How Obamacare changed group health insurance

Nearly half of all Americans had employer-sponsored health insurance, otherwise known as group health insurance, as of 2022.¹ It’s by far the largest single segment of insurance coverage in the country, covering more than 164 million people, including employees and their dependents.² Group health insurance is popular for a variety of reasons:

Costs

First, the employer typically takes responsibility for a significant portion of the health care expenses. A recent Kaiser Family Foundation survey of employers found that in 2023, premiums for employer-sponsored health insurance averaged $23,968 for a year for family coverage. But employees paid only a little more than a quarter of that – or about $6,575 – from their paychecks. The employers covered nearly 73% of total family health insurance premiums.³

And the premiums – including the portion paid by the employer and the portion paid by the employee – are paid with pre-tax funds, so they’re not counted as taxable compensation. This is a significant benefit to group health insurance, and contrasts sharply with the tax deductibility of individual health insurance (the kind you buy on your own), which depends on various factors, including whether you’re self-employed and how much you spend in total medical costs during the year.

Ease of enrollment

While cost is appealing, enrollment in group health plans is also relatively easy. When you’re hired, at the end of your initial waiting period – or during the annual open enrollment period your employer offers – you’ll be given information about the plan or plans available to you, and instructions on how to enroll (assuming you’re eligible for your employer’s plan).

The process is generally straightforward, although if your employer offers multiple plan choices, it can be challenging to determine which one will give you the best value.

How has Obamacare changed group health insurance?

The group health insurance market is composed of small groups and large groups. Under the Affordable Care Act, different regulations apply to each segment. In all but four states, “small group” means no more than 50 employees, while large group is anything more than that. But in California, Colorado, New York, and Vermont, “small group” means up to 100 employees. (Colorado will transition to a small group limit of 50 employees starting in 2026, with a transition period during which groups of 51-100 employees can remain in the small group market.⁴)

Small-group health plans have been guaranteed issue under HIPAA since the 1990s, meaning that insurance companies could not decline an employer’s application for coverage, regardless of the group’s medical history or type of business. And as of 2012, there were 14 states that allowed self-employed individuals to be considered a “group of one” to be eligible for guaranteed-issue small-group coverage.

But HIPAA did not prohibit insurers from adjusting premiums based on the group’s medical history or industry type. And although 12 states had implemented some degree of community rating in their small-group markets by 2012, most states just used rating bands, which meant that small groups with pre-existing medical conditions or high-risk jobs could be charged premiums that were a pre-determined percentage higher than the standard rates.

The ACA — otherwise known as Obamacare — changed all that. Small-group premiums can only vary based on age (with a maximum 3:1 ratio for older adults compared with younger adults), family size, geographical location, and tobacco use. These same rules apply in the individual market.

All new small-group plans must also cover the ACA’s essential health benefits, and must conform to metal level classifications based on actuarial value. Out-of-pocket costs for in-network care in 2024 must be capped at no more than $9,450 for an individual employee ($18,900 for family coverage), and young adults must be allowed to remain on a parent’s policy until age 26.

In the large-group market, the ACA’s reforms are less pronounced, but there have been some important changes. Out-of-pocket costs must be capped, just as they are in the small-group market, and the requirement that young adults be allowed to remain on a parent’s policy until age 26 also applies in the large-group market.

And insurers can no longer impose minimum-participation requirements for large groups, which used to be an obstacle for some employers. If a large employer applies for coverage, the insurer must accept their application. But large employers are also more likely to self-insure: Among covered employees working for employers with 200 or more employees, 83% were in self-insured plans in 2023.³

Under the ACA, all employers with 50 or more full-time equivalent employees are required to offer affordable health insurance that provides minimum value to their full-time (30+ hours per week) employees. The vast majority of large employers already offered coverage before the ACA, but the ACA imposes a tax penalty on large employers who don’t offer coverage if they have employees who end up getting subsidized coverage in the exchange instead. And the law includes more regulations in terms of how much employees can be required to pay for their coverage, and how robust the coverage must be (in other words, the affordability and minimum value standards, which didn’t exist before the ACA).

