Affordable Care Act

Overview

On March 23, 2010, President Obama signed into law the Affordable Care Act (ACA), also known as the Patient Protection and Affordable Care Act (PPACA), the “federal health reform,” or Obamacare, a more-than-900-page medical system reform. On March 30, the ACA was amended by the Health Care and Education Reconciliation Act of 2010. 1 The ACA transformed the U.S. individual and small group insurance markets by increasing coverage and affordability, enacting consumer protections, and improving the quality of care and the healthcare system. In 2016, nearly 20 million more individuals had health coverage than before the ACA was passed. 2 Still, state-based exchanges and differences in Medicaid mean that there are wide variations in health coverage depending on where an individual lives, and recent changes in ACA implementation and legislation changes mean that the number of people covered and the coverage they receive may change over time.

Increasing Insurance Coverage and Affordability:

Health insurance exchanges: The ACA mandates the creation of American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges. These state-based, online marketplaces allow individuals and small businesses (up to 100 employees) to:

Find, compare, and enroll in health plans (including Medicaid and CHIP), and
Apply for federal subsidies. 3

States can establish an exchange or leave the responsibility to the U.S. Department of Health and Human Services (HHS).
Exchanges are administered by a government agency or non-profit. 4
Each exchange must have at least two multi-state plan options.
Exchange plans must offer essential health benefits and plain-language reporting. 5

Benefit tiers: The ACA created four benefit tiers of plans to be offered in the exchange as well as individual and small group markets outside of the exchange. The bronze, silver, gold, and platinum plans all provide the essential health benefits, have an out-of-pocket limit equal to the current Health Savings Account (HSA) legal limit, and respectively cover 60%, 70%, 80%, and 90% of benefit costs. 6 Plans with greater benefit coverage tend to have higher premiums, and all plans in the same tier have approximately the same actuarial value, or the percentage of health care costs that a plan is expected to pay based on a standard population. Plans also vary in their deductibles, coinsurance, and copay.

Federal subsidies: The ACA establishes income-based, federal subsidies that individuals covered by an exchange can apply for using a single application. To qualify, individuals must not have access to coverage through their employer and must be ineligible for Medicare, Medicaid, and CHIP. Subsidies include: 7

Premium tax credits to subsidize the monthly cost of insurance. If the cost of the second-lowest cost silver plan available through an individual’s state exchange exceeds the premium cap for their income, the premium tax credit covers the cost beyond the cap and can be applied to a plan in any metal benefit tier. 8

Individuals are eligible if they live in a household with an income between 100% and 400% of the federal poverty line (FPL). 9
The premium cap is 2% of income for households with up to 133% FPL, and rises to 9.5% for those between 300% and 400% FPL. 10

Cost-sharing subsidies to reduce an individual's out-of-pocket costs when receiving services including their deductibles 11, coinsurance 12, and copayments. 13

Individuals are eligible if they live in a household with an income between 100% and 250% 14 and have a silver plan. 15
States have the option of running a subsidized Basic Health Plan for uninsured individuals with incomes between 133% and 200% FPL, making these individuals ineligible for federal subsidies. This plan must meet the essential health benefits and ensure that eligible individuals do not pay more in premiums than they would have through the exchange. It also stipulates income-based cost-sharing requirements. 16

Coverage requirements

Individual coverage requirement: The ACA requires U.S. citizens and legal residents to have health insurance either through the exchange or the market outside the exchange 17, or pay a tax penalty up to $2,085 per family. Exemptions include if the lowest cost plan exceeds 8% of one’s income, if one’s income falls below the tax filing threshold, or in cases of financial hardship. 18

Employer coverage requirement: The ACA requires employers to offer health insurance benefits either through the exchange or the market outside the exchange. 19 Employers with...

