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How Does the Affordable Care Act Work?

The Patient Protection and Affordable Care Act — also known as the ACA or “Obamacare” — is a federal healthcare law. It’s the largest change to American healthcare since the creation of Medicare and Medicaid in the 1960s.

The law was passed to increase the number of insured Americans. Since the ACA took effect in 2014, 16.9 million more Americans now have health insurance, according to a study by the RAND Corporation.

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It requires that people get coverage or pay a penalty at the end of every year. It also helps people obtain coverage through exchanges and federal subsidies.

What’s required under the Affordable Care Act?

The Affordable Care Act has requirements for both insurance companies and consumers. The law requires that insurers:

  • not deny coverage to people due to pre-existing conditions
  • offer insurance policies to people of the same age and geographical locations, without considering gender or pre-existing conditions
  • provide patients with a plain language explanation of their benefits
  • stop setting lifetime and annual dollar limits on most benefits
  • increase covered preventive care

The law also:

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  • establishes minimum standards for health insurance policies
  • creates health insurance exchanges, where individuals and small businesses can compare and purchase healthcare plans
  • offers subsidies for low-income individuals and families who purchase insurance through an exchange
  • expands Medicaid coverage and reforms Medicare reimbursements
  • fines businesses with more than 50 employees that don’t offer health coverage to full-time employees

The ACA also requires everyone not covered by Medicaid, Medicare, or employee-sponsored health plans to purchase a private insurance policy. You can do this through the Health Insurance Marketplace.

What is the Health Insurance Marketplace?

The ACA requires there to be a Health Insurance Marketplace (also called an “exchange”), a health insurance hub where private companies offer different plans and you can shop and compare prices and benefits.

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HealthCare.gov is the official, federal marketplace. Many states have also created their own exchanges where you can purchase your plan.

Who is eligible to purchase health insurance through the Health Insurance Marketplace?

All U.S. citizens over the age of 18 are eligible to buy health insurance through the exchanges.

You don’t need to apply for new insurance if you’re already covered by Medicare or Medicaid. The ACA expands Medicaid in some states to include people earning up to 138 percent of the federal poverty level. Individuals and families who make between 100 to 400 percent of the federal poverty level can also receive financial assistance from the government.

Under the ACA, parents can keep some of their children on their plans up to the age of 26, even if they aren’t living with or financially dependent on them.

When can I purchase insurance?

You can buy insurance from the Health Insurance Marketplace during open enrollment periods. Enrollment for 2016 coverage opens November 1, 2015. It ends January 31, 2016.

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Special grace periods are available 60 days after loss of other coverage, marriage, birth of a child, or other major life events.

When will my insurance take effect?

All health insurance bought through the marketplace by the 15th of each month begins on the first of the next month.

If my employer provides health insurance, what does the open healthcare exchange mean for me?

You don’t have to use the exchange if you buy health insurance through your employer. People covered by Medicare, Medicaid, or another government healthcare program are exempt as well.

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You can still use the exchange to compare plans and see if you can get better coverage than what your employer provides.

What if I don’t want to buy health insurance?

Beginning in 2014, U.S. citizens who don’t buy health insurance are subject to a fine. This is paid when you file your federal income taxes.

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The penalty doesn’t apply to people whose insurance coverage would exceed 8 percent of their family income, illegal immigrants, or those with coverage that satisfies the minimum requirement.

How much is the fee?

The penalty fee in 2015 was either $325 per person ($162.50 for children under 18), or 2 percent of the yearly household income, whichever is higher.

In 2014, the fee was $95 per person or 1 percent of their income.

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Another possible impact of the Affordable Care Act is reducing a person’s likelihood of needing to file for bankruptcy due to medical bills. Medical bankruptcy is the number one cause of bankruptcy in the United States.

For more information, including to change or update your plan, visit HealthCare.gov.

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