The Nuts and Bolts of Obamacare

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The Patient Protection and Affordable Care Act (PPACA) – known as “Obamacare” – was passed into law on March 23, 2010, and its main provisions were recently upheld by the Supreme Court.

The act is the largest and most sweeping healthcare reform ever enacted in the United States and will affect almost every aspect of the industry.

The act contains thousands of provisions that began to be implemented when the bill was passed and will continue to come into law between now and 2020. There are more provisions than can be covered in one article, but here is a summary of the most significant ones, and only those that relate directly to the general public. These provisions are complicated so the descriptions below will be brief.

Healthcare Coverage Provisions

These changes have the most effect on benefits, beneficiaries, exclusions and limitations as they exist in typical modern health plans.

Lifetime benefits. Effective this year, and applying only to new policies, insurance companies can no longer impose lifetime limits on “essential benefits”, like hospital stays.

Dependent coverage. Your children can stay on your health insurance plan up until they turn 26, even if they don’t live with you, aren’t in school, or might be married. This provision is in effect right now.

Dropping coverage. Insurance companies can no longer terminate coverage on patients when they get sick. This is also already in effect.

Preventative care services. Beginning August 1, 2012, all new plans are required to cover certain preventive services like mammograms and colonoscopies that won’t be subject to co-payments, deductibles and co-insurance provisions. Beginning in 2018 this requirement will extend to all existing insurance plans, and will also require check-ups without co-payments.

Pre-existing conditions. As of January 1, 2014, insurance companies will not only be prohibited from turning down customers with pre-existing medical conditions, but they won’t be able to charge higher premiums either. Gender based premium differences will also disappear. The only listed exception to the rule are smokers.

Deductibles. Beginning January 1, 2014, and only on employer sponsored plans, there will be a maximum deductible of $2,000 for single coverage, and $4,000 for other plans.


There are actually several subsidy provisions, but this one is the most sweeping.

Health insurance exchanges. As of January 1, 2014, health insurance exchanges will be set up by the individual states to subsidize insurance premiums for millions of people based on household income as a percentage of the federal poverty level. Insurance premiums will be capped at certain levels based on income relative to the poverty level, with the highest subsidies going to those households earning less than 133% of the poverty level, and the lowest going to those earning up to 400% of it. This is a complex provision, but it appears that the subsidy will come in the form of a refundable tax credit, which means the recipient will get the credit even if they pay no income taxes.

New Taxes

There are many tax changes pursuant to the act, but here are the ones that are most relevant to the largest number of people.

Payroll reporting. For 2012 and beyond, employers must report on your W2 the value of health insurance benefits they provided during the year. There are no apparent tax consequences to this – yet!

Medical deductions for income tax purposes. Currently, there’s a limitation applied to the deductibility of medical costs for income taxes; you must first reduce the amount of your medical expenses by 7.5% of your adjusted gross income and deduct the difference. Beginning January 1, 2014 the 7.5% reduction will rise to 10% of adjusted gross income.

Translation: fewer people will be able to deduct medical expenses in the near future.

Direct taxes. As of January 1, 2013 there will be an additional tax of .9% on earned incomes above $250,000 for married couples filing joint, and $200,000 for singles. The Medicare tax is also being increased. An additional 3.8% Medicare tax will apply on “unearned income, specifically the lesser of net investment income or the amount by which adjusted gross income exceeds $250,000 for married filing joint, or $200,000 for singles.”

“Cadillac insurance plans”. High cost insurance plans—defined as those costing in excess of $27,500 for families and $10,200 for individuals—will have an excise tax imposed on them beginning in 2018. The tax rate: 40%.


In addition to new taxes, the bill imposes penalties.

Penalty for non-coverage. As of January 1, 2014 the act will impose an annual penalty on those who don’t have health insurance plans. The penalty will start out as the higher of $95 or 1% of gross income, but rising in 2016 to a minimum of $695 for indivduals and $2,085 for married filing joint, or 2.5% of income. This penalty was a major part of the recent Supreme Court case on the act, and was upheld with the logic that Congress has the authority to “levy the penalty as a tax”, rather than an attempt to force people to get insurance coverage.

Employer penalties. Beginning January 1, 2014, employers with more than 50 employees will be subject to a penalty of $2,000 per employee if the employer does not provide health insurance coverage for full-time employees.

