t meet the normal participation or employer contribution requirements; for employers that do meet those requirements, plans are available for purchase at any time). Employees can join when they’re initially eligible, during open enrollment, or during a special enrollment period.
Pre-existing conditions are covered.
Premiums can only vary based on age, location, tobacco use, and family size.
Policies must cover the essential health benefits, with a cap on out-of-pocket costs for in-network care.
Policies cannot impose annual or lifetime dollar limits on any essential health benefit.
Young adults can remain on a parent’s plan until age 26.
Medical loss ratio rules require these plans to spend at least 80% of premiums on medical care and quality improvements.
Large Group Coverage (Including Self-Insured Coverage)
Employers with 51 or more employees (or 101 or more employees in California, Colorado, New York, or Vermont) can obtain coverage in the large group market.
Most large employers choose to self-insure instead of purchasing health coverage from an insurance company. Self-insured plans are still required to be ACA-compliant, but self-insured plans are allowed to follow large group rules, even if the self-insured business has fewer than 50 employees.
(And unlike fully-insured large group plans, self-insured plans or any size are not subject to state rules, mandates, or regulations. State rules can go beyond what the ACA requires, but they do not apply to self-insured plans.)
Large group and self-insured health plans are ACA-compliant, but the ACA rules that apply to them are not the same as those of individual and small group health plans. For large group and self-insured plans, ACA compliance means:
Policies are guaranteed-issue for businesses to purchase year-round. Employees can enroll when they’re initially eligible, during the annual open enrollment period, or during a special enrollment period. As soon as coverage takes effect, pre-existing conditions must be covered without a waiting period.
Policies must provide minimum value (cover at least 60% of healthcare costs for a standard population, and provide substantial coverage for inpatient and physician services) and be considered affordable (for just the employee, but not necessarily for family members), or else the employer risks a penalty under the ACA’s employer mandate.
Policies must fully cover the cost of certain preventive care. The rest of the essential health benefits are not required to be covered, but most large group plans do cover them. For any essential health benefits covered under a large group plan, there cannot be any dollar limits on annual or lifetime benefits.
The same out-of-pocket maximum that applies to individual and small group plans applies to large group plans.
Young adults can remain on a parent’s plan until age 26.
Medical loss ratio rules apply to fully-insured large group plans (they must spend at least 85% of premiums on medical costs and quality improvements), but they do not apply to self-insured plans.
Grandfathered and Grandmothered Plans
All individual/family and employer-sponsored plans with effective dates of January 2014 or later are required to be fully compliant with the ACA. As noted above, “fully compliant with the ACA” can mean different things for different plans.
But what about health plans that took effect prior to 2014 and have remained in effect ever since? These plans are either grandfathered or grandmothered, depending on when they took effect. And although they are not required to be fully compliant with the ACA, they do have to follow some of the ACA’s rules.
Grandmothered plans, also known as transitional plans, took effect after the ACA was signed into law, but before 2014. These plans exist in the individual/family and small group markets in the majority of the states. And the federal government has chosen to let these plans continue to renew until further notice, at the discretion of states and the insurance companies.
But some states no longer allow them (or never allowed them), and in other states, insurers have chosen to discontinue their transitional plans and replace them with ACA-compliant plans.
Grandfathered health plans exist in the individual/family, small group, and large group markets. These plans were already in effect when the ACA was enacted in March 2010 and are specifically addressed in the law.
As long as they don’t make any significant changes, they’re allowed to remain in effect indefinitely (although insurers can choose to terminate them and replace them with ACA-compliant coverage).
As far as ACA compliance, some ACA rules do apply to grandmothered and grandfathered plans:
Grandmothered plans must fully cover the cost of certain preventive care (the same as fully ACA-compliant plans), but grandfathered plans do not have to provide this coverage.
Neither is required to cover any other essential health benefits. For those they cover, they cannot impose lifetime benefit limits. Grandmothered plans and employer-sponsored grandfathered plans are also prohibited from imposing annual benefit limits on any essential health benefits they cover. But grandfathered individual/family plans can still impose annual benefit limits.
Both types of coverage are required to allow young adults to remain on a parent’s plan until age 26.
Pre-existing conditions do not have to be covered. Nobody has been able to purchase these plans since 2010 or 2013, respectively. But for people who have continued to maintain coverage under one of these plans with a pre-existing condition exclusion, that exclusion can remain in place indefinitely. (Note that if you have a pre-ACA plan with a pre-existing condition exclusion or a higher-than-standard rate due to medical history, it's almost certainly in your best interest to switch to an ACA-compliant plan that will cover pre-existing conditions without medical underwriting.)
Medical loss ratio rules apply to grandmothered and grandfathered plans.
Health Plans Not Regulated by the ACA
In addition to the plans described above, various other types of health coverage simply aren’t regulated by the ACA. These include short-term health insurance, fixed indemnity plans, healthcare sharing ministry plans, travel medical insurance, and Farm Bureau health plans.
These plans—some of which are specifically designated as non-insurance and thus exempt from all state and federal insurance rules—do not have to abide by any of the ACA’s consumer protections. They are also generally exempt from subsequent federal regulations.
For example, they are not required to cover the cost of COVID testing or vaccines, even though federal rules require this of nearly all types of health insurance. These fully exempt plans are not considered minimum essential coverage.
There’s no longer a federal penalty for not having minimum essential coverage. But many of the special enrollment periods that allow people to buy individual/family health coverage outside of open enrollment are only available if the person had minimum essential coverage in place within the previous two months.
If you’re enrolling in a plan that’s fully exempt from ACA regulations, be sure to read all the fine print. You may find one of these plans that’s fairly robust in terms of benefits and consumer protections. But these protections are not required under federal rules (state rules vary), so you’ll want to make sure you understand exactly what coverage you’ll have before purchasing the plan.
Summary
ACA-compliant health plans must follow rules established by the Affordable Care Act. The rules vary by group size (individual, small group, and large group); self-insured plans follow the large group rules. Grandfathered and grandmother plans have fewer rules they must follow, and some types of health coverage aren’t regulated by the ACA.
Author (s): Louise Norris
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