What Is the Affordable Care Act and How Does it Work?

FT Contributor
A doctor holding a sign that reads "Affordable Care Act."
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The Affordable Care Act is a comprehensive healthcare reform that was enacted in 2010. Championed by President Barack Obama during his two terms in office, the Affordable Care Act is sometimes also known as Obamacare, the Patient Protection and Affordable Care Act of 2010, and the ACA.

This groundbreaking legislation was the largest and most comprehensive overhaul of the United States healthcare system since Medicare and Medicaid. The ACA reformed the healthcare system by lowering costs for those who struggled to afford healthcare and imposing further regulations on the healthcare industry.

How Does Obamacare Work?

Under the Affordable Care Act, many more people are eligible for health insurance. Before the ACA, most Americans relied on private health insurance supplied by their employer, or government programs for particular segments of the population, such as Medicare and Medicaid. Under the old system, however, many people fell through the cracks and went without healthcare entirely. Many people with chronic conditions or other health issues were also denied coverage, and amassed mountains of medical debt not covered by insurance.

The goal of the Affordable Care Act was to expand healthcare coverage and lower healthcare costs by mandating that everyone buy into healthcare insurance. Because young, relatively healthy people with low healthcare usage and older people with more healthcare needs both paid insurance premiums, the cost of healthcare was spread out across the population.

To ensure that everyone opted into the healthcare system, the Affordable Care Act imposed tax penalties on Americans who remained uninsured. In addition, high-income earners were subject to higher taxes to help finance healthcare for all.

Under ObamaCare, individuals without health insurance can shop for insurance plans on the Health Insurance Marketplace website, also sometimes known as a healthcare exchange. People are free to choose from a variety of different plans according to their healthcare needs and financial situation. Many people are also eligible for a variety of tax credits that can lower the cost of monthly premiums.

Who Qualifies for Obamacare?

Most Americans are eligible to shop for health insurance in the Health Insurance Marketplace under the Affordable Care Act. One of the goals of the Patient Protection and Affordable Care Act was that more people would be able to shop for insurance and choose an affordable plan that met their healthcare needs. During the open enrollment period each year individuals can view different plans and select the option that works best for them.

In addition, some people are eligible for additional subsidies that can reduce their healthcare costs. For 2019, a single person earning between $12,140 and $48,560 was eligible for a premium tax credit. By using these tax credits many Americans are able to save hundreds of dollars a month on health insurance premiums.

Obamacare Requirements

Depending on the type of plan you enroll in and your healthcare needs, the amount you’ll need to pay out of pocket will vary. The actuarial value, or the percentage of total costs that a plan will cover, differs from plan to plan.

In general, the Affordable Care Act attempted to reduce healthcare costs by imposing increased regulations on the healthcare industry and ensuring that all individuals were able to be insured. In addition, the ACA made sure that a variety of different common procedures and services must be covered under any health insurance plan. These essential benefits include:

  • Ambulatory patient services;
  • Emergency services;
  • Hospitalization;
  • Mental health and substance use disorder services;
  • Pregnancy, maternity, and newborn care;
  • Prescription drugs;
  • Rehabilitative and habilitative services;
  • Laboratory services;
  • Preventative and wellness services;
  • Pediatric services;
  • Birth control coverage;
  • Breastfeeding coverage;

Obamacare Pros and Cons

While Obamacare provided benefits to many Americans who were previously un- or under-insured, it was a very controversial piece of legislation. In particular, many Americans resented being forced to purchase insurance or face a tax penalty. In addition, the Affordable Care Act raised taxes on high-income Americans in order to finance healthcare services for more people.

Despite the controversy, however, the ACA succeeded in reducing the growth of healthcare costs, regulating the health insurance industry, and opening up the healthcare marketplace to people who were previously without insurance.

Pros of the Affordable Care Act

One of the main pros of the Affordable Care Act was that is slowed the growth of healthcare spending in the United States. Although healthcare costs continued to grow during and after the Obama presidency, the ACA succeeded in reducing the rate of growth.

The Affordable Care Act also greatly expanded healthcare coverage. Under the ACA, people with pre-existing health conditions are still eligible for health insurance. Children and young adults can also stay on their parents’ health plans until age 26. Individuals who were not insured through work and were previously unable to afford expensive private insurance can now shop for affordable plans on the Health Insurance Marketplace. The ACA also eliminated annual coverage limits, ensuring that those with expensive illnesses or chronic health conditions could get the coverage they needed.

In many cases, the ACA also reduced healthcare costs on an individual level. Under the Affordable Care Act, many middle-class Americans received tax credits to help reduce healthcare costs. The ACA also mandated that certain essential healthcare benefits must be covered by all healthcare plans, including free wellness visits and preventative care.

Cons of the Affordable Care Act

Despite the expanded healthcare coverage the ACA offered to many Americans, it did have some drawbacks. In particular, the Affordable Care Act introduced an insurance mandate that required people to purchase health insurance or face a hefty tax penalty. The ACA also raised the income tax rate, which increased taxes on wealthy, high-income Americans.

Some critics also argue that Obamacare didn’t go far enough, and that the Affordable Care Act was a necessary but ultimately inadequate stepping stone towards universal healthcare.

Americans are still subject to soaring healthcare costs for everything from ambulance rides, to prescription medication, to specialist visits and more. They also experience a subpar quality of medical care despite the regulations introduced by the ACA.

Advocates for programs such as Medicare for All see Obamacare as a step in the right direction, but think that single-payer healthcare will solve many of the issues with the current healthcare system while providing accessible, affordable healthcare coverage to all Americans.

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