Other provisions

Health insurance for Congress. Beginning in 2014, not only members of Congress but also their employees will be moved out of the Federal Employees Health Benefits Program, and into a plan provided under the act. In effect, Congress will be subject to the same health care plans the rest of us are.

Medicare Part D. By 2020 Medicare Part D for prescription drug coverage will be ended.

There are numerous other provisions that will affect both Medicare and Medicaid that are too complex to discuss here. Due to their complex nature, these provisions has been simplified – this is a summary presentation of the act, not a line-by-line breakdown.

Also keep in mind that the bill is still moving through the system and will be amended as it does. Any of these provisions could be modified, reduced, expanded or even canceled before, during or after implementation.

What are your thoughts about Obamacare?


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1 Jo Turner

Well, it sounds pretty good to me. What will they do with the “tax” collected on people who don’t have insurance? It should be used to help pay their health care. Also, will there be any kind of help for prescriptions when they phase out Medicare Part D? My husband gets help from the govt. now. He takes several anti-convulsants. I hope some prescriptions will not cost so much. What do you think of Obamacare? It sounds pretty good. Why are so many people upset about it?

2 Kevin Mercadante

Hi Jo–As to why Obamacare upsets people probably is part political, part “how are we going to pay for this” and part fear.

As best as I was able to determine, Medicare Part D will be phased out completely by 2020. Prescription coverage will become mandatory on all insurance plans including Medicare (or the supplements). It’s important to understand that all fo this is just how the program looks now; we should fully expect modications as it’s rolled out. I saw nothing to indicate that Medicare recipients will lose any benefits at all.

3 Kim Branham

I am a 54 year old female with no insurance. Being self employed and having pre-existing conditions I cannot afford it. I can get insurance (that I might be able to afford) with a $10,000. deductible with certain limits ( so really it’s not insurance). I have health issues that I cannot address because the doctors won’t see me without insurance. I believe that everyone is entitled to have insurance with rates that they can pay. When I was in business I would of liked to have insurance for my employees but it wasn’t affordable enough. I worry about the financial strain it will put on businesses and those that can’t afford it, to expect us to carry insurance. So make it affordable for us and our family to have insurance and we will gladly get it. I am glad to see that the insurance companies will have some regulations since they have dictated for years what they will cover and what amount they will pay. The insurance companies are making a lot of money off of those who do have the coverage while those who don’t have any coverage are left without the coverage and good health they deserve. It is an issue to who will pay the bill, but I feel that there is a way to make the insurance available, affordable and fair to everyone. I could go on forever, so thanks for letting me vent and thank you for the information.

4 Kevin Mercadante

Hi Kim–I think the theory of Obamacare is that if it can bring the uninsured into the system that the cost of coverage will be spread over millions more people and that will bring down the premiums. I’m not sure that will work, but I don’t have the numbers they have.

This is just my opinion, but if you can afford the plan with a $10,000 deductible I’d take it. At a minimum, you’d get treatment from your doctor, but you’d also have a network discount that will greatly reduce what you have to pay even for out of pocket costs. The network discount can lower medical bills by up to 80%. Meanwhile, you’d have coverage for a medical disaster, which you don’t have now.

Since you’re self-employed, a major medical even could wipe out your business if you have no coverage.

That’s just my opinion–you have to do what you can afford.

5 Bert Carlson

No mention here of what all of these programs are going to cost. The effect to this economy witll be devastating. By the way, no mention of being able to “keep your insurance and doctors”. The fact is you can keep them as long as you have your current plan. However, when you decide to change insurance companies or change jobs and lose your current insurance coverage, you must buy your next insurance coverage from the public exchanges. This will eventually get the entire country on the government dole and into the universal health care plans that this radical socialist in chief wants to implement. This will devastate this country and send past the point of any possible recovery.

6 Kevin Mercadante

Hi Bert–You’re raising good points. One of the problems with this bill is that it’s huge and all-encompasing and still playing. We’re going to find out a lot as it rolls out and there will be changes as it goes along.

7 Tony

Great post. I think this is kind of socialist (which is a word that horrors everyone in America). It’s turning more into Canada’s health care system. Yea, everyone thinks Canada’s health care system is great, but in reailty, it isnt. At least in the U.S. if you have money you can buy the care for a really bad illness. In Canada, they’ll put your name on the waiting list – by the time it’s your turn, you’re already dead.

