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Obamacare Explained

Simple Enough to Explain to Your Kids


Health Care Divides New Coalition
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Under Obamacare, everyone must have insurance or pay a tax.

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doctor with patient

Obamacare raises healthcare costs for some, and lowers it for others.

Photo: Joe Raedle/Getty Images

In 2010, the President and Congress signed Obamacare into law. Why? They wanted to make sure all Americans were able to get health insurance.

This is important because going to the doctor or the hospital has now become very expensive.  In fact, health care costs are the #1 cause of bankruptcy in this country.Just one visit to the emergency room costs $1,265 on average. A broken foot costs around $16,000, while cancer treatment can cost $30,000. For more, see Healthcare Blue Book.

Families that have health insurance don't have to worry about these costs, because their insurance plans pay for most of them. Families with health insurance only pay a small fee per visit, called a co-payment. Most people get health insurance as a benefit from their employer. The company usually splits the monthly cost, known as a premium.

What happens to the people whose jobs don't provide health insurance, and people without jobs? Some of them are so poor they qualify for Medicaid, which the state and the Federal government pays for. Those who are older than 65 go on Medicare, which is mostly paid for by the Federal government.

What happens to people who make too much money for Medicaid, are too young for Medicare, but are self-employed or don't get insurance from their jobs? They have to pay for their own insurance, and it's usually very expensive. Often they just do without, and take their chances. Some have a chronic illness, called a "preexisting condition," and the insurance companies won't even offer them coverage.

There's anywhere from 32-50 million people who don't have health insurance. If something happens, and they have to go to the hospital, they often just don't pay the bill, and the hospital takes it a loss. To cover the costs, hospitals raise the prices of health care for everyone. (Source: EBRI, Health Facts)

The official name for Obamacare is the Patient Protection and Affordable Care Act of 2010. It's so complicated that it is being phased in over five years. Here's how it affects your family and people you know.

Changes That Have Already Happened

Families With Health Insurance - Here's six ways Obamacare improved your family's health insurance already.
  1. Parents can add their adult children (up to age 26) to their plans.
  2. If anyone gets sick, the insurance company can't drop them from the plan or limit how much insurance your family uses.
  3. If any children are chronically ill, a new insurance company can't deny coverage.
  4. Most families will find that wellness or pregnancy exams are now free. In other words, they no longer have to make co-payments.
  5. Insurance companies can't raise premium payments without getting the OK from the state government.
  6. Some families received a check from the insurance company. That's because Obamacare says that companies must spend at least 80% of premiums on providing actual medical services. If they spent it on advertising or executive salaries, they have to pay the excess back to policy-holders.

Families Without Health Insurance - Open enrollment on the health care exchanges began October 1, 2013. Find out more about your state's exchange.

If anyone can't get insurance because of a pre-existing condition, Obamacare allows them to apply to the state to get temporary health insurance coverage until 2014. That's when insurance companies can no longer deny coverage to adults.

People on Medicare - Obamacare allows seniors on Medicare to receive wellness and preventive care visits for free. See Medicare Preventive Services for the full list.

Those who are on Medicare Part D, which paid for some but not all the costs of prescription drugs, received $250 in 2010 if they needed it. In 2011, they received 50% off of brand-name prescription drugs, and a 7% discount for generic drugs. For more, see Drug Discounts. By 2020, Obamacare will pay 100% of prescription drug costs for those on Medicare Part D.

Small Business Owners - Owners of a small business (25 employees or less) that provide health insurance can get a tax credit for 50% of the cost from Obamacare. They can also get Federal financial assistance if they offer health insurance to early retirees 55-64. For details, go to ERRP and Helping Small Businesses with Obamacare.

Those Who Earn $200,000 a Year or More - Taxes increased for individuals who earn $200,000 or more, and families who earn $250,000 or more. To find out more, see Obamacare Taxes.

Important Changes That Happen in 2014

Obamacare requires everyone to enroll in health insurance by March 31, 2014 . Those that don't are taxed about 1% of their 2014 income. (Find out exactly how this affects you in Obamacare Taxes)

To make it a bit easier, they can shop for insurance on the exchanges, which is a website run by their state or the Federal government. These exchanges also let people know when they qualify for tax credits. Obamacare is paying for most of the cost to operate these exchanges.

All health insurance plans must provide 10 essential health benefits. The only exceptions are plans that were in existence before March 23, 2010, and were "grandfathered in."

Members and staff of Congress are required to get their insurance through the same exchanges, instead of the government-provided health insurance they got before. However, they continue to receive Federal subsidies to pay for their insurance: $4,900 for individuals and $10,000 for family coverage. For more, see When Does Obamacare Start?(Source: WSJ, Members Only, August 8, 2013; Affordable Care Act)

Families With Health Insurance - Many people with good health insurance are worried that their companies will cancel their existing plans. In fact, a government study said that this might happen to 3-5 million employees. Why? Some companies will find it cheaper to pay the penalties and allow their workers to get insurance on the exchanges. Most companies will keep offering health insurance as a benefit to attract the best workers. It's actually less expensive for them than offering higher wages, because insurance isn't taxed. (Source: CBO, The Effects of the Affordable Care Act on Employment-Based Health Insurance, March 15, 2012)

Families Without Health Insurance - Obamacare allows more people to get Medicaid. Anyone who makes less than $15,281 a year, or a family of four that makes less than $31,321.50 a year, can apply for Medicaid on the exchange. (Note: The eligible income is actually 133% of the Federal poverty level, so it will increase with inflation). The Federal government will pay all the additional cost for the first three years. After that, the states will pay 10%. Find out more about Medicaid.

Most families that make too much to get Medicaid will still get help. If their incomes are less than $45,960 for an individual, or $94,200 for a family of four, they can get tax credits every month or even reduced copayments and deductibles. (Note: This eligible income is 400% of the poverty level, and it will also increase with inflation). Find out How to Get Obamacare.

Many people don't think the Federal government should have the right to force people to get insurance. Why is the Federal government requiring it? If everyone has insurance, more people will go to the doctor when they are getting sick, instead of waiting for their illness to turn into an expensive emergency. This should lower health care costs for everyone. Over time, health insurance should cost your family less. That's because more healthy people will pay more premiums to insurance companies, who will then make more money. They will be competing with each other on the exchanges, so will want to charge less to get more business. Older people on Medicare will have more of their drug costs covered, meaning they can afford to take all their medicine as they should, and stay out of the hospital -- again, lowering costs for everyone. For more, see Obamacare Pros and Cons.

Small Businesses - Companies with 100 or more employees are required to provide health insurance by 2015. If they can't or won't, they will be taxed $2,000 per employee, except for the first 30 employees. Businesses with 50-99 employees have until January 2016. To help them find the cheapest plans, businesses with fewer than 50 employees can shop on the health insurance exchanges. For more, see Treasury Press Release(Source: Healthcare.gov, Small Business Exchange) Article updated February 11, 2014

More on Obamacare

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