17.2 The Affordable Care Act: EHBs, Marketplaces, Subsidies, Mandates
Key Takeaways
- ACA requires guaranteed issue with no medical underwriting; premiums vary only by age (3:1), area, tobacco (1.5:1), and family tier.
- All non-grandfathered plans must cover ten Essential Health Benefits with no annual/lifetime dollar limits and zero cost-sharing on preventive care.
- Metal tiers (Bronze 60%, Silver 70%, Gold 80%, Platinum 90%) are defined by actuarial value; catastrophic plans serve those under 30 or with hardship.
- APTC lowers premiums (100-400% FPL); CSRs lower out-of-pocket costs but only on Silver plans at or below 250% FPL.
- Adult children covered to age 26; ALEs (50+ FTEs) face the employer mandate; the federal individual-mandate penalty is $0.
The Affordable Care Act
The Affordable Care Act (ACA), enacted 2010, reshaped the individual and small-group health insurance markets. For the exam, focus on five pillars: guaranteed issue, essential health benefits, the Marketplace, premium subsidies, and the mandates.
Guaranteed issue means insurers must accept all applicants regardless of health status, with no medical underwriting in the individual market. Premiums may vary only by four factors: age (3:1 ratio cap), geographic area, tobacco use (1.5:1 cap), and family size/tier. Health status, gender, and claims history may not affect premiums.
Essential Health Benefits (EHBs)
All non-grandfathered individual and small-group plans must cover ten categories of Essential Health Benefits (EHBs):
- Ambulatory (outpatient) services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance-use disorder services
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic-disease management
- Pediatric services, including oral and vision care
Preventive services (e.g., immunizations, screenings) must be covered with no cost-sharing — no deductible or copay. EHBs also cannot be subject to annual or lifetime dollar limits.
Metal Tiers and Actuarial Value
Marketplace plans are sold in four metal tiers defined by actuarial value (AV) — the percentage of total covered costs the plan pays on average for a standard population.
| Tier | Plan pays (AV) | Member pays | Best for |
|---|---|---|---|
| Bronze | ~60% | ~40% | Low premium, high out-of-pocket |
| Silver | ~70% | ~30% | Subsidy-eligible (CSRs apply here) |
| Gold | ~80% | ~20% | Higher use of care |
| Platinum | ~90% | ~10% | Heaviest utilization |
Catastrophic plans are available to people under 30 or with a hardship exemption; they carry low premiums and high deductibles.
Trap: Higher AV does not mean higher quality — it means the plan pays a larger share, so the member's premium is higher but cost-sharing is lower.
The Marketplace and Enrollment
The Health Insurance Marketplace (Exchange) is where individuals shop, compare, and buy ACA plans and determine subsidy eligibility. Coverage may be purchased only during the annual Open Enrollment Period unless a person qualifies for a Special Enrollment Period (SEP) triggered by a qualifying life event — marriage, birth or adoption, loss of other minimum essential coverage, or a permanent move.
Voluntarily dropping coverage or failing to pay premiums does not create an SEP. This is a common distractor.
Subsidies: Premium Tax Credits and Cost-Sharing Reductions
Two distinct subsidies reduce ACA costs:
- Advance Premium Tax Credit (APTC) — lowers the monthly premium; available roughly between 100% and 400% of the Federal Poverty Level (FPL) and reconciled on the tax return.
- Cost-Sharing Reduction (CSR) — lowers out-of-pocket amounts (deductibles, copays, coinsurance); available only to those at or below 250% FPL who enroll in a Silver plan.
Worked example: A household qualifies for an APTC of $400/month and chooses a Silver plan with a $650 premium. The household pays $650 − $400 = $250/month. Because they are at 200% FPL and chose Silver, they also receive CSR, boosting that Silver plan's effective AV from ~70% toward ~87%, lowering their deductible.
Trap: CSRs apply only to Silver plans — choosing Bronze forfeits the cost-sharing benefit even if otherwise eligible.
Mandates and Dependent Coverage
The individual mandate penalty was reduced to $0 federally beginning 2019, though some states impose their own. The employer 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.
Other durable ACA rules:
- Adult children may stay on a parent's plan until age 26, regardless of marital, student, or financial-dependency status.
- No pre-existing-condition exclusions in any market.
- A medical loss ratio (MLR) requires insurers to spend 80% (individual/small group) or 85% (large group) of premium on care and quality or issue rebates.
Minimum Essential Coverage and Grandfathered Plans
Minimum Essential Coverage (MEC) is the baseline of qualifying coverage — employer plans, Marketplace plans, Medicare, Medicaid, CHIP, and TRICARE all count. Short-term limited-duration plans and excepted benefits (standalone dental, vision, accident-only) are not MEC and need not include EHBs.
Grandfathered plans existed before March 23, 2010 and avoid some ACA rules if they make no significant changes; they still must follow the age-26 dependent rule and the ban on lifetime limits. Losing grandfathered status forces full ACA compliance, including EHBs and the rating restrictions.
How Subsidies Reconcile and a Producer's Role
The APTC is estimated from projected income and paid in advance directly to the insurer. At tax time the consumer reconciles the advance credit against actual income on Form 8962: under-estimating income may require repaying part of the credit, while over-estimating yields an additional refund.
Producers advising on the Marketplace must understand that eligibility for affordable employer coverage disqualifies a person from premium tax credits — even if they decline the employer plan. The key affordability and minimum-value standards therefore drive whether subsidies are available.
- Affordable: the employee's share of self-only premium stays under an annually indexed percentage of household income.
- Minimum value: the employer plan must pay at least 60% of covered costs (Bronze-equivalent).
A consumer at 200% of the Federal Poverty Level wants both premium and cost-sharing help. Which plan must they choose to receive Cost-Sharing Reductions?
Under the ACA, which factor is an insurer permitted to use when setting individual-market premiums?
The Metal Tiers and Actuarial Value
ACA-compliant plans are grouped by actuarial value (AV) the share of total covered costs the plan pays on average:
| Tier | Plan Pays (AV) | Member Pays |
|---|---|---|
| Bronze | ~60% | ~40% |
| Silver | ~70% | ~30% |
| Gold | ~80% | ~20% |
| Platinum | ~90% | ~10% |
Higher tiers have higher premiums but lower cost-sharing. Cost-sharing reduction (CSR) subsidies are available only on Silver plans, which is why income-eligible buyers are steered to Silver.
ACA cost-sharing reduction (CSR) subsidies, which lower deductibles and copays for eligible enrollees, are available only on which metal tier?
Guaranteed Issue, EHBs, and Dependent Coverage
The ACA requires individual and small-group major medical to be guaranteed issue (no denial for health) and to cover the ten Essential Health Benefits, including ambulatory care, emergency, hospitalization, maternity, mental health, prescription drugs, rehabilitative services, lab, preventive/wellness, and pediatric services.
Other core mandates: no lifetime or annual dollar limits on EHBs, no pre-existing-condition exclusions, coverage of dependents to age 26, and premium rating allowed only on age, geography, tobacco use, and family size (not health).
Exam Tip: Premium tax credits apply to any tier; CSRs only to Silver. Dependents can stay on a parent's plan until age 26, and EHBs cannot carry pre-existing exclusions or dollar caps.