Affordable Care Act glossary

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The Affordable Care Act, also known as Obamacare, included many concepts and terms not commonly known or understood outside the medical healthcare insurance industry. This glossary defines those terms in order to facilitate understanding of the debate surrounding the Act.

Accountable care organizations

An accountable care organization, or ACO, is a group or network of hospitals and physicians that perform different services. These networks "work together to save money by giving more efficient medical care to their patients." These organizations are also intended to fix the problem of fragmented care, which refers to poor communication between multiple doctors regarding a patient's condition. Each ACO must have a primary care physician. The Affordable Care Act established trial-runs for ACO management of some Medicare patients. If an ACO generates savings on the cost of care for a Medicare patient, the federal government will give the ACO a portion of the savings. If not, the group will have to share a loss on the cost of care provided to that patient. Savings and losses are shared equally by all members of the group. ACOs can be formed by physicians, hospitals, or—in the private market—insurers. Although the ACO provision of the Affordable Care Act pertains specifically to Medicare, some providers are forming ACOs for patients with private insurance as well, and 16 state Medicaid programs contract with ACOs. In fact, according to the journal Health Affairs, as of September 2015, the majority of the 23.5 million individuals served by ACOs were enrolled in private insurance or Medicaid. Medicare patients accounted for 7.8 million of the individuals in ACOs.

Advanced premium tax credits

Payments from the federal government to help cover the cost of premiums for those buying from the health insurance exchange. Credit amounts are calculated based on the difference between a certain percentage of income (based on the individual's income in relation to the federal poverty level) and the full premium cost for a benchmark plan. Tax credits can be paid directly to insurance companies, or enrollees can choose to claim the total credit when they file their tax returns. Tax credits are available for individuals who earn incomes between 100 percent and 400 percent of the federal poverty level.

Cost-sharing reduction

Cost-sharing reductions are discounts that reduce the amount required to pay for out-of-pocket deductibles, coinsurance and copayments. These types of discounts are available to those who receive insurance through the Health Insurance Marketplace, earn income below 250 percent of the federal poverty level, and have selected a health plan from the Silver plan category.

Health insurance exchange

A health insurance exchange, or marketplace, is another term for a catalog of health insurance plans. Consumers may browse these exchanges online, by phone or in person to find and purchase plans. Under the ACA, states could choose one of three options regarding exchanges: creating and managing the state's own exchange, entering into a partnership with the federal government to manage an exchange, or ceding responsibility of managing an exchange and allowing the federal government to do so for the state.

Consumer Oriented and Operated Plan

Consumer Oriented and Operated Plans, or CO-OPs, are part of a program created by the ACA that create nonprofit and member-controlled insurance plans. These plans offer insurance policies that comply with ACA standards and are intended to increase the variety of plans offered for consumers.

Essential health benefits

The ACA required individual and small group health plans that were offered both on and off the exchanges to cover services that fall into 10 broad benefits categories, called "essential health benefits":

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Rehabilitative and habilitative services and devices
• Prescription drugs
• Mental health and substance use disorder services, including behavioral health treatment
• Laboratory services
• Preventive and wellness services and chronic disease management
• Pediatric services, including oral and vision care

The exact services covered were selected by each state according to the needs of its citizens; the only requirement was that the services covered had to fall into the 10 categories listed above. All insurance plans were required to cover 100 percent of the cost of preventive services, such as screenings, "as long as the service is delivered by a network provider."

Medicaid expansion

The Affordable Care Act provided for the expansion of Medicaid to cover all individuals whose income is 133 percent of the federal poverty level (FPL); however, the law stipulates a way of calculating income that results in a minimum threshold of 138 percent of the FPL.

Medical loss ratio

A medical loss ratio (MLR) is the portion of premium revenue a healthcare insurance company spends on claims, medical care and healthcare quality for its customers. The remaining revenue typically goes toward overhead costs, such as administration, marketing and employee salaries, and profit. The Affordable Care Act (ACA) placed new regulations on insurers' medical loss ratios by limiting the portion of revenue that goes toward overhead and profits: individual and small group insurers must maintain a medical loss ratio of 80 percent, while large group insurers must maintain an MLR of 85 percent. This means 80 or 85 percent of premium revenue must be used to pay customer claims and support improvements in health and healthcare quality, such as wellness promotion programs.

Permanent risk adjustment

A program established by the ACA which redistributes funds from insurers that on average have lower-risk enrollees to those that have higher-risk enrollees. The program requires insurers that sell individual and small group plans (both on and off the exchanges) and have relatively lower risk to make payments to individual and small group insurers with relatively higher risk. The intent of the program is to spread financial risk to prevent market disruption due to the ACA. Unlike the other two stabilization programs (risk corridors and reinsurance), the risk adjustment program is permanent and does not expire.

Qualified health plan

The ACA created requirements a health plan must meet in order to be offered on the new health insurance exchanges. Plans that meet these requirements are called Qualified Health Plans. Such plans must provide essential health benefits and follow all established limits on cost-sharing, such as deductibles or copayments. In order for a plan to be fully qualified, it must be certified by each exchange in which it is sold.

Temporary risk corridors

Under the risk corridor program, insurers that sold individual and small group plans on the insurance exchanges and made fewer claims payments then expected are required to pay half of the excess amount to the federal government. These payments go to individual and small group insurers on the exchanges that paid out more claims than they expected. The program is meant to stabilize premiums and protect "against inaccurate rate-setting by sharing risk." Due to a lack of revenue for the program, the Centers for Medicare and Medicaid Services paid just 12.6 percent of what the law promised insurers for the 2014 benefit year. The agency still owes insurers $2.5 billion, which it hopes to pay out for the 2015 or 2016 benefit years, the final years of the program.

Transitional reinsurance

A program established by the ACA which requires most health insurers, including employers that self-fund health plans, to pay a fee to the federal government based on their enrollment for a plan year, such as 2015. The fee goes toward payments to insurers providing plans on the individual market that cover high-cost individuals. The intent of the program is to prevent premiums from rising too high to cover the cost of these individuals. The program expired in 2016.