More than 200 employees must automatically enroll employees in health insurance plans and allow them to opt out.
At least 50 full-time employees must provide their employees with health benefits. The employer pays a fee if at least one full-time employee receives a premium tax credit. This fee is larger if the employer does not offer coverage.
A maximum of 25 employees, who offer health insurance, receive a tax credit to cover a percentage of the premium they pay. 20

Medicaid and the ACA

Medicaid: The Medicaid program provides health care coverage for individuals with limited income and assets. It is jointly funded by the federal and state governments and focuses on children, pregnant women, parents, the elderly, and people with disabilities. It also covers home health, nursing home, and long-term health care services. Medicaid is administered by states in accordance with federal minimum requirements and states can elect to cover additional groups and benefits, meaning that there is coverage variation between states. 21 For uninsured children who are ineligible for Medicaid 22, the Children’s Health Insurance Program (CHIP)allocates funding to states through the Medicaid program. 23

The ACA effectively subsumed the Medicaid program, expanding the role of the federal government in the program. Impacts included: 24

Requiring states to integrate Medicaid enrollment into the insurance exchanges. 25
Extending eligibility to individuals below age 65 with a family income up to 133% FPL.
- Starting in 2014, states were required to determine eligibility using the Modified Adjusted Gross Income (MAGI), which effectively raises the maximum income level for most Medicaid applicants to 138% FPL.
- Federally financing Medicaid 100% from 2014 to 2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% from 2020 onward, with states making up the difference.
- Mandating that Medicaid’s benefits package meet the essential health benefits.
- Increasing Medicaid payment for primary care physicians.
- Requiring states to create campaigns to educate Medicaid enrollees on coverage for preventive services.26
- Establishing a grant program for states to evaluate using incentives to help Medicaid and CHIP beneficiaries lower blood pressure, cholesterol, and weight, control diabetes, and cease smoking. 27
- Extending CHIP funding through 2015. 28
- Affording tax credits through the exchanges for children who are eligible for but unable to enroll in CHIP due to enrollment caps. 29
- Requiring states to maintain CHIP child eligibility levels through 2019.

Medicaid Coverage Gap

In 2012, The U.S. Supreme Court ruled on the ACA in National Federation of Independent Business (NFIB) v. Sebelius. The case upheld the constitutionality of the ACA’s exchanges and subsidies, the individual requirement, and Medicaid expansion. However, the Court restricted the federal government’s power to withhold Medicaid funds if a state does not institute the expansion, effectively giving states the choice of expanding Medicaid. 30 In states that have not expanded Medicaid, there is a “coverage gap” for more than 2 million poor adults 31 whose income is too high to obtain Medicaid (and who don’t qualify for Medicaid based on disability, family status, or other factors) but below the federal poverty level, which is too low to obtain federal subsidies through the exchanges. 32 For a regular update on which states have adopted the Medicaid expansion for households up to 138% FPL, see Kaiser Family Foundation’s Status of State Action and view the number of individuals newly eligible for enrollment in 2017 due to state expansion. 33

In 2017, 12.7 million of the 17 million people enrolling in Medicaid were newly eligible due to the ACA-related expansion. 34 Research suggests that Medicaid expansion is associated with improved access to and affordability of care, as well as improved utilization of services and financial security among low-income populations. Other studies find that Medicaid expansion can save states money by offsetting other costs, as well as reductions in uncompensated care costs for hospitals and clinics. A growing number of studies reveal an association between expansion and increases in employment and labor market growth. 35

Medicare and the ACA

Medicare: Medicare is a four-part federal insurance program for individuals age 65 or older, individuals under 65 with certain disabilities, and individuals with End-Stage Renal Disease (ESRD). 36

Medicare Part A, or hospital insurance, helps an individual pay for inpatient hospital care, home health care, and hospice.
Medicare Part B, or medical insurance, helps an individual pay for health care provider services, outpatient care, and preventative services.
The Medicare Advantage Plan, previously known as Medicare Part C, includes all benefits and services covered under Parts A and B, prescription drugs, vision, hearing, and dental. 37
As this plan is offered by Medicare-approved private companies, out-of-pocket costs and covered services vary and can change annually. 38
Medicare Part D, or prescription drug coverage, helps cover the cost of prescriptions. 39

