17.2 The Affordable Care Act: EHBs, Marketplaces, Subsidies, Mandates
Key Takeaways
- ACA premiums may vary only by age (3:1), tobacco use (1.5:1), geographic area, and family size — never gender or health status.
- Ten Essential Health Benefits are mandatory, and in-network preventive services carry $0 cost-sharing.
- Metal tiers rank by actuarial value (Bronze 60% to Platinum 90%); cost-sharing reductions apply only to Silver plans.
- Premium Tax Credits are advanceable, refundable, FPL-based, and pegged to the benchmark second-lowest-cost Silver plan, then reconciled at tax time.
- The federal individual-mandate penalty is $0, but some states impose their own, and the employer mandate applies at 50+ full-time-equivalent employees.
The Affordable Care Act (ACA)
The Affordable Care Act (ACA), enacted in 2010, reshaped individual and small-group health insurance. Core consumer protections include guaranteed issue (insurers must accept all applicants), a ban on pre-existing condition exclusions, no lifetime or annual dollar limits on essential benefits, dependent coverage to age 26, and community rating that restricts premium variation to a few permitted factors.
Permitted Rating Factors
Under ACA modified community rating, individual and small-group premiums may vary only by:
- Age — limited to a maximum 3:1 ratio (oldest adult pays no more than 3x the youngest)
- Tobacco use — up to a 1.5:1 ratio
- Geographic rating area
- Family size (individual vs. family tier)
A frequent trap: insurers cannot rate based on gender or health status/medical history. Two applicants of the same age, area, and tobacco status pay the same premium regardless of their medical conditions.
Essential Health Benefits (EHBs)
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/wellness services and chronic disease management
- Pediatric services, including oral and vision care
Preventive services (e.g., immunizations, screenings) must be covered at $0 cost-sharing when delivered in-network.
Metal Tiers and Actuarial Value
Marketplace plans are sorted by actuarial value (AV) — the average share of covered costs the plan pays. Higher metal tiers mean higher premiums but lower out-of-pocket costs.
| Metal Tier | Plan pays (AV) | Member pays (avg.) |
|---|---|---|
| Bronze | ~60% | ~40% |
| Silver | ~70% | ~30% |
| Gold | ~80% | ~20% |
| Platinum | ~90% | ~10% |
Cost-sharing reductions (CSRs) are available only on Silver plans for eligible enrollees, which is why Silver is the strategic tier for lower-income buyers.
Marketplaces and Enrollment
Coverage is sold through the Health Insurance Marketplace (Exchange) — either the federal HealthCare.gov or a state-based exchange. Buying on-exchange is the only way to receive subsidies.
Enrollment is limited to the annual Open Enrollment Period. Outside it, you need a Special Enrollment Period (SEP) triggered by a qualifying life event — marriage, birth/adoption, loss of other minimum essential coverage, or a permanent move. Voluntarily dropping coverage or non-payment is not a qualifying event.
Minimum Essential Coverage and Grandfathered Plans
Minimum Essential Coverage (MEC) is the type of coverage that satisfies ACA standards — including employer plans, individual marketplace plans, Medicare, Medicaid, CHIP, and TRICARE. Limited products like fixed-indemnity, dental-only, vision-only, and accident plans are excepted benefits and do not count as MEC.
Grandfathered plans existed before March 23, 2010, and avoid some ACA mandates as long as they do not materially cut benefits or raise cost-sharing beyond allowed thresholds. They still must extend dependent coverage to age 26 and drop lifetime dollar limits, but need not cover all ten Essential Health Benefits.
Subsidies: Premium Tax Credits and CSRs
Two subsidies lower costs for eligible enrollees:
- Premium Tax Credit (PTC) — an advanceable, refundable credit that reduces monthly premiums, based on household income relative to the Federal Poverty Level (FPL). The credit is pegged to the second-lowest-cost Silver plan (benchmark) in the area.
- Cost-Sharing Reductions (CSRs) — lower deductibles, copays, and out-of-pocket maximums; available only on Silver plans to enrollees up to 250% FPL.
Because the Advance Premium Tax Credit (APTC) is estimated, enrollees reconcile it on their tax return: if actual income was higher than projected, they may repay part of the credit.
The Individual Mandate Today
The ACA's federal individual mandate still legally exists, but the federal shared-responsibility penalty was reduced to $0 beginning in 2019. So while there is no federal tax penalty for being uninsured, some states impose their own mandate and penalty. Employers with 50+ full-time-equivalent employees remain subject to the employer shared-responsibility (mandate) rules and may owe penalties for not offering affordable, minimum-value coverage.
To be compliant, an employer plan must be both affordable (the employee's share of self-only premium stays below an IRS-set percentage of household income) and provide minimum value (the plan pays at least 60% of total allowed costs, equivalent to a Bronze actuarial value). An Applicable Large Employer that offers no coverage, or coverage failing these tests, can trigger a penalty when even one full-time employee buys subsidized Marketplace coverage.
Two 40-year-old non-smokers live in the same rating area. One has diabetes; the other is healthy. Under ACA rules for an individual marketplace plan, how can their premiums differ?
An enrollee at 200% of the Federal Poverty Level wants both lower premiums and reduced deductibles/copays through the Marketplace. Which plan choice secures cost-sharing reductions?
Metal Tiers and Actuarial Value
ACA Marketplace plans are sorted by metal tier reflecting the plan's actuarial value (the share of total covered costs the plan pays): Bronze ~60%, Silver ~70%, Gold ~80%, Platinum ~90%, plus catastrophic plans for those under 30 or with hardship exemptions. A higher tier means higher premium but lower cost-sharing. Cost-sharing reductions (CSRs) are available only on Silver plans for lower-income enrollees, a frequently tested linkage.
Premium Tax Credits and Guaranteed Issue
The ACA requires guaranteed issue and guaranteed renewability, bans pre-existing condition exclusions, and limits rating to age, geography, family size, and tobacco use (community rating). Advance Premium Tax Credits (APTC) subsidize premiums for households between defined income levels purchasing through the Marketplace. Plans must cover the ten Essential Health Benefits (EHBs) and preventive services with no cost-sharing. A 90-day maximum waiting period applies to employer coverage.
Under the ACA, cost-sharing reduction (CSR) subsidies that lower deductibles and copays are available only to eligible enrollees who choose a: