Primer on Healthcare Reform (Obamacare)
On March 23, 2010, President Obama signed the
Patient Protection and Affordable Healthcare Act
(PPACA) into law. The law is often referred to as
“Obamacare” or “health care reform.” It was amended it
once week later via the President signing the Health
Care Education and Reconciliation Act (HCERA). With
the law being upheld by the U.S. Supreme Court and
the re-election of President Obama, it is clear that the
law is here to stay.
FEATURED BOOK: ObamaCare Survival Guide

This introduction is designed to inform both consumers and health care providers about
how the health care system will change when the most significant changes went into
effect on January 1, 2014. A complete discussion of the implications of health care
reform is beyond the scope of this article given the size of the law (over 2,300 pages)
and the heated political debates regarding this topic. The primary focus of the health
care reform law is to expand insurance coverage and reform the insurance market.
Proponents of the law argue that the law will lower the costs of health care and improve
the quality of health care.

Some of the most popular provisions of the law are that no insurance company can deny
coverage to someone (even if pre-existing medical conditions are present), elimination
of annual and lifetime insurance payment limits, and a requirement that a dependent
(e.g., child) be allowed to remain on the parent’s insurance plan until age 26 if desired.

"Where Medical Information is Easy to Understand"™

A crucial element of the law is that with few exceptions (see below) each U.S. citizen is required to
purchase health care insurance to help defray costs. This is known as the individual mandate. When
President Obama originally ran for election, he was opposed to implementing an individual mandate (it was
supported by Hillary Clinton) but he supported the mandate once elected. Several states challenged the
mandate as unconstitutional on the grounds that the federal government does not have the right to force
people to make such purchases (although states have such power).
In June 2010, in a 5-4 decision written by Chief Justice John Roberts, the U.S. Supreme Court ruled that
the individual mandate is constitutional because the federal government (via Congress) has taxation
power. Thus, the law was ultimately upheld as a tax although the Obama administration had long argued
that it was not a tax.

Another result of the ruling was that a majority of the Supreme Court Justices found the law to be
coercive for attempting to force states to expand Medicaid coverage by penalizing them with loss of their
pre-existing Medicaid coverage funds if they did not comply. Thus, each state now has the right to opt out
of Medicaid expansion without losing pre-existing Medicaid funds.


Unless you meet criteria for an exemption (see below), as of 2014, if you do not purchase health care
insurance, you will be taxed by the federal government.


People in the following situations will be exempt from the tax penalty for not having health care

1. Annual income less than $9,500
2. Members of Indian tribes.
3. Those who meet criteria for a “hardship.”
4. Certain religious groups who are exempt from the Social Security tax (e.g., Amish people)
5. Working for an employer who only offers insurance that costs more than 8% of their income.


The cost of the tax depends on the year and the person’s economic circumstances. The cost will be
based on whichever is greater: the annual minimum tax or a tax based on the percentage of income. The
minimum tax is $95.00 per person in 2014, $325.00 per person in 2015, and $695.00 per person in 2016.
After 2016, the tax rate will increase with the rate of inflation. The caveat to these per person taxes is that
the tax is not to exceed more than the cost of three people per household (e.g., $2085 for a family of 4 in
2016). There are specialized calcuators for taxes (some free, some paid) that can put this into
perspective a little better.

If your income exceeds the threshold for filing a tax return, the tax will be determined by multiplying your
annual individual or family salary by 2.5%. Thus, for a family earning $100,000 a year, the tax will be
$2,500. However, the fine is not allowed to exceed the national average of the lowest cost type of tax
plan offered by the state insurance exchanges (known as bronze plans; see below). The politically
neutral Congressional Budget Office estimated that the cost of a bronze tax plan will be between $4,500
to $5,000 for individual policies and between $12,000 to $12,500 for family policies.


If you do not meet criteria for an exemption (see above) the government’s planned answer to this
problem is to help pay for you to purchase private insurance through a state-run health insurance
exchange. This payment assistant is known as a government subsidy. The subsidy will be available on a
sliding scale basis to those who earn an income that is up to 400% of the federal poverty level. At the
400% federal poverty, you will be required to pay no more than 9.5% toward a baseline plan offered in
the health care exchange.

Federal poverty level numbers vary by year and the number of people in a family, but in 2012, the federal
poverty level was $23,050 for a family of four. Thus, government subsidies for a family of four would be
available for a salary range of around $90,000. Thus, government subsidies for health care insurance will
be available for incomes much higher than in the past. If you are lower on the federal poverty level, you
will be eligible for Medicaid, the coverage of which will also be expanded to higher income levels.

If you earn more than 400% of the federal poverty level and do not meet exemption criteria, then you
must find a way to pay for the insurance without government support or risk being sued for double the
amount of the tax by the Internal Revenue Service.


Eligible health care insurance options include insurance through an employer, Medicare, Medicaid, other
government insurance programs, and insurances offered through a health care exchange (see below).


Due to the high cost of private insurance, the law relies on states to establish, regulate, and educate
consumers on a network of competing private insurance plans as of 2014. Many states are currently
establishing the infrastructure to put these exchanges in place, which are exclusively provided by private
insurance companies. Health care exchanges will work similar to websites where you purchase travel
plans (e.g., plane tickets, hotel rooms) among a group of competing companies after you have entered
information specific to your needs. Thus, in health care exchanges, you will be able to enter information
about your and your family and pick various options you prefer (e.g., co-pay amounts) and select the
plan you prefer. Many people are expected to make this decision based on which plan is offered at the
lowest cost.

Plans offered on the health care exchange must cover essential health care benefits as those defined by
the U.S Department of Health and Human Services (e.g., inpatient hospital stays, prescription drugs,
outpatient mental health counseling).

There will be four types of product levels required in the health care exchange, each of which offers
variable deductibles and co-pays. These product levels are referred to as bronze, silver, gold, and
platinum. The insurance company within each product level will pay, on average, 60%, 70%, 80%, or
90% of the cost of health care services for each product level, respectively (e.g., bronze plans pay 60%).
Thus, the patient would be responsible to pay 40%, 30%, 20%, or 10% of the cost of health care services
for each of those plans, respectively. When an individual or employer selects one of the product levels, a
list of available insurance carriers will be presented to choose from. Individual insurance companies have
the option of offering bronze and platinum insurance plans but are required to offer gold and silver plans.

Individuals under the age of 30 will be allowed to purchase a catastrophic health care insurance plan
which costs less than a bronze plan but has a very high deductible and co-pay. This is for individuals who
feel that because of their age they are unlikely to become sick or use health care services with the
exception of an unforeseen catastrophic medical event. Catastrophic plans can be purchased by a health
care exchange offered to individuals (known as the American Health Benefit Exchange) but will not be
offered to small businesses who purchase insurance coverage for employees through the Small
Business Health Options (SHOP) program.


For political reasons (e.g., Republican opposition, inability to meet 2014 implementation deadlines),
some governors have stated that they will not offer health care exchanges in their states. As a result, the
federal government will establish a federal health insurance exchange for people living in these states.


The law largely attempts to maintain employer based health care insurance coverage through a
combination of incentives (for small businesses) and penalties (for large businesses). For employers of
less than 25 full-time employees who meet other minimal requirements, they will be eligible for tax
credits for the amount of the premium paid to subsidize offering insurance coverage. Employers of less
than 50 full-time employees will be able to purchase insurance from the health care exchange or from
outside the exchange.

Employers of 50 or more full-time employers will be required to either offer healthcare insurance to their
employees or to pay a fine of $2,000 per employee. This fine will also be applicable to employers offering
insurance plans that are not affordable enough based on the premium amount paid by the employee or if
the insurance offered does not cover the minimally required services. There is no fine for the first 30
employees, however. The fine per employee will be $3,000 for each full-time employee who is able to
purchase subsidized health care insurance through a health care exchange in which the insurance
subsidy or services covered are greater than the payment offered by the employer (i.e., minimal scope of
services provided while the employer offered insurance does not). The plans offered by employers must
cover a minimal scope of services. Employers must provide coverage and cost information to the U.S
Department of Health and Human Services.

Some employers are likely to drop health care insurance coverage for their employees because the cost
of the fine is lower than the average employee health insurance premium (about $4,500 to $6,000 dollars
per employee throughout the country). Thus, paying the penalty rather than the insurance can save the
company money. Precisely how many employers will drop health insurance coverage is unknown at this
time as some wish to offer it as an employee benefit to compete with companies that do not offer such


More people will be on private insurances offered through the health care exchange (resulting in fewer
people uninsured), more people will be on Medicaid (due to increased eligibility requirements), and more
people will be on Medicare. There will be much more individual involvement with insurance selection via
health care exchanges, particularly if businesses decline to offer health insurance any longer.

Existing private insurance companies will face competition from other insurance companies in the health
care exchange, particularly based on which plan is provided at the lowest cost. This means that existing
insurance companies will need to find ways to cut their own costs to be competitive. One way this
happens is by decreasing reimbursement to health care providers for services offered.


The answer to this question partly depends on one’s particular profession but as noted above,
reimbursement for health care service is likely to decline. In addition, since plans will be offered that
require much more payment from the patient, this will make it more difficult to collect outstanding
patients. As it stands today, health care providers have a difficult enough time collecting 15% of medical
costs from patients. This problem would be expected to increase of trying to collect, say, 40% of medical
cost from patients.

There will also be millions of newly insured patients who will interact more with the healthcare system
without a similar growth in health care providers. This means that health care providers will need to find a
way to either see more patients in an allotted amount of time or to create longer waiting lists.

Lastly, healthcare will increasingly be offered through Accountable Care Organizations (ACOs) for
Medicare patients. As the name implies, an ACO is a healthcare organization that has a payment and
delivery system in which reimbursement is based on being held accountable for the quality (e.g.,
improved blood pressure), care, and cost of health care to patients. This will partly be done by large
hospitals purchasing private practices to work as providers within their system. The health care providers
then refer to one another within the ACO to help decrease costs.