17.2 The Affordable Care Act: EHBs, Marketplaces, Subsidies, Mandates
Key Takeaways
- The **Affordable Care Act (ACA)** mandates **guaranteed issue** and **modified community rating**, allowing premium variation only by age (3:1), tobacco (1.5:1), geography, and family tier.
- Every individual and small-group plan must cover the **10 Essential Health Benefits (EHBs)** with **no annual or lifetime dollar limits** on those benefits.
- Marketplace plans use metal tiers (**Bronze 60% / Silver 70% / Gold 80% / Platinum 90%** actuarial value) describing the share of costs the plan pays.
- The **Premium Tax Credit (PTC)** is income-based and reconciled on **Form 8962** using **Form 1095-A**; **cost-sharing reductions** attach only to Silver plans.
- The federal **individual mandate penalty is $0** since 2019, though guaranteed issue and the **employer shared-responsibility** mandate remain in force.
What the ACA Changed
Signed March 23, 2010, the Affordable Care Act (ACA) is the largest health-coverage overhaul since Medicare and Medicaid. It attacked four pre-reform problems: denial for pre-existing conditions, high uninsured rates, coverage gaps, and dollar caps on benefits.
The Supreme Court upheld the law repeatedly — NFIB v. Sebelius (2012), King v. Burwell (2015, subsidies allowed on the federal exchange), and California v. Texas (2021). The 2012 ruling made Medicaid expansion optional, the single most-tested ACA court outcome.
Core Consumer Protections
- Guaranteed issue — insurers must accept all applicants; no medical underwriting in individual/small-group markets.
- Modified community rating — premiums vary only on four factors below.
- Dependent coverage to age 26 — regardless of marital, student, residency, or employment status (grandchildren excluded).
- Preventive services covered at $0 cost-sharing in network.
| Rating factor | Maximum variation |
|---|---|
| Age | 3:1 (oldest pays up to 3× youngest adult) |
| Tobacco use | 1.5:1 |
| Geographic rating area | Varies |
| Family tier | Individual vs. family |
Prohibited factors: health status, gender, claims history, occupation, and genetic information.
The 10 Essential Health Benefits
Every non-grandfathered individual and small-group (≤50 employees) plan must cover all ten Essential Health Benefits (EHBs) with no annual or lifetime dollar limits:
- Ambulatory (outpatient) services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance-use treatment
- Prescription drugs
- Rehabilitative and habilitative services
- Laboratory services
- Preventive/wellness and chronic-disease management
- Pediatric services, including dental and vision
Trap: Adult dental and vision are not EHBs — only pediatric dental/vision are required. Large-group and self-insured plans need not cover the full EHB package.
Subsidies, the metal tiers, and the worked-rating example
Two income-based subsidies make Marketplace coverage affordable, and they behave differently:
| Subsidy | What it lowers | Where it attaches |
|---|---|---|
| Premium Tax Credit (PTC) | The monthly premium | Any metal tier; reconciled on Form 8962 using Form 1095-A |
| Cost-Sharing Reduction (CSR) | Deductibles/copays/coinsurance | Silver plans only |
The metal tiers describe actuarial value — the share of total costs the plan is expected to pay: Bronze 60% / Silver 70% / Gold 80% / Platinum 90%. A higher tier means higher premium but lower out-of-pocket cost.
Worked rating example: ACA permits premium variation only on four factors. A 60-year-old tobacco user in a high-cost region could be charged the 3:1 age band times the 1.5:1 tobacco factor relative to a young nonsmoker — but never more for gender or health status, both of which are prohibited rating factors.
Which of the following is NOT one of the ten Essential Health Benefits required of ACA-compliant individual plans?
Marketplaces and Metal Tiers
The Health Insurance Marketplace (Exchange) lets individuals shop standardized plans. Plans are grouped by actuarial value (AV) — the average share of covered costs the plan pays:
| Metal tier | Plan pays (AV) | Enrollee pays |
|---|---|---|
| Bronze | ~60% | ~40% |
| Silver | ~70% | ~30% |
| Gold | ~80% | ~20% |
| Platinum | ~90% | ~10% |
Bronze means low premium, high out-of-pocket. Catastrophic plans exist for those under 30 or with hardship exemptions. Open enrollment runs annually; outside it, a Special Enrollment Period (SEP) requires a qualifying life event (marriage, birth, loss of coverage, move).
Subsidies: Premium Tax Credits and Cost-Sharing Reductions
Two distinct subsidies lower marketplace costs:
- Premium Tax Credit (PTC) — an income-based, refundable credit pegged to the second-lowest-cost Silver plan (benchmark). It can be taken in advance to cut monthly premiums on any metal tier.
- Cost-Sharing Reductions (CSRs) — lower deductibles and copays, but only on Silver plans for lower-income enrollees.
Reconciliation: The marketplace issues Form 1095-A; the enrollee reconciles advance PTC against the actual credit on Form 8962, filed with Form 1040.
| Advance PTC vs. actual | Result |
|---|---|
| Advance < actual | Extra refundable credit |
| Advance > actual | Repay the difference |
Trap: CSRs attach to Silver only — picking Bronze to get the PTC forfeits cost-sharing help.
The Mandates Today
The individual mandate still legally exists, but Congress zeroed the federal penalty effective 2019 — there is no federal tax for being uninsured (some states impose their own). Guaranteed issue survives without it.
The employer shared-responsibility mandate still applies to Applicable Large Employers (50+ full-time-equivalent employees): they must offer affordable, minimum-value coverage or face a penalty. The Medical Loss Ratio (MLR) rule also persists — insurers must spend 80% (individual/small group) or 85% (large group) of premium on care or issue rebates.
An ACA marketplace enrollee qualifies for cost-sharing reductions. To actually receive lower deductibles and copays from the CSR subsidy, which metal tier must she enroll in?