How Does Obamacare Work?


Quick Answer

Colloquially known as Obamacare, the Affordable Care Act works by offering discounts, known as tax credits, to buyers purchasing government-sponsored medical insurance plans and by expanding Medicaid to allow those previously unable to afford to pay for healthcare to obtain coverage, explains ABC News. To attain these aims, the act altered certain regulations, such as those governing coverage for individuals with preexisting conditions, making it illegal for insurers to deny coverage to those with already-existing diseases.

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Full Answer

Those living in states that have enrolled in the federal program can purchase plans on Healthcare.gov, while those residing in non-participating jurisdictions can purchase coverage from their state's health care website, reports ABC News. To be eligible for tax credits, the purchasers’ household income must be one to four times the Federal Poverty Level, the measure that the government uses to compute the amount of money needed for such basic needs as housing and food. Buyers can use the tax credits they receive to lower their monthly premiums. Alternatively, they can declare these credits on their annual tax returns to reduce the amount of tax they need to pay.

Obamacare organizes insurance plans into four tiers; bronze, silver, gold and platinum, notes The Motley Fool. Bronze plans cover just 60 percent of medical costs, with plan holders paying the rest. Silver plans pay for 70 percent of the cost, gold plans pay 80 percent, while platinum plans cover 90 percent. Bronze plans boast the lowest monthly premiums, while platinum plans have the highest.

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