8 Kevin Mercadante

Hi Tony–I know a number of people in Canada and they’re generally pleased with their healthcare system. In fact, I’d say they’re generally happier than Americans are with our system.

My biggest concern with reform as it’s planned is the cost. Massachusets has the forerunner of the plan already in place and their healthcare costs are the highest in the nation, and double the national average.

9 Rich@MoneyWisePastor

Hey Kevin, my wife is Canadian, so I’ve been a little familiar with the Canadian health care system over the 20 years we’ve been married so far (from the experience of her family members). A couple of points I’d like to make:

1. Canada doesn’t really have a national healthcare system. The national government provides funding to each province, which manages its own healthcare system.
2. Many wealthy Canadians (including a lot of Canadian politicians) come to America for their medical care. The reason why is that…
3. The quality and availability of care greatly varies depending on where you live. In some communities, there are doctor shortages. In other places, you have to wait months or nearly a year for diagnostic tests and surgeries. A few years ago, I read that Canada has 6 MRI machine for every million people. In the US, we have 26!

What bothers me about Obama Care is that the bill was over 2,000 pages of gobbledygook that few understand and hardly anyone in Congress read. In the words of former House Speaker Pelosi, “we have to pass it to find out what’s in it.” That’s no way to make a law. The whole thing complicates health care more than it simplifies it.

If we wanted to insure people who had no insurance, we simply could have provided a voucher to those people so they could buy their own insurance. But we don’t think simplicity anymore in American government. We have to keep the lawyers and lobbyists and government employees busy! 😉

10 Kevin Mercadante

Hi Rich–PPACA is evidence that simplicity in US politics no longer exists.
Complexity is built into every law that’s passed. The biggest problem with this law (well, next to funding) is that it’s so complex that we won’t know exactly how it will play out until it starts happening in earnest. We need certain reforms in healthcare, but perhaps this bill goes too far too fast.

I have some friends in Canada who seem pretty happy with the system they have in place. The UK too.

I think we have to get past the idea that we’ll ever have a perfect healthcare system. There are too many demands on the system for that to ever happen. I’ll be OK with better healthcare!

11 Amy

I have been a nurse for about 13 years. I actually read through some parts of the 2000 page Obamacare plan, and while on the surface some of the benefits are nice, its what’s below the surface that stinks. Kind of like the old saying “If the grass looks greener on the other side it’s because there is a sewer running under it”.

I personally don’t like the ‘panel of experts’ making decisions about healthcare. I do realize that there will supposedly be medical professionals doing that, but there is nothing that states that it HAS to be medical professionals, or that it won’t become a partisan panel. Let’s face fact, a lot of healthcare issues are highly partisan. Also, forcing everyone to cover abortions and contraceptives. It’s in there too even though they play it down. And yes, religious institutions will have to pay to cover services they deem sinful. I personally do not ever want to pay for an abortion, directly or indirectly, but just by virtue of having insurance, you will be required to.

More laws and more burearocracy only leads to more constraints, and I don’t personally think the country was founded on “Okay, let’s see how many constraints we can lay on our people”

But that’s me and how I see it. My opinions and experience, while I’m still allowed to have them.

12 Kevin Mercadante

Hi Amy–I have some friends in the healthcare field who interperet the bill pretty much as you have said. There’s a lot of good in the bill, but perhaps it goes too far. Only time will tell.

13 Bryan @Payday Advance

Obamacare looked very good on the surface, but it is important to dig deeper and take into consideration some things like is it really sensible to keep a dependent until he/she reaches the age of 26?

14 Kevin Mercadante

Hi Bryan–I have two teenage kids and I’m happy to have the option to keep them on our insurance until age 26. Also, they can have their own policies, the up to age 26 provision just gives us a Plan B. I’m all for greater options!

15 Steven

I think the reason a lot of people fear it, is it is quite new. Often, “change” has that effect. I am willing to give it a chance and see how the obamacare can benefit us all. I agree on seeing it as a political move and if this is true, there must be a lot of advantages that goes along with it.

16 Kevin Mercadante

Steven–I think you’re right, that is true of human psychology in general. We do have to wait to see how it will play out. But I am concerned with the funding side. The funding seems to slight for all that the bill is taking on on the spending side.

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