ACA market reforms: preexisting conditions, annual and lifetime limits, essential health benefits, and medical loss ratio

Four reforms that changed what a health plan can promise

The Affordable Care Act rewrote the basic rules of the health insurance market. Before it, an insurer could decline to cover a condition you already had, stop paying once your claims hit a dollar cap, and sell a policy that left out whole categories of care. Four reforms close those gaps, and the exam tests each one: preexisting conditions, annual and lifetime limits, essential health benefits, and the medical loss ratio.

1. No preexisting condition exclusions

A preexisting condition exclusion is a policy clause that refuses to pay for a condition that existed before coverage began. Under the ACA, for plan years beginning on or after January 1, 2014, neither a group health plan nor an insurer selling group or individual coverage may impose one. Coverage must also be offered regardless of health status (guaranteed issue), and premiums may not be set by the applicant's health. Rates may vary only by age, tobacco use, geographic area and family size.

For children under 19 this protection started earlier, in 2010. The one major carve-out is a grandfathered individual policy, meaning one purchased on or before March 23, 2010 and not materially changed. It is not bound by the ban. Grandfathered group plans are bound.

2. No lifetime or annual dollar limits

A group health plan or insurer may not put a lifetime dollar limit on benefits. Since 2014 it may not put an annual dollar limit on them either. Before 2014 only "restricted" annual limits were allowed.

The ban protects essential health benefits. A plan may still cap benefits that are not essential health benefits, such as adult dental, where federal and state law allow it. The ban covers dollar limits. Limits on visit counts and cost-sharing such as deductibles are different rules. This ban applies even to grandfathered plans.

3. Essential health benefits

Non-grandfathered individual and small-group plans must cover an essential health benefits package. The statute names at least ten categories:

1. Ambulatory (outpatient) patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Laboratory services
9. Preventive and wellness services and chronic disease management
10. Pediatric services, including oral and vision care

The scope must equal what a typical employer plan covers. Emergency care needs no prior authorization, and out-of-network emergency care costs the same as in-network. A plan may always cover more than the minimum.

The package also limits cost-sharing: deductibles, coinsurance and copayments count toward an annual out-of-pocket maximum. Premiums, balance billing and non-covered services do not count. Plans are sorted into metal levels by actuarial value: bronze 60%, silver 70%, gold 80%, platinum 90%. A catastrophic plan is available only in the individual market, to people under 30 or with a hardship exemption.

Two related reforms sit beside the package. Recommended preventive services must be covered with no cost-sharing. A plan that covers dependent children must keep an adult child on the parent's plan until age 26.

4. Medical loss ratio

The medical loss ratio (MLR) is the share of premium an insurer spends on medical care and activities that improve health-care quality. The rest goes to administration, marketing and profit. The ACA sets minimums:

• 80% in the individual and small-group markets
• 85% in the large-group market

The ratio is measured over a rolling three-year average. An insurer that falls short must pay a rebate to policyholders or to the employer that bought the plan. This is sometimes called the "80/20 rule."

Exam tip: MLR is about how premium dollars are spent. It does not cap what any one person pays.