The ACA eliminates cost-sharing for preventive services and reduces annual increases in payments to providers. 40 It also reduces the amount enrollees pay for prescriptions once they reach the Medicare Part D coverage gap, or “doughnut hole.” This gap refers to when a beneficiary has reached their annual drug coverage max but not their out-of-pocket limit. 41

Other Provisions

Pre-existing conditions: The ACA prohibits insurance plans from excluding people for pre-existing medical conditions or from discriminating against individuals based on health status 42, and insurers can only vary premiums, within certain parameters, on the basis of age, family size, geography, and tobacco use. Today, 54 million people have a pre-existing medical condition that could have excluded them from coverage before the ACA. 43

Dependent coverage: The ACA requires health plans to extend dependent coverage to an adult dependent, married or unmarried, up to age 26. 44 Under the ACA, about 2.3 million young adults gained coverage. 45

Preventative health: The ACA mandates that health plans provide preventive service coverage without cost-sharing. It also allots funding for disease screenings and immunizations and coordinates a council to address tobacco use, inactivity, and poor nutrition. 46 As of 2019, 87% of individuals (approximately 133 million people) covered under employer-sponsored insurance were enrolled in plans offering free preventive services. 47

Impacts of ACA and Medicaid expansion on coverage

From 2010 to 2016, the number of uninsured nonelderly individuals fell from more than 46.5 million to fewer than 26.7 million. 48
From 2013 to 2016, the rate of uninsured nonelderly individuals dropped annually across all income groups, hitting a historic low of 10% in 2016. 49
- The rate of uninsured individuals dropped 7.4% across states that expanded Medicaid and 5.9% across states that did not. 50
- In 2017, for the first time since the passage of the ACA, the uninsured rate rose to 10.2%, and in 2018, 10.4%. 51
  - From 2016 to 2017, the uninsured population decreased less than 0.1% decrease across states that expanded Medicaid, and increased 0.6% across states that did not. 52
  - In 2018, 45% of uninsured nonelderly individuals reported cost as the reason they were uninsured. 53

Improving the Quality of Care and the Healthcare System:

Essential health benefits package: The ACA creates an essential health benefits (EHB) package establishing parameters that all plans must meet in the exchanges and in individual and small group markets outside the exchanges. Requirements include a limit on annual cost-sharing and coverage of care in 10 categories: 54 (1) emergency services, (2) hospitalization, (3) maternity and newborn care, (4) mental health and substance abuse services, (5) outpatient care, (6) prescription drugs, (7) rehabilitative and habilitative services, (8) lab services, (9) preventive and wellness care and chronic disease management, and (10) pediatric services including vision and dental care. 55 States can impose additional requirements.

Consumer protection: The ACA established a website and a standard for summarizing benefits and coverage to help consumers assess plan options. It prohibits plans from discriminating against individuals on the basis of race, ethnicity, national origin, sex, age, or disability, or from imposing annual or lifetime monetary caps on coverage for essential health benefits. 56 It also establishes state-based rate reviews to ensure there are not unreasonable increases in premiums, and prohibits insurers in the individual, small- and large-group markets from rescinding coverage except in cases of fraud. 57 It also requires private health plans to provide rebates to consumers if the percentage of premiums spent on claims and expenses improving care quality is less than 80% for individual and small group policies, and less than 85% for large group policies. 58

Improving care and delivery and strengthening the workforce: The ACA contains specific provisions to improve the care and delivery of health care services including supporting comparative studies of medical treatments, data collection to address health disparities, and improvements in care coordination between Medicare and Medicaid for patients with dual eligibility. It also includes provisions to strengthen the health workforce including increasing health profession scholarships and loans as well as support for community and school-based health centers. 59

