The Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA) or colloquially Obamacare, is a United States federal statute signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act amendment, it represents the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.
The ACA was enacted to increase the quality and affordability of health insurance, lower the uninsured rate by expanding public and private insurance coverage, and reduce the costs of healthcare for individuals and the government. It introduced mechanisms like mandates, subsidies, and insurance exchanges. The law requires insurance companies to cover all applicants within new minimum standards and offer the same rates regardless of pre-existing conditions or sex. In 2011 the Congressional Budget Office projected that the ACA would lower both future deficits and Medicare spending.
On June 28, 2012, the United States Supreme Court upheld the constitutionality of the ACA’s individual mandate as an exercise of Congress’s taxing power in the case National Federation of Independent Business v. Sebelius. However, the Court held that states cannot be forced to participate in the ACA’s Medicaid expansion under penalty of losing their current Medicaid funding. Since the ruling, the law and its implementation have continued to face challenges in Congress and federal courts, and from some state governments, conservative advocacy groups, labor unions, and small business organizations. On June 25, 2015, in the case King v. Burwell, the Supreme Court affirmed that the law’s federal subsidies to help individuals pay for health insurance are available in all states, not just in those which have set up state exchanges
The Affordable Care Act (ACA) or Obamacare, includes numerous provisions that took effect between 2010 and 2020. Policies issued before 2010 are exempted by a grandfather clause from many of the changes to insurance standards, but they were affected by other provisions. Significant reforms, most of which took effect on January 1, 2014, include:
- Guaranteed issue prohibits insurers from denying coverage to individuals due to pre-existing conditions, and a partial community rating requires insurers to offer the same premium price to all applicants of the same age and geographical location without regard to gender or most pre-existing conditions (excluding tobacco use).
- Minimum standards for health insurance policies are established.
- An individual mandate requires all individuals not covered by an employer sponsored health plan, Medicaid, Medicare or other public insurance programs (such as Tricare) to secure an approved private-insurance policy or pay a penalty, unless the applicable individual has a financial hardship or is a member of a recognized religious sect exempted by the Internal Revenue Service. The law includes subsidies to help people with low incomes comply with the mandate.
- Businesses which employ 50 or more people but do not offer health insurance to their full-time employees will pay a tax penalty if the government has subsidized a full-time employee’s healthcare through tax deductions or other means. This is commonly known as the employer mandate. In July 2013, the Internal Revenue Service delayed enforcement of this provision for one year.
- Health insurance exchanges operate as a new avenue by which individuals and small businesses in every state can compare policies and buy insurance (with a government subsidy if eligible).
- Low-income individuals and families whose incomes are between 100% and 400% of the federal poverty level will receive federal subsidies on a sliding scale if they purchase insurance via an exchange. Section 1401(36B) of PPACA explains that each subsidy will be provided as an advanceable, refundable tax credit and gives a formula for its calculation. The formula was changed in the amendments (HR 4872) passed March 23, 2010, in section 1001. In 2015, the subsidy would apply for incomes up to $46,680 for an individual or $95,400 for a family of four; consumers can choose to receive their tax credits in advance, and the exchange will send the money directly to the insurer every month. Small businesses will be eligible for subsidies.
- Medicaid eligibility expanded to include individuals and families with incomes up to 133% of the federal poverty level, including adults without disabilities and without dependent children. The law also provides for a 5% “income disregard”, making the effective income eligibility limit for Medicaid 138% of the poverty level. Furthermore, the State Children’s Health Insurance Program (CHIP) enrollment process is simplified. However, in National Federation of Independent Business v. Sebelius, the Supreme Court ruled that states may opt out of the Medicaid expansion, and several have done so.
- Reforms to the Medicare payment system are meant to promote greater efficiency in the healthcare delivery system by restructuring Medicare reimbursements from fee-for-service to bundled payments. Under the new payment system, a single payment is paid to a hospital and a physician group for a defined episode of care (such as a hip replacement) rather than individual payments to individual service providers. In addition, the Medicare Part D coverage gap (commonly called the “donut hole”) will shrink incrementally, closing completely by January 1, 2020.