Key takeaways
- Who buys individual/family health insurance?
- How did the ACA change eligibility for individual and family health insurance?
- Essential health benefits are covered on all individual market plans sold since 2014.
- What financial assistance does the ACA provide for people who buy individual health insurance?
- What else do I need to know about buying individual health insurance?
Who buys individual/family health insurance?
Although most Americans get their medical insurance from an employer or from the government, individual health insurance is designed for people who are self-employed or who do not have access to an employer-sponsored or government health plan.
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Historically, individual insurance in almost all states involved medical underwriting prior to 2014, which meant that securing a policy was often difficult, expensive, or impossible for people with pre-existing conditions.
Most health insurance companies are for-profit entities, and even non-profit carriers cannot operate at a loss. They have to take in more money in premiums than they pay out for medical claims. In the individual market, medical underwriting was traditionally the way they accomplished this in most states. People with pre-existing conditions could be rejected altogether by the insurer, or offered a policy with an increased premium or exclusion riders that eliminated coverage for pre-existing conditions.
How did the ACA change eligibility for individual and family health insurance?
The Affordable Care Act (ACA) made individual health insurance guaranteed issue starting in 2014. This means that medical history is no longer a factor in determining whether an applicant can get a policy, or how much the policy will cost.
Individual health insurance is now issued with modified community rating, which means that premiums are based on geographical area, age, and tobacco use (some states prohibit tobacco rating; New York and Vermont prohibit age rating and Massachusetts has a modified age-rating approach). But increased rates based on medical history are no longer allowed, nor are pre-existing condition exclusion riders. And applicants can no longer be declined for coverage based on a pre-existing condition.
The trade-off is that you can only enroll in individual/family health coverage during the annual open enrollment period or during a special enrollment period (American Indians and Alaska Natives can enroll year-round in individual market plans through the Marketplace). Prior to 2013, people could apply for these plans anytime, but coverage was contingent on medical history. Today, enrollment opportunities are limited with rules that are similar to those that have long been used for employer-sponsored plans (i.e. you can’t just enroll in your employer’s plan anytime you want).
How did the ACA change the coverage provided by individual and family health insurance?
The ACA requires individual and small-group health plans to cover a set of essential health benefits. This applies both on-exchange and also to the major medical plans that insurers sell outside the exchange. Prior to the ACA, most policies sold in the individual major medical market lacked at least some of the services that are now considered essential health benefits.
There is still variation from state to state in terms of exactly what’s covered under each essential health benefit category, as states use benchmark plans (see definition 2) to set those standards and each state has its own benchmark plan. But overall, plans purchased in the individual market are much more robust under the ACA than they were prior to 2014.
And health plans cannot impose any annual or lifetime dollar limits on essential health benefits, which means people no longer have to worry about exceeding a benefit cap and thus running out of benefits.
What financial assistance does the ACA provide for people who buy individual health insurance?
The ACA created income-based premium subsidies and cost-sharing reductions (also known as cost-sharing subsidies). The premium subsidies have been enhanced through at least 2025 under the American Rescue Plan and Inflation Reduction Act. And some states offer additional state-funded subsidies on top of the ACA’s subsidies.
Subsidies are only available if you purchase your coverage through the Marketplace (exchange) in your state. As of early 2023, more than nine out of ten Marketplace enrollees were receiving premium subsidies, and nearly half were receiving cost-sharing reductions.
Subsidy eligibility is based on how your household’s projected income (for the year the coverage will be in effect) compares with the prior year’s federal poverty level. For reference, here are the 2023 poverty level numbers, which will be used to determine subsidy eligibility for 2024 Marketplace health coverage. Cost-sharing subsidies are available if you pick a Silver-level plan and your income isn’t more than 250% of the poverty level. Through 2025, there’s no specific income level that prevents a person from qualifying for premium subsidies; instead, it’s about ensuring that the coverage isn’t more than a certain percentage of your income. Here’s a premium subsidy calculator you can use.
What else do I need to know about buying individual health insurance?
Individual health insurance is available both in and out of the health insurance Marketplace, although no subsidies are available if you shop outside the Marketplace. If you need assistance, you can use a trusted broker, Navigator, or enrollment counselor.
Individual ACA-compliant plans are rated with “metal” designations, which helps consumers compare apples to apples. There is plenty of variation from one carrier to another, both in terms of plan design and price. But policies are labeled based on their actuarial value, or the percentage of costs that the plan covers across an average population.
Bronze plans will cover roughly 60% of costs, Silver plans 70% (more if you qualify for cost-sharing reductions), Gold plans 80%, and Platinum plans 90% (note that Platinum plans are not available in many areas for individual market applicants, although they do tend to be more widely available in the small group market). For people under age 30 or those with hardship exemptions, catastrophic plans are also available. Premium subsidies are not available to offset the cost of catastrophic plans however, so only a very small percentage of enrollees select them.
All plans are subject to in-network out-of-pocket maximums which cannot exceed $9,100 for an individual or $18,200 for a family in 2023 (these maximum out-of-pocket limits are indexed annually by HHS; they will be $9,450 and $18,900, respectively, in 2024). Plans can have lower maximum out-of-pocket limits, but no ACA-compliant plan can be sold with higher out-of-pocket limits (grandfathered and grandmothered plans that are still in force can have higher out-of-pocket limits, but those plans can no longer be purchased by new enrollees).
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.