There is no requirement under the ACA for small employers (fewer than 50 full-time equivalent employees) to offer health insurance. Many choose to do so to have a competitive benefits package, but the ACA does not penalize them if they choose not to offer coverage.

If an employer of any size offers health coverage, the waiting period before new employees become eligible for the coverage can’t be more than 90 days.⁵ Employers can choose to offer coverage sooner than that, but cannot make new hires — who would otherwise be eligible for the group’s health plan — wait more than 90 days for their coverage to start.⁶

To be enrolled or not to be enrolled

You’re not required to accept the health insurance that your employer offers. But if you’re eligible for coverage from your employer and decline it, you will likely be ineligible for subsidies in the exchange if you opt to buy your own health insurance instead. Here’s more about how that works, but the short story is that if the plan your employer offers is considered affordable and offers minimum value under the ACA’s guidelines, you’re not eligible for subsidies in the Marketplace/exchange.

Fortunately, the IRS fixed the ACA’s family glitch starting in 2023. So some workers will now find that although their own employer-sponsored coverage is affordable, their family may qualify for Marketplace subsidies if the employer’s offer of coverage for the whole family isn’t considered affordable.

What happens if you lose your job?

Before the ACA, COBRA was often the only realistic choice for employees who left their job and had pre-existing health conditions. The Congressional Omnibus Budget Reconciliation Act of 1985 allows ex-workers and dependents to continue to purchase health coverage through the employer-sponsored plan for a defined period (usually 18 months, but 36 months of coverage is available in some circumstances) after they leave their employers.

For employees who didn’t have pre-existing conditions, the individual market was generally the logical place to turn when they no longer had access to a group plan, as individual health insurance was much less expensive than COBRA in most states. That was because nearly every state allowed medical underwriting to be used in the individual market, which meant that only relatively healthy people could obtain coverage.

But the ACA changed all that. All individual-market plans issued since January 2014 are guaranteed issue, and rates can only be adjusted based on age (with a 3:1 ratio for adults), family size, geographical area, and tobacco use. Pre-existing conditions are no longer an obstacle to enrollment in the individual market. And although individual market coverage is limited to set enrollment periods, loss of other coverage counts as a qualifying event that triggers a special enrollment period, regardless of when it happens during the year.

Furthermore, the ACA also provides income-based subsidies to keep premiums affordable (these subsidies have been made more robust from 2021 through 2025, under the American Rescue Plan and Inflation Reduction Act), and cost-sharing subsidies to reduce the burden of out-of-pocket costs for those with income up to 250% of the poverty level.

Although COBRA is still around, it’s not as essential as it was before the ACA. It’s still certainly valued by former employees who need to keep their previous provider network, for example, but it no longer has to be the default option for people who have pre-existing conditions. And COBRA has to be fully funded by the ex-employee, whereas the ACA’s premium subsidies offset a significant portion of individual market premiums for 93% of the people who had Marketplace coverage in early 2024.⁷

In short, the ACA has opened up the entire individual market for all applicants, regardless of their medical history. It has reduced “job lock” by allowing people to strike out on their own as entrepreneurs without worrying about where they’re going to get health insurance. And for most Marketplace enrollees, premium subsidies make the coverage much more affordable than it would otherwise be.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.

1. ”Health Insurance Coverage of the Total Population” KFF.org. Accessed Aug. 12, 2024 ⤶
2. ”Employer-Sponsored Health Insurance 101” KFF.org. May 28, 2024 ⤶
3. ”Employer Health Benefits, 2023 Annual Survey” KFF. Oct. 18, 2023. ⤶ ⤶
4. ”Colorado SB73” BillTrack50. Enacted May 1, 2024 ⤶
5. ”Affordable Care Act Implementation FAQs – Set 16” Centers for Medicare & Medicaid Services. Accessed Aug. 12, 2024 ⤶
6. ”Why Employers Should Rethink the 90-Day Waiting Period for Group Health Insurance” Schulte Insurance Agency. Feb. 17, 2024 ⤶
7. ”Effectuated Enrollment: Early 2024 Snapshot and Full Year 2023 Average” CMS.gov, July 2, 2024 ⤶