Financing: The ACA is largely financed by tax revenue, including those associated with individual and employer insurance requirements, an increase in the Medicare payroll tax, and new taxes on health insurers and pharmaceutical manufacturers. 60

The Health Care and Education Reconciliation Act: 61

Seven days after the passage of the ACA, the Health Care and Education Reconciliation Act made several significant changes to the act including:

Lowering the penalty for not buying insurance,
Establishing the penalty for employers with at least 50 employees not offering coverage,
Increasing federal subsidies for lower income households,
Increasing Medicaid compensation rates to primary care physicians,
Outlining federal funding for Medicaid expansion
Closing the Medicare Part D “donut hole”
Establishing a Medicare tax for higher-income households
Extending the prohibition of lifetime limits.

Finances: 62

The financial impact of the ACA has been presented in numerous ways including:

In 2010, the Congressional Budget Office (CBO) estimated that the ACA would cost $940 billion (a ten-year estimate for FY2010 to FY2019), and resultantly reduce the national debt by $143 billion. The CBO added up the additional revenue from ACA taxes ($567 billion), the ACA-imposed cost savings ($477 billion), and the estimated savings in Medicaid costs with the planned inception of a long-term care insurance ($40 billion), and subtracted the estimated cost of implementing the ACA as amended by the Health Care and Education Reconciliation Act ($940 billion).
In 2012, the CBO estimated that the ACA would cost $1.76 trillion, an 11-year estimate from FY2012 to FY2021. This is compared to the estimated $940 billion cost for a 10-year estimate beginning two years prior.

Recent Changes

In January, 2017, President Trump issued an executive order instructing government agencies to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose a fiscal burden.” There have been many failed legislative efforts to repeal and replace provisions of the ACA but the Trump administration has successfully made the following changes: 63

Eliminating the individual mandate by reducing the penalty of not having coverage to $0 in 2019 via the 2017 Tax Cuts and Jobs Act (TCJA). 64

Impact- Insurance premiums have risen, according to the director of Georgetown University’s Center on Health Insurance Reforms. 65
Impact- This change undermines the 2012 ruling in NFIB v. Sebelius, which upheld the constitutionality of the individual mandate. In December, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that after zeroing out the penalty for not having coverage, the individual mandate is unconstitutional as it no longer falls under Congress’ taxing power. Currently, 18 U.S. states are seeking to have the entire ACA struck down and 21 states are defending it.

The U.S. Supreme Court will rule in California v. Texas (Texas v. U.S. in the lower courts) in 2020 to determine if Texas and the individual plaintiffs have standing to bring the lawsuit, if the TCJA rendered the individual mandate unconstitutional and, if so, whether the rest of the ACA can remain. Based on the Court’s ruling, the ACA could effectively remain the same, could lose select provisions such as protections for individuals with pre-existing medical conditions and Medicaid expansion, or could be entirely overturned. 66

Enabling states to add a “work requirement” to Medicaid, by requiring that beneficiaries prove that they work or attend school. 67

Impact- Arkansas, the first state to institute a work requirement had more than 18,000 beneficiaries (almost ¼ of those subject to the requirement) lost Medicaid coverage in the first seven months, according to the Center on Budget and Policy Priorities. Additionally, there was no significant increase in employment or hours worked among those subject to the requirement, according to a Harvard study. 68

Ceasing the provision of federal cost-sharing subsidies while insurers in the exchanges are still required to offer federal subsidies to low-income enrollees. 69

Impact- Many insurers increased the premium of the silver plan in the exchanges, according to a senior economist at RAND Corporation. As the silver plan is used to calculate premium tax credits, the federal government ended up paying through this form of subsidy for individuals who qualify. Additionally, as insurers in most states have added the cost of cost-sharing subsidies to silver plan premiums, plans in this tier may have a higher premium than in a higher metal tier.