17.2 The Affordable Care Act: EHBs, Marketplaces, Subsidies, Mandates

The Affordable Care Act

The Affordable Care Act (ACA), enacted in 2010, restructured the individual and small-group health markets around guaranteed issue, standardized benefits, and income-based subsidies. The exam tests the ACA's core consumer protections, the Essential Health Benefits (EHBs), the metal-tier system, the Marketplace (Exchange), and the premium and cost-sharing subsidies.

Core consumer protections

• Guaranteed issue: insurers must accept all applicants; pre-existing condition exclusions are prohibited.
• No lifetime or annual dollar limits on EHBs.
• Adjusted (modified) community rating: premiums may vary only by age (max 3:1), tobacco use (max 1.5:1), geographic area, and individual vs. family - never by health status or gender.
• Dependent coverage to age 26.
• Preventive services covered at no cost sharing (no deductible/copay).
• Medical Loss Ratio (MLR): insurers must spend 80% (individual/small group) or 85% (large group) of premium on claims and quality, or pay rebates.

The ten Essential Health Benefits (EHBs)

All non-grandfathered individual and small-group plans must cover ten Essential Health Benefit categories:

1. Ambulatory (outpatient) services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance-use disorder services
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Laboratory services
9. Preventive/wellness services and chronic-disease management
10. Pediatric services, including oral and vision care

Trap: adult dental and vision are not EHBs - only pediatric dental/vision are required.

Metal tiers and actuarial value

Marketplace plans are grouped by actuarial value (AV) - the percentage of total covered costs the plan pays on average:

A Catastrophic plan is available to those under 30 or with a hardship exemption. Higher metal tiers mean higher premiums but lower out-of-pocket costs. Cost-sharing reductions attach only to Silver plans.

Marketplace and the two subsidies

The Marketplace (Health Insurance Exchange) is where individuals shop, compare, and qualify for subsidies, generally during open enrollment (with special enrollment periods after qualifying life events like marriage, birth, or loss of coverage).

Two distinct subsidies:

• Premium Tax Credit (PTC) / Advance PTC: reduces monthly premiums, available to households roughly 100%-400%+ of the Federal Poverty Level (FPL). Based on the second-lowest-cost Silver plan benchmark.
• Cost-Sharing Reductions (CSRs): lower deductibles, copays, and out-of-pocket maximums, available only on a Silver plan and to households up to about 250% of FPL.

Worked subsidy example

The Premium Tax Credit caps a household's premium contribution at an applicable percentage of income for the benchmark plan; the credit pays the rest.

Example: Household income = $40,000. Applicable percentage = 6%. Benchmark (second-lowest Silver) annual premium = $6,000.

• Expected contribution = 6% × $40,000 = $2,400/year.
• Premium tax credit = $6,000 − $2,400 = $3,600/year, or $300/month applied in advance.

If the household instead picks a cheaper Bronze plan costing $4,800, the same $3,600 credit applies, leaving only $1,200 out of pocket - but Bronze forfeits the Silver-only cost-sharing reductions.

Mandates and exemptions

The ACA originally imposed an individual mandate (a tax penalty for lacking minimum essential coverage); the federal penalty was reduced to $0 in 2019, though some states impose their own.

The employer shared-responsibility mandate still applies: Applicable Large Employers (ALEs) with 50 or more full-time-equivalent employees must offer affordable, minimum-value coverage or face a penalty. Affordable means the employee's required contribution for self-only coverage does not exceed a set percentage of household income.

Minimum essential coverage and grandfathered plans

Minimum Essential Coverage (MEC) is any coverage that satisfies the mandate - employer group plans, Medicare, Medicaid, CHIP, TRICARE, and Marketplace plans all count. Stand-alone products such as dental-only, vision-only, accident-only, fixed-indemnity, and most short-term limited-duration plans are excepted benefits and do not count as MEC. The exam may test whether a narrow product satisfies the mandate; the answer is usually no.

Grandfathered plans existed before March 23, 2010, and have not made significant benefit cuts or cost-shift changes. They are exempt from some ACA rules (such as covering all ten EHBs and offering certain preventive services at no cost), but they must still honor protections like no lifetime limits and dependent coverage to age 26. A plan loses grandfathered status if it materially reduces benefits or raises the insured's share too much.

Enrollment timing traps

Outside the open enrollment window, an individual generally cannot buy Marketplace coverage unless a qualifying life event triggers a Special Enrollment Period (SEP) - typically a 60-day window. Common triggers include marriage, birth or adoption, divorce, loss of other minimum essential coverage, or a permanent move.

Loss of coverage means involuntary loss; voluntarily dropping coverage or non-payment of premium does not open an SEP. A fact pattern where someone quits paying their old plan and then wants to enroll mid-year should lead you to deny the SEP. Always separate the subsidy question (income vs. FPL) from the enrollment-timing question (open enrollment vs. SEP) - the exam frequently bundles both into one scenario to see if you confuse eligibility with timing.